Understand the Difference between Peer-to-Peer (P2P) Fintech and Crowdfunding

Financial Technology (Fintech) has changed the way we interact with money, investments and loans. For internet users, the term Crowfunding might sound more familiar than Peer-to-Peer (P2P) lending, right?

For the common people, they might think that they are the same; both are ways to get funding online.

But the two concepts, Fintech Peer-to-Peer (P2P) and Crowdfunding, have different meanings.  Do you know what the difference is?

Yes, even though both seem the same at first glance, they actually have differences in terms of goals, characteristics, risks, and other important aspects that need to be understood. Let's take a closer look at the differences between P2P Fintech and Crowdfunding through this article.

Differences in Purpose and Characteristics of P2P Lending and Crowdfunding

P2P Fintech has a purpose that focuses on lending and borrowing directly between individuals or companies without involving traditional financial institutions. P2P platforms create an ecosystem where borrowers can connect directly with lenders, thereby creating transparency and efficiency in the lending process.

Crowdfunding, on the other hand, is more collaborative, involving a large number of individuals donating funds to support a particular project or initiative. Crowdfunding is commonly used to support creative projects, startup companies, or charitable causes.

Differences in P2P Lending and Crowdfunding Funding, Risks, and Regulations

In P2P Fintech, loans can be of various types, including personal, business, education, and property loans. Borrowers can seek loan funds at an agreed interest rate with the lender. Crowdfunding, on the other hand, generally focuses on a specific project or cause. Donors generally do not expect a direct financial return, but often receive rewards or moral satisfaction in return.

P2P fintech has credit risk. This is due to the possibility of borrower default. However, lenders often earn higher returns than traditional investments. Crowdfunding, on the other hand, is riskier because the funded project or company may fail. Contributors, meanwhile, do not get a direct financial reward and have to be satisfied with the outcome of the project or initiative they have supported.

In terms of regulation, these two models are under different regulatory oversight. P2P Fintech is governed by financial and banking regulations, while Crowdfunding is governed by different regulations depending on its type, such as equity Crowdfunding or debt Crowdfunding.

Choose Fintech Peer-to-Peer (P2P) or Crowdfunding?

After getting to know the differences between the two, now it's time for you to choose, is Fintech Peer-to-Peer (P2P) or Crowdfunding better? To answer this question, of course, it must be tailored to your personal needs and preferences.

If you want to support a creative project, let's say you want to support your favorite creator. Supporting him through a crowdfunding platform to fund his creative project could be suitable for you. As for the utilization of the funds itself, it is up to the creator you are supporting, however, providing support through a crowdfunding platform does not require the person being supported; the creator, to provide returns to their supporters because it is not an investment.

On the other hand, if you want to earn returns/profit, fintech Peer-toPeer (P2P) Lending will be more suitable for you. Because the form of activity is investing in businesses, whether it is managed by individuals or companies, of course, the recipients of funds have a duty to use the funds as well as possible in their business operations in order to return the loan funds to investors with the agreed return at the beginning.

From the explanation above, it can be concluded, although P2P Fintech and Crowdfunding have similarities in empowering individuals to obtain or provide funds directly, there are fundamental differences that need to be understood. Especially for those of you who want to get involved in one of the two. Hope you find it useful!