For the past few years, blockchain has gained popularity in transforming the financial markets by automation and securing their regular processes, and providing huge benefits to consumers. Now, multiple sectors are experiencing the positive impact of blockchain technology and therefore the lending market is also all set to be a part of it.
Blockchain technology has the power to reconstruct business models for the Peer to Peer (P2P) lending platforms. This not only brings more transparency into the overall infrastructure but also opens new opportunities for the platforms.
How Traditional Lending Processes are Inefficient?
Before identifying how the blockchain industry introduces advancements in lending platforms, the question is what issues are faced by the traditional processes that demand the implementation of P2P lending platforms built on blockchain technology?
Traditional lending processes involve a number of central authorities or intermediaries such as banks, underwriters, loan officers, etc. that ultimately add more fees for the consumers. Other issues include:
- Delayed application processes for credit or loan
- Manual processes are prone to human errors
- Ineffective management of loans
- Manual data and record management
Reasons Why Blockchain-based Lending Processes are Solution
This section describes how blockchain services play a vital role in streamlining the processes of P2P lending processes. Blockchain like many other industries holds the power to digitize and securely transform regular business functions in a very seamless and transparent way.
Blockchain technology eliminates the need for intermediaries from the system. It offers multiple benefits to the industry that include:
Time-Saving: Blockchain technology makes the entire infrastructure fast and seamless by adding regulations in the computer programs called smart contracts
Rate of Interest: Smart contracts can auto-generate the fixed rate of interest based on which lending could be done
Reduced Cost: Blockchain technology reduces the cost of lending by allowing borrowers to deal with the lender directly instead of communicating through the intermediaries.
Stakeholders in a P2P Lending Blockchain
In blockchain software development for P2P platforms, the following stakeholders are involved.
Lenders: Who lends the money
Borrowers: Who borrow money from a lender for a loan
Guarantor: A person who gives a guarantee for the borrower to send the loan back
Steps Involved in P2P Blockchain Lending Platform
Below are the steps that make a blockchain-based P2P lending platform.
Step 1: Lender Profile Creation
To create the lender profile, the user needs to give the following set of information.
- Personal information (Name, ID number, and address)
- Bank account number
- Type of investment
- Criteria to set up the rate of interest
Step 2: Lender to wait for loan requests
After account creation, the lender waits for a request from the borrower after which an interview is scheduled.
Step 3: Borrower Account Creation
A borrower account is created using the following set of information
- Personal information (name, ID card number, and address)
- Legal documents
- Collateral
- Crypto coins
Step 4: Loan Request from Borrower
Once the accounts are set up, the borrower can now send the loan request to all the lenders. All this functionality is enabled through smart contracts and deployed on the blockchain network that automatically processes it.
Step 5: Lender-Borrower Interview
In this step, a lender conducts an interview with the borrower
Step 6: Rate of interest in Smart Contract
Once the loan request is approved by the lender and borrower, then the smart contract devices rate of interest based on the type of investment
Step 7: Payments using Smart Contracts
Here is the most important and last step of the P2P lending process through blockchain development services. In this step, borrowers can make the payment automatically using smart contracts that are embedded with the crypto wallet/account of the borrower. If the borrower does not pay installments on time, smart contracts will add a late fee to the actual amount that is further recorded.
To conclude, blockchain technology has proved itself to be an efficient secure way for P2P lending platforms to get transformed. It automates business functions and offers a variety of use cases. Blockchain-based solutions are replacing traditional lending processes. If you are also looking to develop a blockchain-based P2P lending platform, then look for the best full-stack blockchain development services and become part of blockchain-powered businesses.
