In the last couple of years, P2P lending industry has experienced explosive growth. According to Paypers, between 2018-2019 the peer-to-peer lending industry grew by over 17%. And in 2020 it was expected to hit $312.6 billion. These figures clearly indicate that the industry will continue to grow.
Interestingly while the P2P lending sector is experiencing phenomenal growth it is also undergoing a fintech revolution. This is the revolution bought in by blockchain technology. That’s because it is helping establish a loan marketplace where anyone can become a lender or a borrower. Governed by smart contracts, a P2P crypto lending exchange is more secure and transparent than the traditional P2P lending exchanges.
The P2P lending industry promises massive potential. However, the growth is being pulled back by the intermediaries and the inefficient infrastructure. Here is what blockchain brings to P2P lending:
· Cutting down the fees
The existing P2P lending market is driven by intermediaries. As a result, the cost involved in P2P lending is high. Blockchain solves the high fees problem by automating the transactions and eliminating the intermediaries from the space.
· Faster Lending process
The conventional way of P2P lending involves a lot of paperwork. As a result, the process to get a loan is very long. Conversely, blockchain-driven P2P lending requires no paperwork. Thus, the loans are processed near instantly.
· Better rates
The traditional P2P lending market generally offers a fixed rate of interest. In a P2P lending setup driven by blockchain, the interest rates vary with the demand and supply. As a result, the lender can enjoy very interest rates as the demand goes higher.
Using blockchain, the interest rates are pretty transparent. Along with that the cost, time involved and the entire lending process becomes very transparent. Thus, the marketplace participants can trust the platform and maximize their profits by using different strategies.
As the P2P lending platform directly connects the lender and borrowers, it offers the flexibility to decide upon the interest rates, repayment duration, and frequency of repayment. In addition to that, all these terms are executed by a smart contract instead of a middleman. Thus, the chances of fraud or late repayments are almost eliminated.
Because of all the above advantages, the P2P crypto lending industry is growing rapidly.
A P2P crypto lending software development ensures the lending platform is designed in a way that it offers all the above-mentioned features. Additionally, the platform must also follow a certain lending process model. Here is the one which is very popular:
1. Lender Creates a profile
To start with, a P2P crypto lending exchange must build a liquidity pool. For that, it requires lenders to create a profile and then put in the liquidity. To create an account, the lender will have to divulge the following details – name, government ID, bank account details, interest rates, and more. Once the profile is created, it will be approved and submitted on the marketplace where the borrowers can find the lender.
The lender will have to wait to receive a request from the borrowers in the marketplace.
2. Borrower creates a profile
A borrower is also required to create an account on P2P crypto lending software and provide the same details as the lender provided. In addition to that, he needs to mention which crypto assets will he deposit as collateral. Along with that, he needs a 3rd part guarantor. Once his profile is accepted by the platform, he can start looking for lenders.
3. Building a smart contract
A lending process is triggered when a borrower sends a loan request to the lender. To send a request, a borrower needs to use a smart contract to connect with the lender.
4. Lender Interviews the borrower
Once a lender receives a smart contract from a borrower, he interviews the borrower. The lender would want to know why is a borrower looking for a loan, has taken a crypto loan previously, what interest rate is he ready to pay, and more.
5. Approval of application
Once the loan application is approved, the smart contract automatically fixes the interest rate. This is based upon the credit history of the borrowers on this platform.
6. Loan is sent out
As soon as the borrower and lender agree with the terms set by the smart contract, the loan amount is sent to the borrower. This is a direct wallet transfer.
7. Loan Repayments
The smart contract programs the loan repayment dates. If the borrower fails to make timely repayments, the contract automatically adds late fees to the payment amount. When the borrower makes the payments in the future, this late fee is deducted from the borrower’s wallet. If the borrower fails to make any payment, the lender automatically receives payment out of the collateral deposited by the borrower.
P2P crypto lending offers an incredibly transparent alternative to traditional P2P lending. Thanks to the security and transparency offered by blockchain technology that makes lending and borrowing a very efficient process. Antier Solutions houses a team of experts who have strategized and built successful peer-to-peer lending platforms over the last couple of years. With the right expertise and tools, we can help you make the most out of blockchain technology.