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Where does Fintech P2P Lending get its profit?
Published on 24 Nov 2023
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Where does Fintech P2P Lending get its profit?
Fintech peer-to-peer (P2P) lending is an industry that has grown rapidly in recent years. It allows individual businesses and entrepreneurs to borrow and lend money to each other through an online platform.
These transactions are done without going through traditional financial institutions such as banks. However, the data and transactions are strictly guarded so that they take place without harming either party.
Where does Fintech P2P Lending get its profit?
There is not much profit to be made from P2P Lending platforms. So, where do P2P lending fintechs get their profits from? The following will explain how P2P lenders benefit from their customers.
1. Interest or Return on Capital
One of the sources of profit for P2P lending platforms is the interest or return on capital given to the recipient of capital. In this business model, Fintech P2P Lending acts as an intermediary between investors (lenders) and capital recipients. Recipients of capital pay a return or interest on the capital they receive. Generally, this business model is used by P2P Lending which is consumptive or personal loan.
When you apply for funding through a P2P lending platform, you and the platform agree to determine the amount of interest rate or yield that is feasible for your application.
Borrowers pay interest on the loans they receive, and a portion of this interest becomes revenue for the platform.
The profit from this interest comes not only from the number of capital recipients, but also from the different types of loans offered, such as personal loans, small businesses, or education loans.
By carefully managing and mitigating credit risk, P2P lending platforms can set an appropriate interest rate to appeal to both parties, while ensuring the sustainability of their business.
2. Service Fees
In addition, P2P lending platforms also charge service fees to both parties, namely lenders and borrowers. These fees can be in the form of registration fees, handling fees, and others.
All of these fees will generate additional revenue for the P2P lending platform, which is then used to run its operations and make a profit.
3. Product and Service Development
Fintech P2P lenders don't just stick to the conventional business model. To stay competitive and thrive, they constantly develop new products and services. Through diversifying their portfolio, P2P lending platforms can expand their market share and offer more comprehensive solutions to their users.
The development of new products, such as loan insurance, financial consulting services, or lending models based on blockchain technology, can be a source of additional revenue. Moreover, these innovations allow platforms to stay relevant amidst changing market dynamics and evolving customer needs.
Investors involved in P2P lending platforms may also get a return on investment (ROI) from the interest received by lenders. This creates a win-win business model and supports sustainable growth.
4. Strategic Partnerships and Investor Engagement
In addition to relying on revenue from interest and service fees, P2P lending fintechs also often establish strategic partnerships with other financial institutions or invite investors to get involved in their platforms. These partnerships can bring additional capital investments that help the platform in further growth and development.
In some cases, traditional financial institutions such as banks may collaborate with P2P lending platforms to provide funds or provide capital as lenders. By doing so, the platform can expand its market share and gain more trust from users.
As such, Fintech P2P Lenders benefit from multiple sources, including interest, service fees, and product and service development. This combination of strategies allows them to provide added value to both parties while maintaining their business sustainability amidst intense competition.
The future of successful fintech P2P lending depends not only on earning financial returns but also on their ability to provide added value to users, maintain business integrity, and contribute to inclusive economic growth. By focusing on innovation, safety, and sustainability, fintech P2P lending can continue to be a positive force in the modern financial world.
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1. Tech-based Islamic Financing service (P2P Financing) is a civil agreement between Funder and Beneficiary, in which all risks are charged to all parties.
2. Payment failure is charged to the Funder, except for fraud case and mismanagement. Beneficiaries are imposed if fraud and mismanagement happens as in Risk Sharing terms based on Islamic Principles. There is no national institution or authority that is responsible to financing risk or payment failure or compensating on any parties including loss, failures, fees or consequences after.
3. The platform with agreement from all respective users (funders and/or beneficiaries) accesses, gains, stores, manages and/or uses users’ personal data (Data Utilization) on or in the objects, electronic devices (including smartphones or cellular phones), hardwares or softwares, electronic documents, applications or electronic systems belong to Users or managed by Users, upon the information of aims, limitations and mechanism of Data Utilization to the Users before the approvals.
4. Funders with limited knowledge on this financing are suggested not to use this service.
5. Beneficiaries are obliged to consider return rates/margin/service fee and other fees according to the ability to repay the financing.
6. Each fraud is recorded electronically in cyberspace and easily recognized by public through social media.
7. Users should read and understand this information before deciding to be a Funder or Beneficiary.
8. Government as in this case is Otoritas Jasa Keuangan (OJK) / Financial Services Authority is not responsible for violation or disobedience of users, Funder and Beneficiary (intentionally or unintentionally) against terms and conditions or agreement or attachment between the platform and Funder and/or Beneficiary.
9. Each transaction and financing activities, funding, financing or enforcement agreement regarding financing between or involves the Platform, Funder, Field Partner and/or Beneficiary should happen through escrow account and virtual account as stated in OJK regulation No. 77/POJK.01/2016 about Tech-Based Financing Services.
