It is common knowledge that loans are one of the primary functions and revenue generators for most banks. They make money from the interest they charge on loans because the interest is higher than the interest they pay on the depositors' accounts.
Banks have very stringent protocols for assessing risk and the creditworthiness of a borrower, which often translates to a smaller pool of borrowers that can access a bank loan, which led to the popularization of social lending (P2P) platforms that fall outside the parameters of a bank.
Social lending platforms match investors with companies or individuals seeking to borrow. But they avoid the credit risks, balance sheet limits and capital rules that weigh on banks.
But social lending platforms shrinking in numbers, but maturing fast
In 2018, the online social lending platforms are going through consolidation, with many platforms failing and gone out of business. In China, there are 42 percent fewer platforms online now than there were in November 2015.
Some platforms have thrived. In the US, GreenSky was valued in recent fundraising at $4.5 billion. In Asia, Lufax, the social lending arm of insurer Ping An, is already valued at a vast $18.5 billion and UK-based Funding Circle was valued at more than $1bn in private fundraising last year.
So why does ITMF want to compete in the industry?
The benefits of creating a social lending platform may not appear obvious at first sight. It is after all- a direct competitor to bank loans, and ITMF wants to transform into a bank.
One reason why running a social lending platform in tandem with ITMF lending is that it gives ITMF access to multiple sources of revenue from the lending industry, providing or servicing loans to all types of lenders and borrows with different or varying creditworthiness and risk-reward levels.
But the real keyword here is data. The reason why banks are successful in generating income through loans is that they can structure their finance and make risk assessments from the wealth of data that they already have through decades of experience.
ITMF is not a bank, not yet. Social lending platforms allow for a wealth of data from lender to borrower, creditworthiness and loan type that can be analyzed and integrated into ITMF's lending protocols without having to put up the loan.
In doing so, ITMF is taking the smart and risk-averse approach to gaining an invaluable resource to successful lending, issuing loans and earning interest only on proven data that gives the best chance of a profitable return, which ultimately serves a pivotal role in transforming ITMF into a fully fledged bank.