Peer-to-Peer Lending App Development: Everything You Need to Know

Traditional money lending is difficult. Besides a ton of paperwork and high interest rates, potential borrowers are unhappy with having to complete the entire process offline. The last few years have clearly shown that most financial operations can be done digitally, including moneylending.

This is where peer-to-peer (P2P) lending apps come into play. Why go outside, stand in line, fill out physical papers, and wait for credit approval when everything can be done in a matter of minutes without even getting off the couch? This is why P2P loan lending platforms will only become more prevalent in the near future.

There are already plenty of solutions that can help people get the loans they need, but the market is still growing. So, if you have an idea for building a P2P loan application, this article is for you. We will discuss how peer-to-peer lending services work, what tech stack to choose, and what to consider before beginning development.

What are P2P loan apps and how do they work?

Let’s start with the basics. Peer-to-peer lending is a form of money borrowing where both parties are equal. For example, the parties can be two companies or two private individuals. There is no intermediary between a lender and a borrower, so the whole process takes less time, and loans generally have lower rates. P2P lending includes crowdfunding, student loans, and mortgage financing. 

A P2P lending app is a mobile application that connects borrowers and lenders and facilitates communication. The app doesn’t work like a traditional intermediary since its sole purpose is to facilitate the deal. Since there is no third-party involvement, the interest rates are lower and loans are approved more quickly.

If you ask us to describe the process of money lending via a P2P mobile app, the process looks like this:

If a person registers as a lender, they can post a lending offer that borrowers can apply for. Once they have reviewed the application, they can approve or deny it, and arrange for disbursement. If a person signs up as a borrower, they can create a borrowing request or look through available offers and apply for them. When both parties agree on the terms, they sign a loan agreement, and the borrower receives the money. The borrower repays the loan according to the terms of the agreement.

A P2P lending app requires fewer resources for maintenance. You don’t have to spend money on rent, staff, physical infrastructure, or hardware. To get your services up and running, you will need a reliable P2P loan app development company.

Benefits of P2P lending

We have already mentioned some of the benefits of P2P lending apps, such as low interest rates and quick loan agreements. However, there are even more advantages both borrowers and lenders can expect from using such an application. 

For borrowers

• Almost zero third-party involvement: On P2P loan platforms, borrowers and lenders connect directly with each other. Since there is no bank or credit union involved, you don’t have to pay any service fees or collect a pile of documents to prove that you are worthy of credit.

• Utmost flexibility: The list of potential lenders who can finance the goals or ideas of borrowers is almost unlimited, so borrowers can choose the most beneficial and discuss the terms in detail. Moreover, you don’t have to provide any collateral, meaning your assets will stay protected.

• Detailed inspection: Even though collateral is not a requirement, the P2P lending app thoroughly checks everything to prove the borrower’s solvency. It helps the service maintain credibility and ensure trust between borrowers and lenders.

For lenders/investors

• Higher ROI: Even though it may seem unreal,  P2P lending has one of the highest return on investment (ROI) rates compared to other types of investments, like deposits or the stock market. Thus, if you want to receive a profitable source of passive income, becoming a lender is one of your best options. 

• Fraud prevention and risk assessment: Not getting your money back is one of the most heartbreaking things that can happen to a lender. To avoid situations like this, P2P lending apps create fraud detection systems and apply strict policies to protect lenders from fraudulent activities.

• Portfolio diversification: Experienced investors never put all their money into one project. They try to diversify their investments to minimize the risks and generate more profit. P2P lending can be a good opportunity for diversification.

Best P2P lending apps on the market

When you decide to enter the P2P lending market, you need to conduct a competitive analysis to see what financial services you will be competing against. It will also help you understand your target audience’s preferences, what features they use, and what the existing solutions lack. 

Here are some of the most successful peer-to-peer loan apps that have already earned users’ trust.

LendingClub

LendingClub is one of the oldest peer-to-peer lending services. Released in 2007, it has both web and mobile versions. If you need a business, medical or personal loan, or car loan refinancing, you can opt for this service. LendingClub currently has around four million (!) members, and that number speaks for itself. The platform also protects lenders from late repayment with a 5% late fee.

Speaking of the mobile version, it’s available on iOS and Android, so a wide pool of people can access easy borrowing options.

Source: LendingClub

Funding Circle

This platform is a great example of a niche P2P loan app. The main goal of Funding Circle is to help small businesses raise the necessary funds to expand and flourish. The interest rate ranges from 11.29% to 30.12%, and the term varies from six months to seven years. Funding Circle has already helped more than 130,000 businesses reach their financial goals.

The app has a pre-qualification tool and multiple loan options available for borrowers. However, it’s important to remember that Funding Circle charges an origination fee of 3.49%-6.99% of the loan amount.

Source: Funding Circle

Upstart

Another interesting P2P lending solution is Upstart. In order to determine whether a borrower is able to repay the loan, Upstart reviews the borrower's academic credentials and employment status. This strategy gives people with lower credit scores access to the financing they need. However, the minimum loan amount allowed is $5,000, and borrowers cannot co-apply with another person.

Source: Upstart

Feature list for a P2P lending app

Technically, you can include any feature you want in your future mobile P2P loan app. However, since the lending market is already pretty well-established, users have certain expectations of what a peer-to-peer lending app should do. So, here are a number of features you should include to make users feel comfortable.

• Sign up/Sign in

The registration process is more complex for fintech apps in general than for any other type of mobile application. It’s known as a KYC (Know Your Customer) verification. When a new lender or borrower signs up for the app, they need to provide sensitive information, like a passport, bank account number, and business description. Then, users can choose the sign-in option they are comfortable with, such as email, biometric authentication, or two-factor authentication.

• Bank account integration and payment gateway

You will need to provide a seamless and effortless bank account connection. It’s necessary for safe money transactions from a lender to a borrower and fast payment processing. You can also consider more options to transfer money, like digital wallet integration.

• Lender/borrower matching

The lenders should be provided with a recommendation list of suitable borrowers. Borrowers should see a list of the best offers available to them. To create recommendations, the app can use data like loan amount and type, interest rate, and credit score.

• Credit score calculator

The app should help users check their credit scores. Before applying for a loan, a user should mention their credit score in their profile so that investors can make more informed bidding decisions.

• Request approval/denial

Investors should be able to accept or deny loan applications. If lenders don’t want to spend their time looking at all potential matches, they should be able to set up automatic acceptance.

• Analytics and payment history

Both borrowers and lenders need a set of dashboards that will show how much money they still need to pay, payment history, and invoices to prove that all payments have been made on time.

• Payment scheduling

All parties will benefit from a loan repayment schedule. It helps both parties to receive notifications about future installments and saves borrowers any penalties and late fees.

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Business models for a P2P loan app

While P2P apps merely connect parties and provide user management, they can still be monetized. When you start building your business plan, consider three main options for monetization.

• Ongoing fees

This method is based on marginal interest rates.  For example, if a borrower agrees to the rate of 6%, the lender will get 5% and 1% will be charged as a fee.

• Registration fees

The app charges borrowers a certain fee when they register in the P2P lending app for the first time. This fee covers the time and effort the app spends on reviewing the borrower’s credit score and reliability. When the screening is done, the service provides access to recommended lending offers.

• Subscription fees

Some P2P lending applications offer premium services and memberships for a fixed monthly or yearly subscription. This monetization model functions well as an additional source of revenue.

Strategy for building a P2P loan app

Building a P2P lending app is a complex process that requires structure and vision. You can hire an in-house team of designers and software development engineers, but it will cost plenty of time and money. Another option is to partner with a development agency that can provide P2P lending development services. This option will be cheaper, but you need to pay close attention to the communication between you and the team.

Here at Yellow, we follow a set of steps that allows us to create high-quality mobile P2P lending services.

Step 1. Market research

Before any design or development work starts, you need to have a clear understanding of the market you are entering. Competitive analysis and target audience research will help you with that. Both of these processes will allow you to know more about what your potential users want and need.

Market research is a substantial part of the discovery phase. If you want to go through a discovery phase to learn about the P2P lending market, feel free to contact us.

Step 2. Platform choice

You can either create a native or cross-platform application. A native app means your solution will function only on one platform, iOS or Android. The development process will require more budget and resources, but native apps are usually more stable and allow you to use certain features unavailable to cross-platform apps. So to cover both platforms, you will need two separate apps that need to be synchronized with each other.

A cross-platform app has one codebase for both platforms. It’s cheaper than two native apps. However, you should be prepared to face more possible bugs and performance issues.

There is no perfect choice. Everything will depend on your goals, timeframe, and budget. 

Step 3. UX/UI design

When we speak about financial solutions, it may seem as though looks don’t matter. The main part of a P2P lending app is functionality, then comes design. However, you should never neglect user experience and user interface. A good UX/UI will create a good first impression and allow users to feel comfortable in the app.

We strongly recommend starting the design process with a prototype, a rough black-and-white set of screens that reveals the app’s core structure. This step helps you to identify the core mistakes in the layout and business logic and correct them without wasting resources.

Step 4. MVP development

To test the waters before the full-fledged development process, you can create a minimum viable product (MVP). This includes the deployment of only the most important features the app needs to perform its main function. This stage will allow you to see if the audience really needs your solution and what you should add to make it better.

Step 5. Testing

Even though testing is named as a separate step, testing should be integrated into every stage of the P2P software development process. You can apply both manual and automated tests to make sure your app works like clockwork.

Another testing option to consider for a P2P loan solution (and many other financial services) is penetration testing. This mimics a cyberattack on your software to analyze your security measures and improve data protection. A P2P lending app can use this type of test to ensure that user data stays safe.

Step 6. Release and support

The last but not least step is the MVP release. When your app is up and running and you start to receive the first real user feedback, you need to listen carefully. Then, you should make updates and fix bugs. 

Step 7. Marketing and promotion

Technically, this step can be realized during the whole development process. For example, you can use social media to pique your target audience’s interest in your solution. When your P2P lending platform is up and running, you can also implement SEO and ads. Customer acquisition can also be accomplished through influencer marketing. Also, to improve user engagement and customer retention, you can consider content and email marketing to share useful information about moneylending.

Tech stack and team members

We have discussed the benefits, features, and development strategy for a P2P lending app. Now, let’s go over the people and tools you will need to turn your idea into reality.

A perfect team for mobile P2P loan app development will consist of the following specialists:

• Project manager - To organize the team, control the process, and communicate with you about the project’s progress, obstacles, and ongoing results.

• Business analyst - To conduct market research and prepare the necessary documentation.

• UX/UI designers - To create a simple, convenient, and eye-pleasing user experience. 

• Frontend engineers - To write the code for the platform you’ve chosen. They will create what is called a “client-side”—the part of the app that users interact with. 

• Backend engineers - To build server-side logic and integrate the work frontend engineers do. Server-side is responsible for all under-the-hood processes like payments and working with databases.

• QA engineers - To search for bugs.

Once the team is ready, we can move on to the technology stack. Here is a list of technologies we use and recommend for a P2P lending app.

• iOS: Swift 5, UIKit, MVVM+C

• Android: Kotlin, MVVM+C, Android Studio/Eclipse 

• Admin panel: Node.js, React

• Payment gateway: Stripe, PayPal, Braintree, Mastercard (other options are also suitable)

• Geolocation: Google Maps API, Mapbox

• Server: AWS

• Utilities: Firebase, Twilio, Facebook SDK, Google SDK

• Notifications: Amazon SNS, PubNub, Firebase Cloud Messaging

• Unique ID and OTP verification: Twilio, Rest APIs

• Sending bills and invoices: third-party SDKs like Firebase, Twilio, or Nexmo

• Biometric authentication: Face ID and Touch ID for iOS, Biometric Authentication for Android

Crucial considerations

In order to develop a successful fintech software solution, P2P lending apps need to take many considerations into account. Here is a list of the most important points you need to think about before and during the development.

• Reliable banking partner: You’ll need a banking partner to take care of transactions, so look through all available offers to choose the most favorable and/or look for negotiable terms.

• Legal compliance: Your P2P loan app must comply with a variety of local, state, and international policies and regulations that apply to your target region. The best way to ensure compliance is to hire a lawyer experienced in digital lending.

• General Data Protection Regulation: GDPR ensures that your users have basic rights such as access to information, portability, and erasure of their data.

• Onboarding and verification: To meet AML standards, make sure borrowers have detailed onboarding and verification processes.

• Integrations: Your P2P lending solution must be scalable enough to allow multiple integrations like payment systems, wallets, and banking providers.

Summary

The P2P lending market is growing and definitely isn’t slowing down any time soon. This form of borrowing money is fast and convenient, so people are opting for P2P lending more and more often. And even though plenty of financial businesses provide this service, there are still niches to be covered. So if you have an idea for building a P2P lending app, now is the best time to start.

Yellow is ready to help you make it happen. Feel free to drop us a line, and we will discuss your P2P lending app idea in more detail. We will also be happy to discuss your other fintech ideas, like trading or digital banking.