Peer-to-peer lending software revolutionizes the economy by connecting borrowers and lenders without needing a third party. This innovative technology offers a more efficient and cost-effective way to borrow money and lends itself to various other financial applications, even catering to passive income generation. Peer-to-peer lending could hugely impact the global economy by reducing the need for banks. Read on to learn more about P2P lending software and how to build one.
- What is P2P lending software?
- Why are more people switching to P2P lending for loans?
- What to consider while building a P2P lending platform?
- How to Create a Peer-to-Peer Lending Platform
- Benefits of P2P Lending over Banks
- How to earn passive income by lending on a P2P platform?
What is P2P lending software?
In the lending industry, there are various lenders, such as banks, credit unions, private lenders, and P2P (peer-to-peer) lenders. Banks and credit unions are the traditional lenders where a customer goes to a physical location to apply for a loan. Private lenders are individuals or businesses that lend money to consumers outside of the banking system. P2P lenders, on the other hand, are different as they are decentralized lending platforms. They connect borrowers with investors online, allowing more people to invest in loans and making it easier for borrowers to get funding.
P2P lending stands for peer-to-peer lending. Some platforms define it as person-to-person lending. In a P2P lending process, investors who give others loans earn that through interest. Individuals or businesses who wish to borrow can easily avail of loans via P2P platforms without any intermediaries. Due diligence is done to register the identity of all the users in the lending platforms. The concept is a modern crowdfunding model that helps to meet the current credit needs.
Why are more people switching to P2P lending software?
People find new and innovative ways to get the things they need as the world progresses. When it comes to financial needs, more and more people are turning to p2p platforms for loans. Here are some reasons why DeFi loans through P2P are towering over traditional loans.
Set your own terms
P2P platforms offer a more flexible approach to lending and borrowing. Unlike traditional lenders, peer-to-peer platforms allow borrowers to set their own terms and interest rates. This makes it easier for borrowers to find a loan that meets their needs.
Genuine interaction with the other party
P2P platforms also provide a more personal touch. Lenders and borrowers can interact directly on these platforms, making the whole process feel more human.
Completely transparent
P2P platforms are often more transparent than traditional lenders. borrowers can see exactly how much interest they will pay and the loan terms before agreeing to anything.
No fee, no intermediary
P2P lending platforms also tend to have lower fees than traditional lenders. This is because there are no middlemen involved in the process. P2P Crypto exchange is an example of another peer-to-peer platform.
These factors make p2p software an attractive option for borrowers and lenders. As the trend continues to grow, we expect to see more people using these platforms to meet their financial needs.
What to consider while building a P2P lending software?
The P2P platform covers a large customer base with separate profiles for lenders, borrowers, and administrators. Let’s look at what to consider for each of them below while building the platform.
P2P lending software – MVP features
MVP is short for Minimum Viable Product, and the main goal is to check the project’s demand among the target audience. From a functionality point of view, MVP should contain basic frameworks and strategies of the project. Below is a list of functional considerations for the three user categories of a P2P lending platform.
For the borrowers:
- Sign up and authentication page;
- User profile with settings section;
- Bank account integration;
- Form for availing loans;
- A digital cheque generator;
- Notifications, reminders, and alerts.
For the lenders:
- Sign up and authentication page;
- User profile with setting section;
- Bank account integration;
- A tool for managing documentation;
- A tool to manage leads;
- A tool that assesses the credibility of potential borrowers;
- Notifications, reminders, and alerts.
For the admins:
- Sign up and authentication page;
- A tool to manage both borrowers’ and lenders’ profiles;
- Notifications, alerts, and reminders;
- Approval pages for user identity and accounts with KYC policies;
- A loan management tool.
Add-on features for P2P lending software
After covering the basic functionalities or the MVP essentials, you can move to add more features that will improve the quality of your lending platform and will also distinguish yours from others. Down below is a list of some useful add-ons:
- A portal to upload documents;
- Integrate several popular gateways and payment methods;
- A loan sophisticated loan repayment tool;
- A tool for loan calculations
For lenders:
- History of all the payments made.
- A match-making tool that matches lenders and borrowers with similar loan terms and needs
For administrators:
- Analytics add-ons;
- Add-ons to set different themes and skin to the platform.
Trending features you can add to the P2P lending software
Decentralized services are becoming an extremely competitive niche. If you want to add extra intricate features and functions, here is a list of popular and buzzing tech trends.
- AI-based chatbots: these chatbots can be enabled to handle questions and queries from lenders and borrowers. It can be automated with AI-based technology to an extent. Administrators can participate from the other side when the users have specific questions.
- A customizable lead management tool: a tool that enables lenders to set their desired loan terms in duration and loan amount. This tool will help the lenders sort out borrowers and give an overview of all the leads they get as borrowers.
- AI-based analytics for the admins: quality analytics systems that assess the current situation and help predict and take precautions for the future.
How to create a P2P lending software?
We have looked at the features and functionalities of P2P platforms. Let’s look at what goes into building a platform from scratch.
Government Registration
You have to register your P2P platform as a legal entity. There are licenses for different kinds of financial service providers. Choose the one that best fits your project and get it legalized. Specifically, decide the future of your company. For instance, will it be a corporation or an LLC? This will determine your lending platform’s taxes and profit and loss distribution.
Business Name Registration
Register the name of your lending platform in the country where your project is based. The rules for business registrations are different in different countries. For example, you can clarify registrations in the US at the United State Patent and Trademark Office website.
Pick your domain
At this stage, you need to register your site. Pick a recognizable and unique domain. The full name of your company can also be transformed into an abbreviation. You can either buy or rent your domain.
Get a team of developers
It goes without saying that you need a skilled set of people who can bring to life the P2P platform you pitched. A good team will ensure your product has the best quality. You can get your team members or delegate the development duty to a good software company. Delegating product building can save time and reduce risks in software development. Try to find the ones who can give you what you want and work according to your deadlines and time limits. The best way to save money is to look for a Whitelabel P2P development service or outsource the development duties to a company.
Fund your project
You might need to fund your project via a third party if you can downright fund your project. There are different fundraising techniques like ICO, venture capitalists, bank loans, etc. You should seek external funding sources when your MVP is ready and introduced to the target audience. This way, you appeal to the investors, who have solid proof of what they are investing in.
Creating and launching a P2P lending software
You can either build a platform from scratch or use a white-label solution. You can customize the white-label solution according to your needs. You can also hire a development team for customization. Consult with developers for the best customizable add-ons, as this is what makes you stand apart from others. This is where you get innovative.
At this stage, the technology stack needs to be finalized – be it tools for configuration or customization, your tech stack will depend on factors such as time taken to market, scaling needs, budget-saving plans at the early stages, and so on.
End-to-end product testing
Your product will be tested at each stage of development. However, it is advisable to test its function fully before the project’s launch. It is important to get it validated by many of your target audience. You can do it by creating a focus group that will provide constructive feedback. Test the availability, safety, and performance.
Benefits of P2P lending over banks
There are several benefits that P2P services have over traditional institutions like banks. Let’s look at some of the popular advantages of P2P.
P2P lending software is versatile
You may not be able to get a loan from a traditional bank for, let’s say, a home makeover or to upgrade your car. P2P platforms have instant loans, especially those not formal enough for banks. In addition, the process is easier and quicker and requires fewer papers and verifications.
Loans that are termed unsecured such as for a wedding or a vacation, are considered valid by P2P platforms. The borrowers even have the choice to choose the interest rates and loan amount that best suits them.
Short repayment term
Borrowers get the advantage of shorter repayment terms through P2P platforms. Personal loans from most banks do not provide shorter repayment terms, and the borrower cannot choose according to their needs.
No prepayments
Banks usually charge a prepayment charge if you want to close the loan early than the term. usually, it is around 2-4%. P2P loans do not attract such charges.
Faster turnaround time
The time taken to process and disburse the loan is certainly faster in P2P lending than in traditional banks. You can get a loan within 24-48 hours. Meanwhile, a bank may take a week or longer to get approval.
Flexibility
Banks operate strictly and are not equipped to provide small-ticket loans. Whereas P2P loans are more flexible. If the lender is satisfied with the profile and loan terms, you can get the funding you want, even if your credit score is low. The stability and intentions of the borrower are evaluated to process loans in P2P lending.
Paperless processes
Apart from the one-time physical verification at the beginning in the documented addresses, the rest of the processes on P2P are performed online. You can even scan and upload documents through your phone. Thus, P2P lending is more convenient than bank loans.
Plenty of lenders
All those who wish to borrow may not have a bank account or may not have an account at the bank they wish to borrow from. Usually, the first-time borrowers. This way, they become ineligible to get loans from banks. In the case of P2P loans, and for that matter, even in crypto lending, the borrowers get access to plenty of lenders with a wide range of loan terms, all in one place.
How to earn passive income through P2P lending software?
Passive income is when you make money without putting in hours of work and energy. Passive income is what you get out of your side job. Can easy and quick lending through P2P platforms get you a decent sum of passive money? It can, but it all depends on smart investment choices and definitions. Here are a few ways to think about it.
1. Reinvest
Lenders on a P2P platform can earn passive income through EMIs paid back by the borrower. You can do the same with DeFi crypto lending platforms too. The lenders’ account on the P2P platform gets credited monthly with the EMI, and they have a choice to withdraw the money and reinvest it back into lending.
Strategically, reinvesting lets, you avail the goodness of compound returns. Data proves that those who reinvest get 10% more than others. You can choose to automatically reinvest in a particular product or plan once you get credited. This way, you save time and effort while constantly being in the loop of passive income generation.
2. Automated Investment
P2P platforms have an option to invest automatically, depending on a few parameters chosen beforehand. Instead of detailing each borrower’s profile, you can set a few parameters according to which a borrower’s profile will be chosen. You can then auto-invest by lending out to such profiles. P2P software comes with an algorithm that matches you with the right borrowers. The main strategy to generate passive income is to always be in the loop of reinvestment. Automated investment algorithms help you do that perfectly.
3. Strategic income generation ideas
A relatively new model in P2P platforms requires lots of investors to pool their money into one single portfolio. This way, the portfolio is of optimum efficiency. AI-enabled data science helps to build and manage a portfolio that can deliver stable and high returns.
All you have to do is add your investment and give permission to the platform to distribute your funds for lending. Your money will go into various loans according to their repaying capacity, giving high returns each time.
Closing thoughts
You can use a P2P platform to borrow money for any purpose, from home repairs to starting a business. And you don’t have to be wealthy or creditworthy to get a loan; most platforms have lower standards than banks. Investors can choose which loans they want to fund, so there is always some risk involved, but it’s much lower than what you’d find at a traditional bank. -If you’re looking for safe and profitable investments, then lending through P2P platforms is worth considering. The industry is growing rapidly, so now is a good time to start.
