An Inside Look at the Working of a P2P Lending Platform

Blockchain is disrupting the overall financial market with its power to revolutionize the industries. Lending platforms are also positively embracing blockchain. Blockchainis all set to reconstruct the lending model by bringing more transparency and trust in the system.

Problems in the Traditional Banking System

The traditional banking sector lending process includes third-party involvement. Middlemen such as loan officers, banks, underwriters or loan processors build the trust between the borrowers and the lenders and thus charge a huge amount of fees for the same.

The approval of a loan or credit also takes a couple of weeks to process. There is also a huge difference in the rate of interest offered by these banks worldwide. For instance, countries like the United States and Algeria process loans at a rate of 4.8% and 8% respectively. On the other hand, Bangladesh lends a loan at an interest rate as high as 31.2%.

Solutions offered by a P2P crypto lending software

The integration of blockchain in peer to peer lending is revolutionizing the whole ecosystem. It removes the intermediaries from the system and hence makes the system more efficient. Following are the main attributes of peer to peer lending software development:

• Cost Reduction: P2P lending software minimizes the cost as borrowers and lenders are connected directly on the platform. There is no need to develop a physical infrastructure where parties would meet.

• Less time: The processing on the blockchain is done instantaneously. The entire process is quickly executed through the system of smart contracts.

• Flexible interest calculations: Flexible interest calculations provide an opportunity to calculate the interest rates on a daily, monthly, quarterly or yearly basis as per the business model.

P2P crypto lending software connects both borrowers and lenders across the globe on a decentralized platform. Let’s further discuss which are the different parties involved in the process of P2P lending.

Stakeholders that play a major role in the P2P lending platform:

• Lender: A person who lends the money to the other party.

• Borrower: The person who requests the credit from the lender with the prospect of returning the same within the stipulated time.

• Guarantor: This depends on the business model. If the model involves a guarantor, he/she guarantees the loan on behalf of the borrower. It means that in case the borrower defaults the loan the same would be paid to the lender by the guarantor.

Working of a P2P lending software development

Step 1: Lender creates his profile

Firstly, the lender creates his profile and confirms that he is willing to credit the amount to potential borrowers. The lender usually mentions the following aspects in his profile:

• Personal information (such as name, address, ID number and other)
• Bank account information
• The type of investment the lender wishes to make
• Criteria for choosing the type of borrower

The profile of the lender is updated in the market place so that both borrower and lender could find each other.

Step 2: Borrower creates an account

Similarly, the borrower creates his account by providing the following information:

• Personal information (such as name, address, approved ID)
• Collateral amount
• Process the legal documents (if required)
• Insert the profile of guarantor (if required by the business model)

Step 3: Borrower sends a request for the loan in the system

After the account of the borrower has been created successfully, he can send the credit request in the system which will be shown globally on the peer to peer lending software.

Step 4: Order processing in the matching engine

As soon as the borrow order is put by the borrower on the platform, the matching engine starts its processing. It processes all its profiles and suitably matches the borrower with an appropriate lender. Hence, the loan is fully matched.

Step 5: Approval of the loan

The loan is approved by the matching engine by checking the essential collateral requirement inserted by the borrower. Therefore, the loan amount is transferred to the borrower’s wallet.

Step 6: Loan repayment

The loan amount is repaid by the borrower. In case the borrower fails to repay the loan amount, then his collateral will be sold out in the open market.

This is how the P2P lending process works for the crypto market. This revolutionized model is sure to help in reducing delays, making quick approvals, eliminating the need for middlemen and bringing in more transparency.

Key Takeaways

The new lending marketplace is expected to reach a value of $290 billion by the year 2020. If you are also looking for building your P2P lending platform then associate with an experienced P2P crypto lending software development company like us to navigate your development journey. We offer a white label P2P lending platform to expedite the deployment process.

To know about our turnkey solution, schedule a free demo with our subject matter experts.