How To Start A P2P Lending Platform: The Complete Step-by-Step Guide

What is P2P lending?

P2P lending, also known as peer-to-peer or social lending, is a form of financial technology that allows individuals to borrow and lend money from one another without involving a bank as an intermediary. 

How does P2P lending work specifically? If you need to borrow some loans, you can go to an online P2P platform, sign yourself up, and you will be matched to potential lenders. 

P2P lending can benefit both parties. As borrowers, you get the privilege of lower interest rates, and the investors consequently can receive higher returns. 

Some examples of P2P lending platforms that are popular right now include Mintos and Zopa.

Is P2P lending profitable?

This is the big question that aspiring entrepreneurs ask before tapping into the P2P lending niche: is it profitable? 

On the global scale, the market size for P2P lending is projected to hit USD 804.2 billion by 2030 with a compound annual growth rate (CAGR) of 29.1% from 2022 to 2023. 

While the dominating region for P2P lending currently revolves around North America, the market in Asia-Pacific is quickly catching up. 

P2P lending is especially popular among small businesses as they require loans to continue operations. 

Aside from that, P2P is also commonly used for student loans, crowdfunding, and mortgage financing.

How do I create a P2P lending platform?

Now that you know the potential of P2P lending and would like to initiate a business in this field, you’re off to some good news. 

A P2P platform is typically easy to set up as it does not need any rent, physical infrastructure, or hardware. Its maintenance is also on the lower side because you won’t need to hire a lot of stuff. 

Still, you need to be aware of the legal regulations to mitigate risks. Here are the steps on how to start a P2P lending platform: 

1. Research the market

Before going on board with a business, you need to get a comprehensive understanding of the market you are entering: 

- The customer segmentation
- The size and buying power
- The demographic details (age, lifestyle, profession, etc) 
- The pain points they are trying to solve

Once you have all the data, figure out what has not been tapped yet by other P2P platforms within your competition. 

This way, your business will stand out with a unique selling point (USP) and gather a crowd of customers who will continuously use your solution.  

You can even go the extra mile by creating an MVP (minimum viable product) and then test it with actual users, collect real-time feedback, and build the real platform with improvements in mind. 

2. Register your business

Next up, your business needs to be a legal entity in its respective jurisdiction to be recognized as a P2P provider. 

There are several forms of corporations you can register your business as. But, for P2P lending providers, we specifically suggest signing up as a limited liability corporation (LLC) or UAB for the following reasons:

- More protection against creditors in case of bankruptcy or force majeure 
- More flexibility in terms of accounting and tax reporting
- No requirements to hold regular shareholder meetings 
- Agreed upon distribution of profits and losses according to the share of ownership for each participant 

When you are registering a business, here are some important aspects to prepare:

- Company name or trademark – make sure that the name has not been officially obtained by other businesses
- Official Address – the main office for the business
- The shareholders – the list of people who own portions of the stocks or dividends in your business
- The directors – at least one person should be directing the business, as it is a mandatory requirement in some territories 
- The employees or internal team – fellow department leaders or a team of staff who will be registered with your company

We understand that the paperwork to establish businesses can be complicated. In case you need to consult, our business legal experts at Demire are ready to help out.

3. Build the web platform

Make sure to make your P2P platform accessible not only through desktop but also mobile, where most of the traffic will come from. 

Here is a checklist of what you’ll need to work on when building a P2P platform: 
- Select a domain name – or also known as your website address. Keep it readable, memorable, and also unique to make sure that it’s not yet owned by other businesses. 
- Set up hosting – find a database or cloud solution that can ensure stability even in the event of traffic spikes.
- Choose a platform to build your web and app – we recommend going for scalability so that your platform can still perform well as you will continuously bring in more innovations and features. 
- Design your platform – not only based on aesthetic but also UI/UX principles. When it comes to P2P lending, functionality and navigation might be more important than appearance.

4. Add the necessary features

This may be the most important part of P2P platform development. Think of the features as the “meat” in the sandwich.

These features will be the aspects that your users will interact with. They will act as the main drivers of conversion as well as retention. 

As such, a lot of thoughts need to be taken into account. Thankfully, we have compiled a list of features necessary to add to a P2P lending app: 

- Sign Up/Sign In: make sure you are following proper Know-Your-Customer (KYC) practices 
- Bank Account Integration and Payment Gateway: set up a smooth and fast journey for the users that include integrations with a variety of payment providers 
- Lender/Borrower Matching: recommend the suitable borrowers to lenders and the other way around based on loan amount, type, credit score, and interest rate
- Request Approval/Denial: allow investors to deny or accept loan applications 
- Analytics and Payment History: enable a dashboard for investors and borrowers to track the history of the money they owe or lend
- Invoice Archives: all invoices should be stored safely as evidence 
- Payment Scheduling: make it clear when the borrowers are going to receive the money, and when the investors are going to get paid back. 

5. Promote and scale

Once you have found the first ten or even hundred users, now it’s time to expand your business. 

Here are some steps we recommend:

- Raise some capital: pitch your business to investors; not only to gain funding but also entrepreneurial assistance to scale your business
- Hire salespeople: hire people who have talent in promoting your business and converting users into customers 
- Strengthen customer support: many businesses underestimate the importance of customer support, but it is actually integral to the long-term success of your business
- Do integrated marketing: experiment with a range of marketing channels based on your customer demographics, both online and offline, see which strategies work best for you, then optimize continuously.