FinTech Credit Using CBDC: Transformation of Lending Market

1.1 FinTech Credit

FinTech credit is an innovative financing solution that uses technology to automate the loan origination process, assess creditworthiness, and provide access to credit. According to a study by the World Bank, FinTech credit can improve access to credit for borrowers who are excluded from the traditional banking system (Qian et al., 2017). FinTech credit platforms use alternative data sources and algorithms to assess creditworthiness, reducing the reliance on traditional credit scores and collateral. This enables borrowers who would have been rejected by traditional lenders to access credit (Yao et al., 2018).

FinTech credit has disrupted traditional lending practices, providing new channels of financing for borrowers. FinTech credit platforms offer loans at lower rates than traditional lenders by reducing the cost of originating and servicing loans using technology. This has increased access to credit for borrowers, especially for small and medium-sized enterprises (SMEs) that were previously underserved by traditional lenders (De Nicolò et al., 2019).

1.2 CBDC

CBDC is a digital form of fiat currency issued by the central bank, which can be used as a means of payment and store of value. CBDC has the potential to transform the financial industry by improving the efficiency and security of payment systems, enhancing financial inclusion, and providing new tools for monetary policy. According to a study by the Bank for International Settlements (BIS), CBDC can enhance the efficiency and safety of payment systems, reduce transaction costs, and improve financial inclusion (BIS, 2020).

CBDC can also provide a new channel of financing for borrowers. CBDC can be used as collateral for loans, reducing the reliance on traditional collateral such as real estate and inventory. This can enable borrowers to access credit without having to provide traditional collateral, increasing access to credit (Rosenberg et al., 2018). CBDC can also reduce the risk of default and enable borrowers to access credit at lower rates, as it provides a more secure form of collateral than traditional collateral (BIS, 2020).

1.3 The Process of FinTech Credit Using CBDC

• a.

  Customer applies for FinTech credit using a digital platform.

• b.

  The FinTech platform verifies the customer’s identity and creditworthiness.

• c.

  The platform sends the customer's information to the lender.

• d.

  The lender evaluates the customer’s information and decides whether to approve the loan.

• e.

  If the loan is approved, the lender disburses the loan amount to the customer’s digital wallet in the form of CBDC.

• f.

  The customer can use the CBDC to make payments or transfer the funds to their bank account.

• g.

  The customer repays the loan, which is automatically deducted from their digital wallet.

• h.

  The lender receives the repayment and updates the customer’s credit score.