In today’s time, although we are turning into a digital world when it comes to the loan facility we have to follow the traditional practices of going to banks, submit documents, and go through a hassling process, that too at a very high-interest rate. Yes, there is a facility of credit cards but the limit is not very high in them. So, this option is also very reliable. But no worries, now there are some good alternatives that can help you.
There are P2P money lending apps that let you borrow or lend money just sitting at your crouch. These apps are gaining huge popularity in the FinTech world. In this article, we would know in detail about P2P money lending and how you can develop your own P2P money lending app.
What is a P2P Money Lending App?
P2P lending or “peer to peer” or “person to person” money lending app lets you issue and receive loans by individuals directly without the involvement of any financial institution such as banks, loan providers, intermediaries, etc. P2P lending is performed on fintech special peer to peer apps or sites where the users can be both lenders as well as borrowers. It is also referred to as a “loan” app.
Most of the loans are issued by private members but in some particular, even the companies can participate in loans. The loan rates in these processes can be fixed or assigned by reverse auction. For the reverse auction, the borrowers will mention what would be the maximum loan rate for which he can take a loan, and the potential creditors will bargain with each other for offering funds at a lower rate.
If you create a P2P money lending app, then you would be able to make money from fixed payments, borrowers, or in the form of a small percentage of the sum which was taken as a loan from both borrower and creditor. Now you must have understood the complete meaning of a P2P lending app.
Pros and Cons of a P2P money lending app
As like every other technology, there are some advantages and disadvantages of a P2P lending app too. Let’s know about them.
Pros of the P2P lending app
There are certainly differences between P2P lending apps and conventional banks. Firstly, it is not a bank and no intermediaries. So the customers don’t have to pay for the banking services, make visits to the bank, or convince the bank to issue a loan as you are solvent and trustworthy. Things are completely online here. All the operations in the P2P lending app are performed on the internet at minimal fees. You don’t need any deposits, guarantees, or a large sum.
Conditions will be set by both creditor and borrower
Unlike traditional loans, where the only bank decides the Terms & Conditions, in P2P lending both creditors and borrowers can choose the conditions for the future bargain. They can decide the timeline, amount, rate of interest, and other conditions. For e.g., one person can apply for only one loan issuance. The user will not have a right to request a new loan if the previous one is not paid off.
For participating in loans, you just need to register and complete a form. It would be great for the borrower to provide as much information as possible. This will increase the chances of getting a loan. A special rating shows the solvency of a user. This is the working of P2P technology.
As we mentioned above, the borrower has to provide complete information for getting a loan. They must upload the scanned copies of their passport and tax identification number. The borrowers can also submit other documents that will make them credible for getting a loan and also prove their solvency. It will bring a higher level of trust among the users.
These documents will be used to provide you with a rating and the personal data will be tested in the bureau.
Lower Interest Rate
Since the banks have to give salary to their employees, pay for premises rent, software, machines, and other things. These things are compensated by the high-interest rates on the loans. But since in P2P money lending apps there are no premises, no thousands of employees, no office equipment, hence it offers lower interest rates.
Cons of a P2P lending app
Nothing is perfect in this world and everything has a bit of a disadvantage too. Here are the cons of P2P lending app:
If the borrower doesn’t pay the loan on time then the debt creditors can come into play to make the user pay the amount. It is an unpleasant procedure, especially regarding the moral aspect. But a similar thing will happen if you take the loan from a conventional bank.
Amounts aren’t much high
Since these P2P lending platforms were recently introduced, not all creditors risk their huge amount of money to an invisible borrower. Hence, in most cases, the loan amount in P2P programs is limited to $50,000. Moreover, this amount is also high.
How to start a money lending app?
So what to do first if you want to create a money lending app. It is not a fast or easy process but the outcome would worth your efforts.
Begin with a business registration form
You have to choose how to register a legal entity. You have to decide what type is more appropriate for your business. For e.g., if you register it as an LLC (limited liability company), then you have to protect the business against creditors if there is any force majeure or bankruptcy occurs.
If you are thinking about a corporation then you must know a corporation has more requirements in comparison to an LLC such as tax reporting or accounting. In an LLC profits and losses are distributed according to the agreement, whereas a corporation should perform it following the share of ownership of each participant.
Business Name Registration
As it is a financial body, you have to select a service and then register it as an entrepreneur. You have to follow all rules and regulations in order to not break a law. Also, don’t forget the thing that your business name should not be similar to the already existing players of the P2P loan lending app market.
If you are developing the app in the USA, then you can check the name on this link. The brand name must be different from the domain name.
Try to make the domain name short and sweet which is easy to remember.
As with any other startup, you will require initial funding to spend on the development of your app. And also you will require some funds to provide loans on your app as well. You can try different strategies for funding such as ICO, Venture Capital or you can take a loan as well.
UI and UX design
Your peer-to-peer money lending app should be easy to understand by the users. The simpler it would be, the users would be more comfortable in using it. Hence the best strategy would be to integrate all basic features, build a user-friendly interface, and not just stuffed with icons and pictures. There must be all the MVP features and some advanced features as well. While developing the app, think like a user. All actions must be clear and simple.
This is the core topic of our article. For a start, you must first develop a website to get trust and users. Then the next step should be to develop a mobile app for P2P lending for both iOS and Android platforms. The mobile app will help in gaining more users as it is more convenient.
But what does it require for a P2P lending mobile app development? The best way would be to consider a mobile app development company that will provide you complete consultation of how things will carry forward. They will do everything starting from creation to post-release support.
Other important aspects to consider during app development
When there is an involvement of money, you need to be alert. Hence, you must be ready for facing any problems. Here are some ways:
Find an attorney
There are many types of businesses in which you don’t even need a lawyer at all. But in the money lending business, you must have a skilled lawyer who can handle all the legal aspects of it. Otherwise, you can unknowingly break the law and your activity will end with judicial proceedings.
Hire financial specialists
Not just lawyers, but you will also require financial specialists or veterans who can monitor all your business policies and procedures to make them up-to-date for meeting financial regulations. This person should be highly experienced and have worked in the lending banking sector.
Make a loan agreement
It is better to consider creating a draft of the loan agreement while establishing your P2P money lending startup. Users have to read all terms and conditions of the app. Apart from that, the terms and conditions must comply with government financial rules and regulations. Again, you will need financial specialists for this work.
Find a bank partner
You also need to consider a bank with whom you have to cooperate. The services of this bank are necessary for keeping your money there, as well as the money from investors and borrowers. The bank will also help you in resolving any issues with your loan. You can also cooperate with multiple banks. You can partner with them which will give you many advantages. But that would be expensive initially.
Keep in thought local and international laws
If you are planning to develop a product which would be available to other nations as well then you must need to comply with all local and international laws. You need to find out how to comply with all legal issues during loan app development.
The app must be prepared for integration with the 3rd party service providers such as payment systems, wallets, banking providers, etc. It means the app must be scalable for integration with different 3rd Party APIs.
Legal Compliance and Encryption
We have considered these points in a separate section as in P2P money lending app, laws and terms & conditions play a major role. If you want to do smooth business, avoid fines, and penalties, then you must give utmost attention to the law and security of your app.
The chosen mobile app development company must consider that your P2P lending app should be fault-tolerant. It means that it should work without any interruption even if there is any heavy load on the app due to simultaneous operations. That’s why mobile app developers use some special tools for fault tolerance.
The mobile app as well as the website should be highly secured. You also need to protect your app from common risks such as Cross-site scripting, SQL injections, sensitive data exposure, broken authentication, etc. Also, encrypt all the users’ data from 3rd parties. You must apply modern encryption techniques and signature technologies. Also, all users should have encrypted authorization via PIN codes, passwords, and even biometric authentication.
GDPR and CCPA Compliance
GDPR stands for General Data Protection Regulation. It has been effective in European Market since May 2018. CCPA stands for California Consumer Privacy Act. It is effective in California from January 2020. These compliances provide basic rights to the users such as the right to information, access, rectification, erasure, restrict processing, data portability, object, and rights related to automated decision making and profiling.
P2P mobile app development is a highly profitable idea if implemented correctly. You must hire a mobile app developer like Amplework who are having vast experience in developing such on-demand mobile applications. Let us know your requirements.