How to create P2P Lending App: Outright Development Model To Start Your Business
Today you can borrow money from almost any bank. It can give you a large sum at a specific interest rate or provide you with a credit card for daily use. Anyhow, many people use these services and sometimes it can be very convenient. But even 10 years ago you had to visit the bank, stand in a queue etc. In other word, waste your time. It was not convenient but people had no choice. However, now there is a very good alternative for now.
P2P lending websites and apps make it possible to lend money simply sitting in your armchair. These apps are becoming pretty trendy in the FinTech world. Sooner or later, users would like to find out how to arrange a P2P lending app development. Stay with us and we will show you how interesting this process is.
What is peer-to-peer lending?
P2P lending is usually spelled out as a “peer-to-peer lending” or “person-to-person lending”. This term means issuing and receiving loans by individuals directly without the use of conventional financial institutions such as an intermediary. Commonly, P2P lending is performed with the help of special peer to peer lending sites where users can be both lenders and borrowers.
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The majority of credits (loans) issued in such services are performed by private individuals, but in some cases, companies as an entity can participate in such processes as well. P2P loan rates can be both fixed or assigned with the help of a reverse auction. As for the latter, potential borrowers assign the maximal rate level they want to take a loan at, and potential creditors bargain with each other offering funds at a lower rate.
The example of P2P lending app
Companies-intermediaries that create peer to peer software get income from fixed payments, borrowers or in the form of a small percentage from the sum of the loan taken both from the borrower and creditor.
P2P lending - advantages and downsides
Like every technology, the P2P trend has its strong and weak sides. Let’s consider them starting from their advantages.
Lack of an expensive intermediary
Peer to peer lending platforms has a few significant differences from a conventional bank. First, there is neither a bank nor expensive intermediaries, and customers don’t need to pay for banking services, visit branches, convince the creditor to issue a loan for your since you are solvent and trustworthy. The system is completely carried in an online environment, and all operations are performed via Internet platforms that exist at the expense of minimal fees for applications or monthly fees. No large sums, no deposits and guarantors are the main advantages of the peer-to-peer system.
The British company Zopa was the first entity that offered the capability of peer-to-peer lending investment in 2005.
Creditor and borrower determine the conditions
Both the investor (creditor) and borrower can choose the conditions for the future bargain - the deadline, sum and interest rate. The provider monitors how participants abide by the accepted rules. For example, one person can apply for only one loan issuance. He or she has no right to request for a new loan if the previous one is not paid off.
To become a participant, a user just needs to register and fulfill a special form. And it would be better for the borrower to fill in as many points as possible - it will increase his chances to get a loan. A special rating shows the user’s solvency. That is how peer to peer technology works.
A potential borrower should upload scanned copies of his or her passport and tax identification number. Also, such individuals can submit materials proving their solvency like copies of documents, pictures, videos etc. Best peer to peer lending apps always provide users with high level of trust.
The provider will offer to raise your rating and your personal data will be tested in the bureau of credit ratings. It doesn’t cost too much but it will have a substantial influence on potential creditors.
Small interest rate
A high interest rate in banks is caused by high prices for the services of banks and microfinance companies. They need to pay a premise rent, employees’ salaries, finance the development of new products etc. But everything listed is absent in a person to person lending platforms. No premises, no thousands of employees, no office equipment. Thus, P2P lending can really become beneficial! Bingo!
In whole, we can see the main advantages here. But if we speak about disadvantages, there some of those also.
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If the borrower doesn’t pay off his or her credit on time, debt creditors can come into play to make the user pay this money. It is not a pleasant procedure, especially in its moral aspect. But the same can happen when you cooperate with conventional banks.
Loan amounts are not so high
Since P2P lending platforms are rather new, not all creditors are ready to issue millions of dollars to the invisible borrower. So at the moment, loan amounts in peer to peer programs are usually limited to $50,000. Moreover, this amount is not so low as well.
Pros and cons of peer to peer lending
P2P app development - what to start with?
Now let’s discuss what you should do first if you want to create your own P2P lending app. How to start peer to peer lending app development? The process won’t be easy and fast but the result is worth the candle.
Register your business name. As it is a financial structure, you must choose the necessary service and register as an entrepreneur. You will need to follow all governmental requirements in this issue in order not to break the law. Also, don’t forget that your business name should be absolutely new to avoid repeated names of peer to peer lending companies already registered in this system.
Initial capital. As in the case with any startup, you will need a specific amount of funds that you will spend for the development of your app. But also you must share some funds for the first loans. Why? Because if new borrowers start getting loans, such measures will help attract investors.
Also, you will need money to start cooperating with the bank where you will keep your money for P2P lending loans.
P2P lending app: how it works
Software development. The core issue of our article. We think that the development of the mobile app will be a preferable option instead of website development. It is much more convenient due to mobility and quick access to the app.
So what do you need for the development?
- For the very beginning, you need to determine how your app will be created. You can make everything from scratch if you have a large team of programmers skilled at various programming languages. Or you can start using any existing SDKs;
- Also, choose your operating system - Android or iOS;
- Some development companies offer ready scripts and APIs you can use for applying to your own software;
- The last and the most acceptable way to develop an app - to order the whole development from software companies on a turnkey basis. They will do everything starting from its creation to post-release support;
- To encrypt all personal data of users and lenders from a third party, you will have to apply all modern encryption techniques and signature technologies. Also, all users should have encrypted authorization via PIN codes, passwords, and even voice recognition. So here you need to pay close attention to the security issue.
UX design. As usual, your product cannot be a difficult-to-understand peer to peer architecture. The simpler it is, the more people will feel comfortable using it. So you’d better integrate all basic features, make interface user-friendly and not overloaded with icons and pictures. It must contain all MVP features and maybe some additional ones if your budget has reserved funds. Think like a customer. All actions that app performs must be clear and simple.
The process how P2P lending should work with MVP features
Pitfalls to consider during P2P app development
Unfortunately, you should always be on the alert. Some difficulties are waiting for you on your way to the P2P lending Olympus. We will list the most common of them.
In some other types of business, you can work without a lawyer at all. But as for the lending business, you need a skilled lawyer that will be able to settle all legal issues concerning peer to peer investing and explain how to act correctly. Otherwise, you can break the law and your activity will end with judicial proceedings.
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Apart from the lawyer, financial specialists are also required. They will monitor all your policies and procedures to make them up-to-date and meet financial regulations. Ideally, this specialist must be highly skilled and have great experience in working in the lending banking sector. He or she will help decrease risks concerned with P2P lending.
It is also necessary to consider the drafting of the loan agreement when establishing P2P lending startups. Users will need to get acquainted with all terms and conditions. Besides that, the agreement must comply with governmental financial regulations. Here good experience financiers will come to the rescue as well.
You will need to cooperate with the bank you will choose by yourself. The services of this bank are necessary for keeping your money there, as well as the money from investors and borrowers. In addition, this cooperation will help you resolve many issues with your new loan products since the bank already have a compliance procedure in place. But it doesn’t mean you are restricted with only one bank - you can partner with a few banks to gain more advantages. However, it will be more expensive.
How to promote your P2P lending app?
Your app is developed and waiting for somebody to use it. But how can you promote it? You should undertake a few strategies to deal with such challenge.
App originality. Although this technology is not old, the number of P2P mobile apps and websites is growing every year, so your new app must become something different from other top peer to peer lending apps available on the market. There are some ways to do it:
- For instance, you can choose only one type of lending for a specific purpose. That is, your app can give loans to students for education or medical loans for treatment;
- You should always do a market analysis to understand what apps prevail. It will help you not to become one of many but to stand out from the crowd due to something new in your app;
- You can try to focus not only on personal loans from one person to another but also on business loans to entities. It will be a hard-to-implement process, but beneficial for you and give you a competitive advantage in the business world.
Make your app different from the apps of competitors
Involve the press. Mass media is one of the best ways to attract people to some new product. Everybody knows it. So you may involve the press to tell the whole world about your new P2P lending app.
- If you are able to cooperate with the press, it will help you draw the attention of potential investors to use your platform for lending money. Nobody wants to lose their money so if the press starts spreading news about your app - it will give investors and borrowers more trust in your service;
- Or you may find an opportunity to cooperate with already popular and known financial platforms that will show your company in a good light.
Good old advertising. This alternative can be referred to the mandatory way to promote your app. Nobody will install and use your app if there isn't any word about it, right? So you will have to place your ad on as many websites and other web services as possible. Of course, it would be better to target financial services to find the required audience.
Never forget about social media! Today many people spend a lot of time there so this tool is great for searching for new customers. Be brave and may the odds be ever in your favor!
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Now you see the main steps you need to undertake to create your own P2P lending app. The process is not easy and you will face many problems during its development. But nothing ventured, nothing gained, keep it in mind. Our company can help you with the development and creation of a P2P lending app for you. Contact us and subscribe to our blog!
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