CASHING IN ON DEBTS
Tokenised blockchain platform Reditus is enabling everyday investors to access the lucrative receivables market.
Whether it is from credit cards, insurance payments, mortgages, car payments, medical bills or student loans, debts have undeniably become a part of our daily lives. But with a growing credit culture comes bad debts – a repayment issue banks are all too familiar with. In 2018, global debt reached a record high, climbing to US$247 trillion in the first quarter. The latest statistic from The Global Economy also stated that a worldwide average of 7.21% of bank loans are non-performing loans (NPLs), loans that are considered in default or close to default.
While debt may sound negative, any seasoned investor would know it has long been a route of profit for bigger players. Now, with the help of tokenised blockchain platform Reditus, everyday investors can finally have the opportunity to cash in on the receivables market. Designed to ensure both transparency and convenience, Reditus aims to digitise receivable transactions and collection with groundbreaking efficiency.
Investing In NPLs
Banks that hold NPLs have the option of selling them to outside investors at a reduced rate in order to recover some of the principal and manage their financial soundness. Investors or fund managers who buy these become the new creditors, thus using NPLs as an investment instrument that can achieve relatively stable returns depending on the collection efforts and collateral process.
However, acquiring NPLs is no simple task. Legal processes are lengthy and large investment sums are usually required to access NPL fund instruments launched by asset management companies. Finally, there is always the risk of financial losses due to unexpected delays in the collection process. To remedy these challenges, Reditus aims to disintermediate the current process, creating a more conducive environment that will allow more investors to partake in this lucrative sphere.
Gateway To Receivables Investment
Reditus is the brainchild of founder Gilmo Jung, a serial entrepreneur with over 20 years of fintech experience and founder of established debt collection agency, Seven TechNet Finance Co Ltd. The platform was launched to resolve the current inefficiencies plaguing the traditional industry, including high debt collection fees and dependence on human interaction, by providing an end-to-end, blockchain powered automated process.
This is achieved by letting creditors tokenise their receivables by registering them on the Reditus Receivables Management System (RMS). Once registered, the RMS converts the receivables into a uniquely represented Reditus RED Token (REDT), whose value corresponds to that of the receivables. REDT tokens can be easily traded on the RMS platform, providing cashing opportunities for unredeemed and pre-maturity receivables. As with the traditional industry, third-party credit rating services will be engaged to review these tokenised debts and rate them accordingly, providing additional data to aid investors in their decision-making.
Notably, the Reditus RMS is a dual token system. The platform also issues IT Coin (ITCO), a utility token used for registration and access to the system. Investors who already own ITCOs can convert them into REDTs, allowing them to purchase debt agreements with ease. Some US$100 million worth of bonds have already been secured for tokenisation on the platform to date.
Figure 1 illustrates how RED Tokens (REDT) and IT Coins (ITCO) will be used in the Reditus ecosystem.
Managing P2P Credit Deals
Another attribute of the innovative platform is the ability to formalise receivables arising from personal loans or peer-to-peer (P2P) lending. Based on payment and settlement statistics data from the Bank of Korea, it is estimated that close to 500,000 interpersonal transactions happen annually, amounting to a staggering 1,400 trillion KRW (US$1.2 billion) of interpersonal money transactions. According to a report by Research and Markets, the global P2P lending market is projected to reach US$460 billion by 2022.
P2P lending allows individuals to borrow or lend money without a financial institution acting as an intermediary. In the case of friends, the loan is given out on the basis of trust, usually with no formal documentation. This form of lending often results in debtors defaulting on the loan or not paying it back on time.
By utilising blockchain-powered smart contract technology, Reditus now allows individuals to conveniently formalise, manage and trade their P2P loans. They can simply register their cash loans on Reditus, after which the platform will issue a registration agreement to the borrower and REDTs to the creditor. The platform then manages the debt redemption process and if recovery takes longer than expected, the creditor can trade his or her REDTs on the platform in exchange for cash.
The value that Reditus offers to everyday investors has not gone unnoticed, with the company already completing its minimum viable product (MVP) before any funds were raised. The platform’s cutting-edge blockchain technology is poised to foster greater liquidation of loans, as well as easier trading and managing of bonds. Backed by a strong technical team and clear vision, the company is well on its way to becoming a game-changer in the industry.
This article was first printed on MillionaireAsia Issue 51 - Mar 2019