The core ingredient a new P2P Lending company needs is a platform to operate on. The importance of the quality of the software used for the success of the business is high. Not only does interaction with the customer nearly exclusively take place via the interface the website offers, but ideally most processes that are to be conducted are built into the software.

Examples for these are interfaces to external suppliers of credit ratings, accounting functionalities and interaction with necessary bank accounts, possibly document input and handling functions (e.g. income verification).

Unlike other web 2.0 startups p2p lending companies cannot launch on a rudimentally developed platform and eliminate bugs and improve functions on the fly in beta. Customer expectations regarding security, correctness and reporting functionalities are rightly high when it comes to handling their money. The expectations of the users are set by the trustworthiness of online banking services.
Another factor is – depending on market – the regulation authority that might require proof for the reliability of the platform/processes

The management team has the choice between:

• Developing the software inhouse
• Hiring an external contractor to program the platform according to specifications made
• Buying a tested and proven source code and use that as start for future development
• Outsource the task to a whitelabel provider who provides the technical platform and future release improvements

Developing the software inhouse

The advantage is that the software can very specifically reflect the ideas and needs of the company’s founders. The disadvantage is the high risk to miscalculate time or budget needed.

Costs when starting from scratch are high. It has taken the p2p lending companies on average a year to develop their platforms. The SEC filings of US p2p lending companies reveal figures on software development costs.

Furthermore quality and performance issues might be underestimated requiring rework.

Hiring an external contractor

This has the same risks as before as well as the requirement that the documentation of the needed functions, layouts, database structures and interfaces has to be much more specific and detailed. This requires a very comprehensive level of planning and upon delivery quality testing.

Buying a tested and proven source code

This option eliminates most of the cost and time risks. And if the selling company has established references of p2p lending companies using it’s code then the quality risks are lower to. The remaining task of customization is less complex: Adapting language files, creating the layouts, selecting functionality to be used and implementing interface that are specific to the national market (e.g. automatic interfaces to credit bureaus).
It is mandatory for the further development success that the inhouse programming team that takes over the responsibility for the software is well trained by the supplier.

Outsource the task to a whitelabel provider

While this option requires the least inhouse staff, it may restrict flexibility in product development. The company becomes totally dependant on the (st)ability of the whitelabel provider. Since p2p lending is in its early development stages this could be a risky decision. As a fallback the negotiated agreement should ask for the right to get the source code and all data handed over should the provider fail or the contract end.

While the first active p2p lending companies had to use one of the first “two” options, later companies had the choice between make or buy, and there are several examples meanwhile of p2p lending companies that bought or licensed source code from other p2p lending companies and adapted it for use in other national markets.

In some markets on of the highest risks regarding time to launch is the legal and regulation aspect. A startup hiring an inhouse programming team early, faces cost risks when legal or regulatory aspects postpone the planned launch date.

The decision to buy source code can allow the company management to negotiate the deal, concentrate on legal and other tasks (e.g. cooperations, marketing) and enact the purchase when the time frame for the launch date is more secure.

If you are looking for tested, state of the art p2p lending technology to buy or license, contact me and I’ll suggest a suitable supplier who can make you an offer that meets your requirements.

EDIT: This article was written in 2009. The situatuion has developed since then. If you are planning to start a p2p lending amrketplace and looking for suitable software suppliers please check this newer information on p2p lending software.