With the massive growth potential of marketplace lending, there has been a significant uptick in new entrants in this market. All of them have been inspired by the success of Lending Club, Prosper, Zopa or Funding Circle. But due to this huge interest, you need to be clear on what it takes to be a successful marketplace lending platform. This phenomenon is going to change banking as we know it today, and that needs businesses that are built for the long duration with the right structures, business models and technology in place. Those who get it right will become successful, significant and stable institutions.
In this blog post, we will explore what you need to start your own P2P lending platform.
- Loan Products – The very first step is to determine the loan products you will offer. Decide whether it would be a wide array of products such as consumer loans, personal loans, auto loans, etc. or whether you want to focus on a specific product like invoice factoring only. Study the market well and determine where the gap is. You could also arrive at this decision based on your own background and strengths.
- Technology platform – You have the option of either building your own technology platform from scratch by an inhouse or an outsourced team or buying an existing software from a vendor. This is a crucial decision as it will significantly impact your time to market, your scalability and flexibility, and your overall technology setup cost. Building your own platform can take anywhere from 8-12 months while a good, established vendor can have you up and running in 1 month. Similarly, there are cost benefits to buying a software (on average building is nearly four times as expensive as buying) as the project cost is not just creation but also maintenance and upgrades.
- Credit Rating Process – The credit rating or underwriting process is a key part of a P2P lending platform and needs to be focused on. Build your own proprietary model, using a mix of traditional and behavioral metrics so that the credit rating process is robust. You could partner with a credit rating agency or build internal credit score. Although a hybrid combination of both works better. Your credit rating process is a key differentiator for this business.
- Borrowers – A P2P lending platform will only be successful if it can attract enough borrowers and lenders. Having a strong borrower acquisition strategy from the very start is key. Create a marketing plan that is smart and while needing resources does not completely sink your bottom-line. Most platforms today use a mix of social media, SEO and direct mail for borrower acquisition. Think long-term and build your brand strategically instead of only investing in tactical campaigns. Figure out ways to differentiate yourself not just from your platform competitors but also from banks. To ensure good borrower experience, your turn around time should be very low.
- Lenders – Lenders are attracted to this kind of investing as it offers betters returns on average, gives them a chance to diversify their portfolio and is easier to understand than other forms of investments. Keeping the above factors in mind, learn the return profiles of the loans that will be originated on the platform and communicate those to potential lenders. Often, marketplace lenders rely on themselves and their friends and family in the beginning to be the investors in the initial stages. To get more investors, you need to build credibility of your platform, assure low defaults and high returns.
- Regulation – Understand the applicable regulations in the market that you operate in. Some countries like the U.S. have any regulations both at the state and federal level that you will need to take into account. In India, on the other hand, there is no currently no specific license needed to operate, but it is recommended to be registered as an NBFC to gain access to the CIBIL report of the borrowers.
P2PForce is a mature software, and has quickly gained traction in the market due to the scalability and flexibility it offers to companies looking to enter the marketplace lending space.
Unlike other such software providers, P2Pforce is built from scratch, is modular and based on APIs meaning that it can easily be integrated with other systems, either in parts or in whole. It is now used by clients in UK, Singapore, Estonia, Philippines, and India.
It offers superior functionality in a cost efficient manner so that you can succeed in your quest to launch your own P2P lending platform. The software is cloud-based and can be accessed from anywhere on your browser. We also ensure that your data is secure and that you have all the technical support you need so that you never have to worry about technology, leaving you to focus on growing your business.