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. Continue reading →