Peer-to-peer lending isn’t a new concept. As far back as in the 1700s, Jonathan Swift, a famous Irish author, built an “Irish loan fund”. This was his vision to provide credit to low-income rural families. Jonathan’s focus was to lend money with minimal or no interest. This was one of the very first examples of peer-to-peer lending. By the 18th or 19th century, the demand for such platforms increased in Europe and other regions.
Fast forward to the 21st century, and we have the very first online P2P lending platform. Dating back to 2005, this platform enabled the consumers of the UK to lend more than 2.8 billion GBP. It worked on the same core principle provided by Jonathan. This time, the motive of lending platforms was to provide financial aid to the unbanked. Such P2P platforms further picked up pace after 2008, with the fall of Lehman Brothers.
With the integration of Blockchain, the crypto lending platforms have completely revolutionized the process of lending and borrowing. These Blockchain-based P2P lending platforms provide enhanced efficiency, transparency, and scalability in operations. Crypto lending platforms have also made it possible to tokenize the loans. This invisible Blockchain technology has completely overhauled the way P2P lending works!
As a result, there are numerous such platforms on the rise. It’s understandable that there’s an increasing curiosity among people as to how these crypto lending platforms are created and what are the most important things to keep in mind for Blockchain-based P2P lending platforms. This guide is an attempt to answer exactly those questions around crypto lending platforms.
So, if you’re planning to create a Blockchain-based P2P lending platform, read till the end, there are going to be a lot of takeaways in this guide.
Starting from the start.
What niche should the Blockchain-based P2P lending platform target?
As we mentioned earlier, the number of such crypto lending platforms is on the rise. As a result of which, there aren’t many legacy industries that are untouched by the magic of this invisible technology. Because of this, the first question that generally needs answering is which niche to look into? Which industries to target with the lending application?
Here’s a list of 5 niches that can do a lot better with crypto lending platforms:
Unlike other industries, scientific institutions and educational organizations have only recently started considering alternative financing as a fundraising method.
For this domain, projects can vary from collecting money for getting a degree to financing creative scientific programs.
Further, there’s an always ever-growing demand for student loans but there are not enough companies providing this kind of refinancing.
SoFi – a US-based crowdfunding site offers different products to cover the needs of various categories of clients:
- Undergraduate loans to help students pay for school at low rates
- Graduate loans to help students pay for grad school
- Parent loans to pay for children’s tuition.
This is one of the rapidly growing business sectors. Crypto lending platforms for P2P car loans help borrowers purchase vehicles through a leasing scheme or with the help of a bank loan.
A recent survey reveals that the value of the car finance market is about £27.1B, 80% of which are secured personal loans. This is precisely why the crowdfunding gurus such as Zopa and RateSetters expanded their product range.
For instance, Zopa, with no joining fees, offers car loans for 1-5 years terms with 3.9% APR. With such lower rates and top-notch customer service, Blockchain-based P2P platforms are making it quite fast and easy for people to purchase a car of their dream.
P2P crowdfunding in the real-estate domain is one of the more in-demand options from this list, and it keeps attracting more and more participants. These are an excellent alternative for borrowers to collect the necessary seed capital and for everyday investors to generate extra income.
P2P loans are way less risky compared to equity investing. In case a project is put on pause, lenders are the first in line to get payoffs. Keeping this in mind, backers are more inclined to participate in peer to peer lending schemes than buying company’s shares.
For example, Housers caters to small-scale investors looking to build a diverse portfolio in real estate assets. The product includes Buy-to-Let, Buy-to-Sell, and Development loans with a minimum investment of €50.
Property Partner is a UK-based platform built for investing in commercial or residential properties. The annual ROI here is 7% and bankers can receive the extra income generated in addition to regular returns.
Debt consolidation is something that more and more crowdfunding portals are starting to add to their product packages. It is the process of combining several loans into one financial instrument with more appealing parameters – interest and period.
This process offers many advantages, including a fixed return rate, easy management of monthly payments, and better credit score as a result of routine payments.
For example, Upstart consolidates loans in the range of $1,000 – $50,000 with the time period of 3-5 years and interest rate ranging between 5.59% – 35.99% interest rate. The consolidation procedure can be completed in 1 business day. Clients can consolidate different loans, like, payroll loans, car loans, store cards, and more.
Business P2P loans
P2P lending companies are expanding their clientele from traditional industries to specific businesses. There’s an entire bucket of websites designed to lend sectors including restaurants, transport, cryptocurrency, and fintech startups.
Grupeer, for example, primarily focuses on FinTech startups and offers business loans for 3-12 months with 5%-10% return rates. Every loan issued is backed by BuyBack Guarantee protecting investors’ rights.
Crowdestor, another example, is a young service provider with a focus on property, business, and transport starting from €50. It is broadly based on two models — business loans (traditional crowdfunding) and equity investing. Crowdestor starts annual return rates from 12%
With an idea of what are the different domains that require a crypto lending platform, let’s get into the real deal!
Establishing your P2P crypto lending exchange
We’ve outlined the various steps which you can follow in order to be a step closer to creating your Blockchain-based P2P lending platform:
- Define your niche: As the discussion so far goes, it is extremely important to decide the niche you’ll be targeting and which kinds of loans you will be generating on your crypto lending platform. It is better to be specialists of a couple of types of loans than engage with all kinds. The forms of loans can be categorized as rental purposes, auto loans, mortgage loans, education loan, personal loans, and more. It is an imperative step to recognize your business model before moving towards the next levels.
- Stay compliant with the law: :To stay within the boundaries of law, you need to register your P2P crypto lending exchange in the countries where you wish to offer transactions. Make sure to legally abide by the country, province, state or territorial laws where your platform would be registered. In doing so, your business’s search engine will be optimized for every target country
- Figure out clear and concise verification forms: Everyone who is concerned with this Blockchain-based P2P lending platform should be on the same page regarding things. All the parties involved should follow the same set of practices, rules, and conditions. This way, the fairness and integrity of transactions can be maintained.
- For connections with people in the industry: This goes without saying; For your crypto lending platform to be successful, you need to have some contacts in the industry – from different areas. If you don’t have any yet then you can formulate contact with agencies or individuals who are in marketing, advertising, or consulting. Form connections with the project managers or business attorneys to maneuver your business in the correct direction. Develop communication with local startups, advisors who are in the same industry
- Acquaint yourself with the 4P’s of marketing: When all is done, you will need to have some knowledge of marketing to be able to spread the word about your Blockchain-based P2P lending platform. For that, you need to be aware of the 4P’s of the marketing:
- Price to establish the product
- Place to set up your business
- Product or service you’re providing
- Promotion to reach the masses
With the above points, we’ve established a checklist of sorts — one to use when you wish to create a crypto lending platform or if you are already building one, but are stuck somewhere.
Now, let’s look at some of the features that a Blockchain P2P lending platform must have.
Loan calculators serve as excellent tool to inform all the newcomers about the various pros and cons of doing business with you. These calculators allow visitors to see monthly installments depending on the given loan amount, period, and interest rate.
To generate more leads, place such a calculator on the first fold of your website and create a separate page explaining the working of this calculator.
The option to auto-invest allows users to quickly and easily diversify their portfolio just by customizing the investment amount they wish to splurge. Grupeer official website advises that with an auto-invest option, backers can create a portfolio that is capable of generating +12-13% of return per year.
Platforms like Neo Finance provide built-in secondary markets and offer auto investing for balancing the portfolio for resale.
The regulations around KYC/AML are quite stringent, and you need to run multiple verification checks on all your potential investors. Sadly, this is a necessary step and can’t be eliminated. But it can definitely be automated. Automating these processes saves your business time and money and using the time you’ve bought, you provide the end-user with a better experience.
Advanced search features
The search features on your Blockchain-based P2P lending platform should be seamless and should help investors to narrow-down the opportunities on different parameters including risk profiles, time horizon, size, country, or industry. This is an extremely important feature and makes it easier for your platform’s users to navigate the platform. Without these features, investors are forced to trawl through tens or even hundreds of irrelevant opportunities before they find what they’re looking for – that’s if they don’t give up first.
Great UX Design
Just like any consumer-facing tool even your crypto lending platform should offer a seamless user experience. The businesses and investors whom your platform serves want something that is intuitive, easy to use, and features great navigation. If your UX is bad, both your customer acquisition and retention will suffer; they’ll simply take their business elsewhere.
Managing hundreds of investors is a huge drain on your resources. The crypto lending platform should take the administrative strain here and enable you to quickly and easily distribute information, announcements and reports to the relevant investors. Further, the platform should also provide the information that investors need — like tax statements, quarterly reports – so that they can access these instantly without having to contact your team.
With the key features understood, let’s now look into the flow of a Blockchain-based P2P lending platform. Knowing this will allow you to weave your user experience better. This can be used as a skeleton around which you can build your platform:
Flow of a Blockchain P2P lending platform
Step 1: Lender creates a profile
The lender creates a profile using their information like:
- ID numbers
- Bank account information
- For lenders – type of investments they want to make. A lender might wish to lend money to the borrowers requesting a loan for the business purposes.
- Criteria for different types of borrower i.e. setting up the rate of interests according to the worthiness of a borrower.
This profile is then submitted to the marketplace and the borrowers and lenders find each other.
Step 2 – Lender waits for the loan request
Once the account is created and reached the marketplace, the lender waits for the borrower to request for loans. As soon as any request is received, Lender schedules an interview with the borrower.
Step 3 – Borrower creates an account
A borrower sets up
- Personal information including name, address, and government-approved ID
- Collateral — crypto-coins, legal documents, and a guarantor.
Step 4 – Borrower requests for the loan
Once the account is created, the borrower can send loan requests to all the lenders around the world. Smart contracts allow the borrowers to send loan requests to the lenders who are interested in their type of investment.
Step 5 – Lender interviews the borrower
A lender interviews borrower and asks questions along these following lines:
- Why does the borrower want to take the loan?
- What is the borrower’s monthly earnings?
- What will be the repayment rates?
- How many times have they applied for credit in the past?
A lender can either approve or reject the loan application based on the above questions.
Step 6 – Smart contract to fix the rate of interest
If the lenders approve the request, the fixed rate of interest can be decided using the smart contracts. The borrowers can be categorized as high-risk, medium-risk, or low-risk borrowers based on their repayment rates.
Step 7 – Auto-payments using smart contracts
Borrowers can make payments using smart contracts embedded with a crypto-wallet. If the borrower does not pay installments on time, the smart contract adds late fees to the actual amount and upgrades it on the ledger. So, if the borrower does not abide by the rules, the smart contract would automatically deduct penalties.
With this information, you are now in a position to go ahead and start creating your Blockchain P2P lending platform. But if you’re still confused, and are thinking about its benefits for you, let’s see what they are.
Benefits of Blockchain P2P lending platform for owners
The integration of Blockchain technology in the domain of lending and payment has encouraged cheaper and faster transactions, beneficial for both borrowers and lenders. The following are some obvious benefits of creating P2P crypto landing exchange:
- Regular cash inflow: Blockchain-based P2P learning platforms offer regular and continuous earnings for platform owners. These platforms, unlike banks, require minimal charges for processing transactions, and are therefore more attractive for younger and new borrowers and lenders. The more the number of users, the more would be the revenue for the platform owners.
- Global reach: The P2P lending platform allows you to reach anywhere in the globe without any restriction. The platform’s growth can be limitless and not restricted by boundaries. This is opposite to banks as they can serve only the people nearby.
- No extra manpower for maintaining paperwork: The legacy banking system requires a lot of paperwork, managing which is quite cumbersome and painful. On the other hand, P2P platforms eliminate the paperwork and help you save a lot in terms of manpower, time, and efforts — all of which accumulates to save money.
With that, we’ve reached the end of this quite elaborate guide. If you’ve read this far, you have gained enough knowledge to go ahead and create a Blockchain-based P2P lending platform. If you’re still stuck somewhere in the process of creating, please reach out to us.
If you have any thoughts on this guide, any points that you’d like to add, please comment below!