How to Start a Peer to Peer (P2P) Lending Business

Various projects raise a total of $25-30 billion a year through crowdfunding. Major players on the market are technology startups looking for funding. In addition, the volume of successfully raised funds is only growing every year. The projected CAGR between 2024 and 2032 is expected to be 18%. But if you are thinking of launching a business in this niche, you don't have to stop only at classic sites where the principle of reward-based funding works (Kickstarter platform is a vivid example).

Crowdfunding in 2024 is presented in different variations: you can bring together loans and borrowers, offering them a P2P model (crowdfunding service), developers' companies and investors (equity crowdfunding) and so on. Your CA, depending on the chosen direction, can be designers, game creators, writers, large existing real estate companies, technological or educational startups. We will tell you more about this market and interesting innovations that you can use when creating your platform and start a peer to peer lending business.

How Kickstarter, Zopa, Propy changed the world of funding projects

Previously, startups/companies/private individuals, in order to get funding or take a loan, most often turned to traditional financial institutions. For example, banks. However, since 2008-2009, another method - crowdfinancing - has been gaining mass popularity. This is receiving funds through online platforms from individuals.

If we are talking about reward and equity crowdfunding, then, according to TheCrowdDataCenter research, the average number of sponsors per 1 project is 300+. The average success rate of crowdfunding companies is 22.4%, but the chances can be significantly increased if you set realistic goals and choose a model of not 100% funding of the idea, but only partial funding.

TheCrowdDataCenter: Statistics on crowdfunding projects in 2024.

Kickstarter and Indiegogo - what is their specialty?

Kickstarter and Indiegogo were the first major players in this market. These were the first platforms that started the crowdfunding boom, and they still lead the market in terms of completed projects. Both platforms follow a reward-based funding model. That is, investors in return for their investment in the project receive:

Goods;

Services;

Privileges in the context of the funded project.

The emphasis on Kickstarter is on creative startups. For example, funding through this platform is often sought by designers, writers, artists, and so on. Indiegogo has a wider audience: from technology startups to large charitable projects.

Kickstarter: Crowdfunding platform Kickstarter

The difference between these 2 platforms is also in the fundraising models. On Kickstarter, the default principle is that a startup/company receives funds only if it manages to get 100% of the named amount. Otherwise, the money will be returned to the contributors. You can choose more flexible model on Indiegogo. It is possible to get partial funding even if not the entire amount is raised.

How do the owners of these platforms earn money? Through commissions from each successful project. The main fee is 5% of the amount. But additional commissions may be charged, for example, for processing transactions.

Zopa is the first major company in the P2P lending marketplace

Zopa is an English company introduced a peer-to-peer lending business that changed the loan market in 2005. In this model, a borrower could get funds for business development or even personal needs directly from individuals. This is beneficial to both parties:

The borrower gets a loan at a lower % rate than banks;

The lenders receive an income, which is often higher than investing in shares or placing deposits in banks.

In doing so, Zopa implemented its own credit rating system and ensured that all lenders/borrowers were screened to minimize risks. The platform also had a deposit insurance option. The platform was repositioned later on from P2P services to more traditional banking services.

Owners of P2P lending sites earn money through commissions. Fees are charged to both borrowers and lenders for each transaction + a separate fee for transaction costs.

P2P lending market size was estimated at $153.23 billion in 2023, with a CAGR of about 23% for this niche. So based on GlobeNewswire's forecasts, the figure could reach $800+ billion in 2030. According to Market Research Future, the result will be slightly lower, but they also predict an impressive market size of $556.15 billion by 2032.

Market Research Future: Projected P2P lending market size

In any case, Zopa has significantly impacted the world of loans/credit. By 2024, following its example, over 300 P2P lending platforms have been launched and are already operating.

Propy and a new kind of real estate investing

The company was launched in 2017 and is considered the first to enable real estate investment through blockchain technology. It works on the principle of equity crowdfunding. Developers/real estate companies can offer their properties. Meanwhile, investors can become co-owners by buying a stake in specific properties. What is the innovation:

The option of tokenization of the property is used. Thanks to this, investors can invest a small amount and purchase only a share of the property. The minimum investment starts from $100. Much depends on the type of object. But in any case, it has significantly lowered the entry threshold in this niche;

Transactions are conducted via blockchain. Smart contact technology guarantees automatic and fair fulfillment of the terms of the transaction by both parties;

Investors receive a proportional share of rental income depending on the number of tokens purchased.

Practically at the same time as Propy, the sites Harbor (offering tokenization not only of real estate, but also of other assets), BitRent and RealEstateCoin were launched. In 2024, RealT, which operates on the Ethereum blockchain, is considered the market leader. It has more than 10,000+ investors registered on it. It is predicted that the real estate tokenization market could reach $4.2 trillion by 2025.

These platforms also earn money through commissions. It usually includes transaction fees for buying/selling tokens (1-3% on average) and annual fees for account maintenance and storage of digital assets (0.5-3%).

How is the world of crowdfunding and P2P lending changing?

The main focus is on the introduction of new technologies. This includes the use of blockchain technology + smart contracts, the integration of artificial intelligence (AI) and machine learning (ML) algorithms, greater adaptation to mobile devices. The goals are simple:

Increased transparency and security;

More automation;

Reducing risks for participants;

Increased convenience through the introduction of new tools;

Reducing risks;

Improved collaboration.

Crowdfunding platforms that have already adopted modern technologies

Previously, we talked about promising technologies that can improve crowdfunding services. They are not yet massively implemented in 2024, but some investment platforms are already using them.

For example, there is a crowdfunding site KICKICO, which operates on the popular Ethereum blockchain. This platform has a narrow specialization: it collects funding for projects related to cryptocurrencies. For example, through the site you can hold an ICO, raise funds for the development of dapps (decentralized applications) or other crypto-startups, such as p2e games. Key nuances:

Both equity and reward-based crowdfunding is possible;

Investors receive cryptocoins in exchange for their investments (these can be coins, service tokens, and so on);

Security of transactions is guaranteed by smart contracts.

Like Kickstarter, this platform imposes conditions - the project receives funding only if it collects 100% of the agreed amount. The site earns commissions from each successful collection.

KICKICO: Example of a successfully completed collection on the KICKICO platform

Gitcoin is another interesting crowdfunding platform that makes full use of blockchain and cryptocurrencies. This is a narrowly specialized resource for supporting developers and helping to fund open-source projects. It runs on the Ethereum blockchain. Projects related to blockchain technology and Web3 can apply for grants and collect the right amount from investors registered on the platform. Gitcoin has also introduced several additional options to support developers that are not directly related to crowdfunding:

Competitions for developers (hackathons) with prizes for solving problems;

A bounties system with rewards in cryptocurrencies also for completing development-related tasks.

Gitcoin: Statistics on projects of the crowdfunding platform for Gitcoin developers

Colendi and WeTrust platforms are also using an interesting new approach. They have implemented social lending systems + users receive reputation tokens. For example, WeTrust is a P2P blockchain lending platform. For fulfilling transaction obligations, users receive reputation tokens, which increase their rating and give them more opportunities to get financing on more favorable terms. The blockchain-based P2P lending platform Colendi also uses reputation coins and creates social credit ratings. Based on this data, access to credit/loan transactions is given. This builds trust, ensures transparency and

Colendi Signature: P2P lending platform with reputation tokens

Other platforms whose advantage is the usage of blockchain technology can also be recalled in the field of P2P lending.

For example, two of the top two decentralized decentralized websites (DeFi): Aave and Compound. Both are powered by one of the most popular blockchains, Ethereum. In this case, loans/credits are issued in cryptocurrency, but not quite in the traditional way: investors can provide their funds to liquidity pools, from which other participants can receive loans. For example, there is a flash loan option on Aave. This is a short-term loan that a user can take out in cryptocurrencies and use for specific transactions, but they must repay them within a single transaction.

Artificial Intelligence (AI) and Machine Learning (ML) technologies have not bypassed the P2P lending sphere either. For example, the blockchain platform Celo is interesting. Though P2P lending is not its main specialization, but it has separate dapps/protocols that would be suitable for these functions. AI algorithms can be used to evaluate borrowers/their credit histories through Celo apps/protocols: this not only speeds up the speed of data processing, but also reduces risks. After all, artificial intelligence gives more accurate results. Since transactions are then conducted via smart contracts, this has a positive impact on the security and transparency of transactions.

White label or creating a platform from scratch?

If you wish to launch your own crowdfunding platform, regardless of the type you choose, you need to decide whether you will build it from scratch or purchase a white label solution. In our company Merehead you can choose both options. And the simplest sites will cost up to $40,000, more complex ones - up to $60,000. We also offer the launch of the most feature-rich platforms with dozens of extra options, such as decentralized crowdfunding platforms on blockchain (Ethereum, Solana and others). Such solutions will cost from $60,000 to $120,000 depending on the specifics.

We have over 9 years of experience specializing in launching platforms and applications that are related to the world of financial transactions. Our developers are actively working with blockchain technology and cryptocurrencies, so we can easily integrate these options into your website.

Is it White Label or creating from scratch? If you want to get into the market as soon as possible, White Label is the best choice. It's a cost + time saver. In this case, we will select the right template for you and edit it to suit your needs and brand (this applies to both functionality and UI/UX design).

However, if you have original ideas for P2P lending or equity, reward-based crowdfunding, it's better to choose a full-fledged development. For example, if you want to implement AI algorithms or add non-standard functionality (tokenization option, reputation coins and so on). Which in any case should be taken into account before starting development:

The first step is to choose the functionality. We have described previously about 3 types of crowdfunding. Occasionally platforms combine them, for example, they offer both P2P lending and reward crowdfunding. But more often the site has 1 specialization;

Innovations	Crowdfunding niche	Description	Advantages
Mass introduction of asset tokenization option	Particularly relevant for equity financing in equities, real estate and P2P lending	Investors will be able to purchase shares from any assets in the form of digital tokens, as they will be split into smaller pieces	· Lowering the entry threshold for investments; · Increased liquidity; · Reduced costs for the platform, as transactions will be conducted via smart contracts; · Increased accessibility and reach to a wider CA; · Increased transparency; · Simplification of transactions and ease of asset management/storage, as everything is done via blockchain
Artificial Intelligence (AI) + Machine Learning (ML)	Primarily for P2P lending niche	Technologies will help to analyze risks more effectively, evaluate borrowers and lenders, and optimize interest rates	· Automatic and fast analysis of lender/borrower data; · Instant correction of interest rates depending on the market situation; · Reduction of defaults
More decentralization options (DeFi platforms continue to gain popularity)	All kinds of crowdfunding	Customers will be able to receive funding and send funds/rewards without intermediaries through decentralized platforms on blockchain	· Maximum transparency; · Reduction of financial costs by eliminating intermediaries; · Automating transactions and increasing their security through smart contracts; · Erasing borders: participants in transactions can be located in any part of the world
Mass adoption of cryptocurrencies for transactions	All kinds of crowdfunding	It will be possible to invest/loan and receive loans not only in fiat but also in coins and tokens	· Simplification of international transactions; · Instant transactions; · Reduction of risks due to market volatility through transactions in stablecoins. Especially relevant for users from countries with unstable economies and weak national currencies;
Adaptation to mobile devices	Especially relevant for P2P lending	Invest and receive microloans quickly through apps	· Market expansion, CA will include countries with a limited number of banks; · Ability to participate in crowdfunding 24/7; · In combination with the integration of cryptocurrencies will maximize the speed and simplification of transactions