Crypto Lenders Offer Much Higher Returns Than Banks

Updated on :June 14, 2024
By :Lisa Brian

Banking involves numerous sensitive and complicated processes, transactions, and operations. Loan servicing or loan origination is one of the most significant functions in banking, involving a whole range of intricate processes. Manual banking and loan management operations are prone to unaffordable human errors for any financial institution. Software and technology play a remarkable role in automating banking and loan operations to improve overall process efficiency and performance. Loan origination software enables lenders to streamline, automate, and control various aspects of loan management from application to repayment.

Crypto lending is another excellent innovation rapidly transforming banking and lending functions worldwide. It offers banking, lending, borrowing, and many more financial services on cryptocurrency-based platforms. Let’s understand how crypto lending is the future of loan management and why it is making headlines worldwide.

The News:

  • By the end of 2022, the number of global crypto owners is predicted to cross 1 billion.
  • The number of payments made via crypto in 2022 will surpass USD 10 billion globally.
  • The global loan origination software market will reach USD 6.2 million by the end of 2026.
  • The global blockchain industry will reach $28 billion by 2025.
  • Crypto lending/borrowing is the largest single segment of decentralized finance (DeFi).
  • BlockFi, a popular crypto lending platform, offers borrowers a 4.5 percent annual percentage rate (APR) on long-term loans.
  • Crypto lenders offer much higher returns than banks.
  • Celsius offers a very high annual percentage yield (APY) of up to 17%, paid weekly to lenders for crypto lendingon the Celsius network; it offers the highest rate of 18% on Synthetix (coin).

How did we get here?

#1. Challenges With Traditional Loan Origination

There are numerous challenges involved in the traditional manual loan origination process for both the lenders and borrowers, including:

Challenges for Lenders

  • Loan origination processes involve in-depth documentation and require enhanced document management for data safety and quick access.
  • Manual loan origination is prone to human errors, resulting in complexities and rework.
  • Loan processes consume significant time, effort, and resources when done manually.
  • Lenders must maintain continuous communication with the borrower during various stages of the loan process, but this is difficult for both the lender and the borrower.
  • Manual loan origination processes lack transparency, affecting overall operational performance.
  • Compliance management is a significant challenge in manual loan origination due to errors, lack of transparency, and poor data management.
  • In manual verification, lenders spend excessive time verifying borrowers’ financial history and risk assessment; however, they still fail to get reliable and in-depth information about the borrower, raising the possibility of fraud.
  • Loan origination processes commonly suffer due to a lack of collaboration between various departments, leading to reduced operational efficiency.
  • Due to poor communication, visibility, and database access, lenders fail to offer good customer service and face customer/borrower complaints and loss of reputation.

Challenges for Borrowers

  • Loan origination processes are lengthy and consume excessive time from application to approval and reimbursement, defeating the borrowers’ entire purpose of seeking the loan in urgent need.
  • Lenders repeatedly seek information and documents from borrowers at various stages of the loan process, which stresses the borrowers.
  • In manual loan processing, there is no proper way of tracking loan application status, causing extreme frustration to the borrowers.
  • There is no reliable communication channel where borrowers can seek clear answers to their numerous queries and doubts from lenders.

Such challenges consume excessive time and resources, increasing the costs at various stages of loan origination. Lenders can leverage software and technology to automate processes, improve performance, conserve resources, save time, reduce costs, and offer enhanced services to borrowers.

#2. Crypto Lending - A Global Revolution in Banking and Loan Management

Crypto lending is a remarkable innovation envisioned to transform banking operations, lending, borrowing, and more. Crypto lending eliminates numerous challenges for all parties involved in traditional banking and loan operations. Here are the benefits of crypto lending over traditional banking and loan management.

Enhanced Convenience

Traditional banking is time-consuming and full of hassles. Most traditional banking processes, including loan origination, are lengthy and require the users to visit the banks multiple times. Moreover, they seek lots of information and have complex verification procedures.

Crypto lending offers enhanced convenience compared to traditional banking, as crypto lending is fully digital and automated. Crypto lending users require no physical bank accounts. There are no complex manual processes and paperwork involved. Besides, there is no need for users to visit the banks physically. Thus, crypto lending offers ease and makes loans more accessible to users with much less procedural hassles.

Elimination of Geographic Constraints

Typically, for all banking needs, people choose the banks near their homes or workplaces, at locations that are most easily approachable. As traditional banking requires its users to visit the banks for most processes, they must choose the bank branches located nearby geographically or are conveniently accessible, leaving them with a limited choice of banks. If they are not satisfied with the services of such banks, they cannot switch over easily to other banks with better reviews but at far-off locations.

As crypto lending is digital, requiring no physical presence, it eliminates geographical limitations. Users can choose between crypto lenders without worrying about location constraints and inconvenience.

Quicker Processes

In traditional banking and loan processes, users cannot access and utilize the funds during urgent needs and get frustrated due to lengthy procedures. Particularly while seeking loans, the borrowers are forced to wait for days or months from application till final loan reimbursement. When the need is extremely urgent, such delays often defeat the purpose of seeking the loan.

Crypto lending ensures quicker processes through digitalization, automation, elimination of manual errors, and lesser verification constraints. It helps lenders save significant time in all stages, from application to approval, ensuring enhanced overall operational efficiency. Thus, with crypto lending, borrowers in urgent need of loans can expect much faster loan processing and reimbursement depending on the lending platform.

Greater Transparency and Flexibility

Crypto lending enables all processes in digital mode, ensuring enhanced transparency in operations where transactions are comprehensively recorded and can be easily accessed when needed. It ensures greater transparency and flexibility throughout the loan origination lifecycle for both the parties involved, the lenders and the borrowers. It allows users or borrowers to track the loan processing status. Besides, as no geographical boundaries or constraints are involved, borrowers can choose the crypto lenders that offer the best deals.

Additionally, as the procedures are much more convenient in digital mode, crypto lenders offer more flexible loan terms and highly customizable plans to match the specific needs of borrowers, for example, choice of currency and flexible loan repayment options like repayments at regular intervals or entirely in one go after a predefined term.

Better Interest Rates and Low Fees

In banking, interest rates and procedural fees/charges are significant concerns for every user. It is especially true for loans where the borrower is already in need of funds and faces extreme pressure of not just repayment of the principal amount but processing fees and interest rates that broadly impact his total repayment burden.

Crypto lenders offer depositors much higher returns than banks. Besides, as discussed, they offer greater flexibility and customization on loans, enabling users to choose the best interest rates to fit within the borrowers’ budgets. Furthermore, with reduced complexities and enhanced procedural efficiency, crypto lenders witness much reduced procedural costs than traditional banking and charge much lower processing fees for various transactions and loans.

No Credit Checks

In traditional banking, when a borrower seeks a loan, the lender performs a detailed check of the borrower’s financial history, called a credit check. It thus enables the lender complete access to the borrower’s loans, repayment history, credit score, risk points, and more. Moreover, the loan amount approvals also depend on credit checks.

Crypto lending typically involves no credit checks, provided other requirements are met. It requires borrowers to just provide collaterals in the form of the borrowers’ cryptocurrency holdings. When these holdings lose value, the lenders must provide additional collateral to keep their loans going. As there are no credit checks, crypto loans do not impact the borrower’s credit scores either. Thus, even borrowers with a poor credit history can easily avail of crypto loans. Besides, crypto loans thus enable higher loan capacity for such borrowers compared to traditional banking.

Choice of Currency

Crypto lenders enable a choice of cryptocurrency to borrowers seeking crypto loans. They offer varied interest rates for different currencies; thus, borrowers get to choose the currency based on their budget too. Moreover, not just cryptocurrency, some crypto lenders also allow borrowers to get paid in fiat currency as per the borrowers’ requirements.


Safety is a critical concern for every customer/user while dealing with banks. Like any other manual process, traditional banking is also at risk of manual errors and fraud. Crypto lending, as discussed, enhances accuracy and safety by eliminating human errors.

Moreover, in crypto lending, the processes are all automated and digital, and the records are immutable and backed by blockchain. Thus, crypto lending offers enhanced security. It is also possible to track and check all transaction records on the crypto lending platform.

#3. Risks of Crypto Lending

Though there are many benefits of crypto lending, it is crucial to understand that it also has some risks involved, including:

  • Crypto lending is unregulated. Traditional banks offer security for deposits upto a specific limit if the bank undergoes solvency, depending on each country’s regulations. However, when a crypto lending platform undergoes solvency, the users can lose their precious assets in deposits as there is no such regulatory authority, and deposit amounts are not even partly secured.
  • Crypto lending leverages cryptocurrency, which is highly volatile and changes value rapidly. Thus, when the cryptocurrency loses value, a margin call occurs. Then the borrower must deposit more collateral to balance the value change or face liquidation (immediate repayment) of the loan.
  • Crypto lending is based on collateral. The borrowers pledge their cryptocurrency holdings as collateral to get crypto loans. For as long as the loan is not paid off in full, these holdings are not available or accessible to the borrower for use.

What’s Next?

Loan management is a pivotal financial function and the base for all financial functions. Banks deposit customers’ money, lend it to borrowers, earn interest, and use this income from loans to pay interest to their customers. Every involved party is either a lender, borrower, or both. Thus, enhanced loan management is critical for financial institutions.

Adopting software and technology in loan management has amazingly revolutionized lending and borrowing, making it convenient, efficient, and more profitable for all stakeholders. Crypto lending, or cryptocurrency-enabled banking and loan management, is a new gem in the crown and is all set to change how people lend and borrow. It has numerous advantages, as discussed above, for both lenders and borrowers. To offer the utmost convenience to customers, stay ahead of the competition, and steadily grow, financial institutions must embrace crypto lending as the future of banking and loan management.

If you are looking for automation of various financial operations, explore the GoodFirms list of top banking software, financial planning software, accounting software, loan servicing software, and more.

Lisa Brian
Lisa Brian

Lisa Brian is an Engineering graduate and a content writer with GoodFirms. She has 5+ years of experience in content writing and marketing. A tech enthusiast, Lisa loves to write about cutting-edge technologies and emerging trends in the software industry.

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