P2P Lending And Uberization Of Financial Services in India

The fintech market in India is attracting more and more investment, and it is becoming one of the fastest-growing markets globally, because of the growing number of start-ups in India. 

Demonetization, the Jan Dhan Yojana, and the Unified Payment Interface (UPI) are just a few examples of government-led initiatives that have supported the industry’s growth. In addition to the effects of COVID-19, the rise in contactless payments and the cascading effects of new hygiene and safety measures.

It is anticipated that the average person’s goals and startup expansions will worsen India’s lending gap. P2P platforms help with this. Even though peer-to-peer lending is still in its beginning, it is anticipated to become a $10 billion industry by 2025, according to Finextra.

What is P2P Lending?

People typically look for credit from banks or other financial institutions like Non-Banking Financial Companies (NBFCs) whenever they need money. But on many occasions, their loan applications get rejected on the basis of income, inadequate paperwork, low credit score, etc.

In such times, friends and relatives in their social circle come to the rescue, and people borrow money from them. But the people who lend the money, lend to their known only, as they are confident that they get their money back. The limitation of this type of lending model is that people can only lend and borrow from a few people in their circle. As a result, a lot of people don’t have access to money at crucial times in their lives.

During such trying times, peer-to-peer (P2P) lending can be useful. P2P lending is a much-needed way for people who want to lend money to connect with people who need money. Interest is paid by borrowers and earned by investors and lenders.

The need for institutions such as banks that act as middlemen gets eliminated by the P2P payment app development. Through a website or application, the transaction directly takes place between the two parties.

As a result, peer-to-peer lending has the potential to broaden financial inclusion worldwide. P2P lending is extremely accessible to individuals who have low incomes or credit scores. Borrowers can get a loan to fund their education, debt consolidation, business expansion, etc. with the assistance of peer-to-peer lending. P2P lending is easy to do because it can be done through websites or apps, which are also called P2P Lending Platforms.

How Does P2P Lending Work?

P2P lending is done via a website that connects borrowers and lenders directly. Users who want to lend money open an account with a P2P platform as a lender, whereas those who need a loan register themselves as a borrower.

These platforms then evaluate borrowers on various characteristics. They look at more than just credit scores in their evaluation. They check factors such as borrowers’ employment, income, and credit history, among other things. In addition, these best fintech app development services extensively use technology to track borrowers’ social media and app usage habits.

Borrowers’ creditworthiness is determined based on this assessment, and they are placed in various risk buckets. It determines the borrower’s monthly interest payment amount. A borrower’s interest rate is lower when his creditworthiness is better. Additionally, the borrower’s interest rate rises when they have low creditworthiness.

Lenders can analyze this assessment done by the platform for various borrowers and choose whom they want to lend their money to as per the risk they want to take and the return they want to earn. In the same way, borrowers, too, see the profile of lenders and reach out to them.

Lenders can review the platform’s assessment for a variety of borrowers and select the borrower they want to lend to based on the risk and return they want. Similarly, borrowers can contact lenders by viewing their profiles.

The monthly payments or transactions between the borrower and lender are not profit-sharing for the P2P platforms. Instead, they charge both parties a fee for their services. The RBI regulates these platforms to ensure that they do not engage in anything questionable or fraudulent, such as holding on to money invested by lenders or money paid back by borrowers.

P2P Uberized Financial Services in India-Understand How?

In August 2017, the Reserve Bank of India classified all peer-to-peer lending sites as Non-Banking Financial Companies (NBFC), despite the fact that P2P lending is legal in India. Currently, the P2P lending market in India has more than 30 companies which include Faircent, i2iFunding, LenDenClub, LendBox, Monexo, IndiaMoneyMart, Rupaiya Exchange, LoanBaba, CapZest, and many others.

In India, P2P lending is there since 2014, but it gained thrust in 2016-17 due to the slowdown in lending by the majority of banks. The risk quotient decides the pricing of the loans. For example, the lending rate will range from 12% to 15% for a default rate of 2%, reaching as high as 30% to 35% for a default rate of 9% to 10%.

As of today, P2P lending in India is still underdeveloped. As per the current regulations, the P2P NBFCs are not authorized to lend for a duration of more than 36 months. As a result, the trend and report on defaults cannot be evaluated until one cycle has passed, following the RBI regulations. This would take up to another two years.

The loanable funds of Rs 10 lakhs are also subject to strict regulations imposed by the RBI. Additionally, there is no guarantee of returns, which could mislead the investors. Furthermore, this will encourage fair competition. Simply put, the RBI has placed all controls where they should be. As a result, it will be interesting to see how things develop over the coming years. You can also hire dedicated developers in India, have your own customized P2P lending platform and built a new income stream for yourself.  

There are a lot of investors who are interested in lending their excess funds to reputable borrowers and earning high-interest rates. The risk of default is also reduced for newly established portals. P2P NBFCs take legal action against borrowers who have defaulted. They deduct a predetermined fee from the amount that is recovered.

Conclusion 

However, the future of peer-to-peer lending in India is promising. The peer-to-peer lending industry is expected to reach $5 billion by 2023, according to experts. In addition, many peer-to-peer lenders are actively seeking membership in credit bureaus in order to assess borrowers’ credit and report on their performance.

Thus, it is the best time for P2P lending app development. If you are also looking forward to having a customized P2P lending app, then get in touch with a top mobile app development company, they will help you in developing your app.