Money lending has always been a common practice for people in all countries of the world, regardless of their social status. There have been big changes in the industry over the past few years, with so-called P2P loans coming into play and quickly gaining consumer trust, and for good reason. In this article, we will look at why people choose peer-to-peer lending and what features are important for secure loan management software.
Why do SMEs and Individuals Choose P2P Loans?
P2P lending is the process of transferring money from a private investor to a borrower through an online service. This service is a P2P platform, an intermediary that sets the rules for participants. The highlight of transactions on the platform is the ease of filling out a loan application and saving time for participants. Borrowers do not need to go to the office and wait for every bank employee to give approval. Let’s look at other reasons why SMEs and individuals choose this type of lending.
Banks are Narrowing Their Funding for SMEs.
Regulatory restrictions, as well as specific requirements of banks, make the business of lending to small businesses unprofitable (which, in the context of negative rates in Europe and near-zero rates in the US, does not fully meet the interests of credit institutions). Under these conditions, P2P platforms and other forms of alternative finance become excellent solutions for borrowers.
The Flexibility of Financing Models.
Traditional forms of bank financing can be described as inflexible: especially in the situation of exhausting the borrowing limit and overdraft when a large order is received. When using an alternative P2P solution, borrowers have flexibility in choosing the type of financing and methods of loan repayment.
Individual Approach to Clients.
Most financial institutions lend under a versatile model that does not work for many businesses. On the contrary, alternative financing solutions are usually completely individual, funds can be used to implement any ideas.
P2P financing offers a more personalized way to model a borrowing transaction than some of the more traditional types of business financing. Lending is carried out in accordance with the unique profile of the business, including the sector in which the business operates, the company’s turnover, and the most important business objectives.
Alternative financing, in particular peer-to-peer lending, can improve the profitability of a business by eliminating financial intermediaries. This reason is usually the key one when choosing between classic lending and P2P lending.
Why You Should Launch a P2P-lending Platform
To understand whether it makes sense to launch a P2P-lending platform, it is worth considering what benefits this solution brings for each participant.
Benefits for Investors:
- For investors, this type of lending is attractive because of the opportunity to get a relatively high yield. Peer-to-peer lending platforms provide greater returns than traditional solutions such as savings accounts and other investment methods.
- Convenient portfolio diversification. Modern P2P-lending platforms allow investors to easily distribute their funds between different investments. This reduces the risk of losing money. For example, an investor may invest $10,000 in different projects. Thus, in the case of non-repayment of loans, investors will lose only a small part of the money, and on the rest, they will make a profit and earn more than they invested.
Advantages for Borrowers:
- Interest rates and fixed payments. Competitive interest rates are almost the main advantage of using P2P lending platforms for borrowers. So, if the borrower’s project meets the specific requirements of the investor, then he is more likely to receive lower interest rates from this investor than from the bank.
- Availability. Getting a loan on a peer-to-peer platform is easier and faster than in a bank. Such platforms evaluate the borrower according to different criteria than banks. Therefore, borrowers who cannot get a loan from a bank usually successfully apply for financial support on a P2P-lending platform.
- Simplicity and speed. Since the work of platforms for loans is arranged differently than in banks, borrowers choose innovative solutions that allow them to receive money without even leaving their homes.
- Opportunity to choose the best offer. Banks restrict the borrower in choosing the form of lending, conditions, dates, etc. Alternative P2P lending platforms give borrowers the freedom to choose the best loan offer.
Technologies Used to Build a P2P-lending Platform
You can create a peer-to-peer lending platform from scratch or use a white-label solution to launch such a service. Before you make your choice, let’s look at technologies that can be used in the development of a P2P lending platform.
Peer-to-peer lending services typically use blockchain technology. This solution increases the speed of consideration of applications, eliminates the need for an intermediary in data processing, and guarantees users transparency.
Smart contracts are used on P2P lending services so that the borrower of each category can quickly and accurately receive offers from the system regarding the loan amount available to him, the interest rate, and the loan period.
Machine learning is focused on simplifying the lending process through the use of custom technology patterns.
AI is typically used to increase the availability of credit for those borrowers whose creditworthiness is assessed using non-traditional metrics.
How to Create a Platform for P2P Lending?
The development of a platform for P2P lending involves going through all the development stages that are typical for a fintech product. The main steps are:
1. Research your target audience.
2. Create an MVP.
3. Create UI/UX design for your platform.
4. Start development.
5. Maintenance of the finished product.
Consumer interest in P2P lending is clear, as is the answer to the question of whether to launch a P2P lending platform. If you don’t want to create a solution from scratch, you can purchase a white-label solution from LenderKit. The company offers loan management software for consumer-focused or corporate lending businesses. The company’s software uses technical innovations and best practices that will allow you to stand out from your competitors and attract users.