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    Loan App Development: What You Need to Know

    In a world where more and more people become customers of fintech startups in addition to or instead of traditional banks, the way how we lend and borrow money changes as well as how we invest, save and spend it. Peer-to-peer (P2P) lending or crowdlending, when individuals lend and borrow money directly from each other, has grown steadily over the past five years and is forecasted to reach $390.5 billion by 2023. Business P2P lending makes up around 70% of the alternate loaning market, while the other 30% are made up by consumer P2P lending.

    P2P lending apps connect individuals, letting lenders invest and get attractive returns and borrowers — get instant mobile loans without a tedious application process. Having created several banking apps and crypto trading platform, we at Surf have extensive experience in developing fintech apps. If you want to create a loan app, you’re welcome to read this article — we’re going to explore the most prominent players on the market, how to build a loan app, what features to include and important things to consider before starting a lending business.

    Top Lending Apps in 2021

    Prosper: Invest

    Prosper was founded in 2005 in California. Since then, the fintech startup has facilitated loans to over 900,000 people on more than $15 billion. The company’s mobile app Prosper: Invest is focused on investors, where they can easily add funds to their accounts, browse and choose individual loan listings for investment and see portfolio performance. Currently, borrowers use Prosper’s website to apply for a loan.

    Avant

    Chicago-based fintech startup, Avant has a mobile app for borrowers, where they can pay down their loan, access transaction history and receive prompt notifications regarding their account. Currently, there is no app for investors, and borrowers need to initially apply for a loan through the company’s website.

    Funding Circle

    Funding Circle is a UK startup focused on loans of up to £500,000 for small businesses. The company’s mobile app for investors provides a summary of their lending and lets them add and withdraw funds, as well as change lending settings. To apply for a loan, borrowers have to use a web interface.

    MyConstant

    MyConstant is a P2P mobile lending platform launched in early 2019 that allows lending and borrowing for individuals and businesses in USD or over 60 cryptocurrencies. The app lets users choose comfortable interest rates and terms and then matches lenders and borrowers. All lending is backed by cryptocurrency collateral protecting investments.

    Loan app pros & cons

    To create a successful P2P lending startup it is important to understand why people choose to borrow and lend money through emerging lending platforms and what sets them apart from conventional banks and big finance corporations.

    Benefits

    Small interest rate and higher returns. With direct lending, customers don’t have to pay a bank for its services, which usually includes costs of office maintenance, salaries of a large number of employees and other expenses. This means that borrowers get smaller interest rates, while lenders get higher returns because there is no expensive intermediary that consumes a large part of the interest.

    Less paperwork. To apply for a loan, traditional banks require a borrower to fill out many documents and even visit one of their physical offices. Because visits to bank branches are not convenient, especially because of the COVID pandemic, P2P lending offers a better alternative — the whole application process is done digitally via a website or an app with a smaller amount of documents.

    Flexible conditions. With P2P lending, both lender and borrower have full control over lending sum, deadlines and interest rates. Most lending platforms let customers set their conditions and then match the borrower with the fitting lender.

    Thorough inspection. Despite the simplified application process, all borrowers are required to upload their passport, tax ID number and documents that prove their solvency. Artificial intelligence (AI) algorithms and machine learning (ML) enhance credit risk analysis of the applicants.

    Drawbacks

    Small amounts of loan. Because of the novelty of P2P lending platforms, there are not many investors who are willing to loan hundreds of thousands of dollars through such technology, and loan amounts for individuals are usually limited to $50,000. On the other hand, P2P lending offers a much more convenient way to apply for loans as small as $100, which can result in a tedious process with a traditional bank and sky-high interest rates with a microfinance organization.

    Debt collectors. If a borrower fails to pay down a loan in time, their debt can be handed to debt collectors, who are not the most pleasant people to deal with. But the same thing can happen to customers of traditional banks who recurrently miss their payments.

    Loan app main features

    Now let’s see what are the main features that should be included in a loan app. Mind that the list of necessary features depends on who is going to be the app’s target audience: lenders, borrowers or both of them.

    Onboarding & user profile

    The easier it is to register and start using your loan app, the wider audience you’ll get. Add options to sign in with a phone number, email, Google, Facebook and Apple accounts for a quick registration process. Consider integration with an OCR (optical character recognition) system so that new users can take photos of their documents and the app will automatically fill in most of the details. The more you know about your users, the better — gathered data can be used to personalize offers and the app’s interface. Although, don’t require too many details from the start to avoid making onboarding too complicated.

    Payment options

    Both lenders and borrowers need to be able to add and withdraw funds from your loan platform. Use such software integrations such as Braintree, Stripe and PayPal to let users securely link their credit cards, along with an option to add funds via Apple Pay or GPay, so that they can start using the app even without card details at hand.

    Loan application

    This is the main screen for users who want to borrow money via the app. The application form should be short and easy to understand without compromising on flexibility. Consider adding pop-up explanations for each field, so a user can learn what every term of the loan (interest rate, payment period, sanctions for missed payment and others) means. In the end, design a confirmation screen that explicitly shows all the loan terms.

    When Surf developed Zenit Banking App, our analysts helped the bank to adapt and shorten application forms, while designers arranged the UI elements of the application in a user-friendly way. As a result, Zenit clients were finally able to quickly apply for a loan online, without scheduling a meeting in a physical office and filling out multiple paper documents.

    Lend money screen

    This screen will be the main one for lenders, where they can choose how much money and on what terms they are willing to invest. It will be smart to design an interactive calculator that will help users get a clear picture of their potential returns.

    Loan management

    This dashboard shows borrowers all the information about their current loans, including the total amount, size of Equated Monthly Installments (EMIs) to pay along with values of Goods and Services Tax (GST) and lending platform’s processing fees. A sort of meter that fills as the user repays their loan might help provide a clear picture of how much is left to pay.

    Investment management

    A dashboard used by lenders should include details on their investments: current status of loans’ repayments and portfolio performance — the easier it is to understand for lenders how much money they made using the app, the higher is the chance they will use your services in the future.

    Designing both dashboards, for borrowers and lenders, do not forget about a section where users can view and download documents on their loans and payments. For active users, document management can become a time-consuming process, so a user-friendly interface is a must-have for a loan app.

    When Surf developed a corporate banking app for Rosbank (part of Société Générale group), we designed a dedicated section for document management. In this tab, a user can filter all their digital documents by date, status, amount and other characteristics. Using a ‘repeat’ feature lets users create invoices from existing templates in just three clicks.

    Notifications

    Push notifications are a useful feature for both lenders and borrowers. Use them to notify about successful loan applications, remind about upcoming or missed payments and when a debt is completely repaid. Since everyone has their preferences for the frequency of alerts, include settings to tweak notifications to user preferences.

    Top-notch security

    According to statistics across all industries, banks become targets in over 25% of all malware attacks cases. As well as in any other type of fintech startup, security plays a paramount role in the success of a loan app. 

    There are many variants of possible cyberattacks on apps, such as man-in-the-middle attacks, clickjacking and attacks on the company’s servers. Code quality, usage of cryptography and security of integrations play a decisive role in protecting your app from intruders. Below are some essential security features to include in a lending app.

    SSL & End-to-end encryption. Secure Sockets Layer (SSL) utilizes asymmetric and symmetric encryption methods to protect the transmitted data, while end-to-end (e2e) encryption blocks third-party intervention by adding cryptographic keys at both communication endpoints.

    Two-factor authentication

    Usage of the second authentication factor after a user enters their login and password is a golden standard among apps that access financial and other sensitive data. Among commonly used two-factor authentication methods are:

    • Email: user receives a secret code or link on their email and enters it to access the loan app.
    • SMS: user receives a secret code in an SMS on their phone.
    • Soft token: separate mobile app, such as Google Authenticator, which generates unique one-time codes.

    When developing fintech apps, we at Surf aim to make the two-factor authentication both sufficiently secure and convenient for users. When we worked on Zenit Mobile Bank app, we designed two logics for two-factor authentication: if the SMS code is entered automatically, the app requires a user to tap the confirmation button, but if the user enters the received code manually, the confirmation button is hidden, and the app continues working as usual.

    Public Key Infrastructure (PKI)

    Public-key infrastructure is a digital signature technology based on a pair of digital keys, private and public. The private key is known only to the owner and is used for sign in, while the public key is known to everyone and is used to verify signatures. It is one of the most trusted and proven cryptography methods.

    Comprehensive testing

    Besides the implementation of various security features, it is important to check the app code for potential weaknesses and vulnerabilities during the development phase. Our company is a strong advocate of using third-party independent audits in fintech development to assess the app’s code security.

    In our projects, Surf actively relies on automated testing to decrease time to market and save client’s budget. When we developed an app for a large European bank, our team automated 75% of sanity tests that are carried out by testers rather than programmers, decreasing the total number of testing hours by more than a half.

    Compliance

    Fintech is an industry closely watched by governmental regulators, so if you build an app for mobile loans be prepared to comply with many regulations that vary from country to country. 

    In the US, The Securities and Exchange Commission (SEC) overlooks regulations on the investing side of lending platforms, while the Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC) regulate the borrowing side. Since the SEC prohibits P2P lending platforms from crediting the borrower’s loan directly to the lender, American platforms need to request a bank to issue a loan from the company to the borrower. Here are some of the main regulations a P2P platform needs to comply with to operate in the US.

    The Money Laundering, Terrorist Financing, and Transfer of Funds Regulations 2017 (MLR 2017) are a set of rules that require businesses to conduct sufficient risk-based due diligence of their clients to ensure that financial services are not used for money laundering.

    Gramm-Leach-Bliley Act requires financial companies to explain to the clients their information-sharing practices and protect private data.

    California Consumer Privacy Act (CCPA) is a regulation that protects California residents’ personal data and allows them to demand to see all the information a company has gathered about them.

    Chat support

    Although an easy-to-understand interface of the app and thorough FAQ section should keep the number of support tickets to a minimum, there are always clients that would require personal assistance. The best way to do it in a loan app is a built-in chat with the company’s representatives, where customers can ask questions and send screenshots if needed. To optimize expenditures on support, consider adding a chatbot as first-line support — it can help users with the most common requests about app functionality and features.

    Credit score

    One of the fields where fintech companies excel and beat conventional banks is data analysis powered by machine learning and AI. To provide the best interest rates relative to possible risks, consider integrating solutions that analyze customer creditworthiness based on multiple factors. For example, Plaid and CreditKudos provide APIs (application programming interfaces) that conduct customer identity checks based on the entered bank account details, while Juvo builds financial identities for people with no formal credit history by analyzing mobile network data.

    Also, think about designing a rating and reward system within your loan app. By fulfilling their financial obligations in time both borrowers and lenders earn ranks that are shown in their profiles. This will help other customers choose reliable partners, and the higher ranks can come with additional rewards in the forms of priority service or lower processing fees.

    Before you begin development

    When starting a P2P lending startup, there are several things to do to ensure future success.

    Hire specialists in finance and lawyers. As we said before, fintech is closely watched by local governments in every country, and new rules (as well as changes to the old ones) emerge constantly. Failure to comply with just one regulation may result in large fines or even closure of the business. To prevent this, set up a small team of specialists who thoroughly know the local legal landscape in the sphere of money lending.

    Draft a loan agreement. With the help of the legal team mentioned above, create terms and conditions for your customers, both investors and borrowers. The document must cover all possibilities and risks and comply with local state regulations.

    Partner with a bank. To keep your customers’ money safe, you’ll need to cooperate with a bank. Find the one that can provide necessary services and work out terms of partnership with the help of your legal team. Because acquiring all licenses necessary for P2P lending might be a timely and costly process, you can also start a lending startup as a platform provider — a website and an app — while legally users will be clients of your bank partner.

    Costs of development

    P2P lending software development cost is influenced by multiple aspects. In this section of the article, we’ll review a few of the main cost-affecting factors. For more insights on what goes into the cost of mobile app development check our dedicated article.

    Complexity. First of all, the cost will differ significantly should you decide to make an app for investors or borrowers only or both parties. Then, every app feature, such as push notifications, integration with third-party software (payment API), or device hardware (camera or microphone) adds up to the final cost of the app development. Usage of off-the-shelf SDKs (software development kits) and other ready-made solutions can lower the development price significantly — in most cases, there is no reason to invent the wheel once again.

    Native or cross-platform. Native apps, developed on a platform’s native language (Kotlin for Android and Swift for iOS), show the best performance, stability and optimal usage of device resources but come at a cost — you’ll need two teams of developers to build two different products. By using a cross-platform framework, such as Flutter, developers can build both apps for iOS and Android using one set of code with only minor changes. If you have a tight budget or need to release an app in a short time frame cross-platform solutions are the best choice.

    Surf began building apps with Flutter framework soon after its release in 2017. Our app for Rosbank was the first banking app in Russia made with Flutter. The choice of cross-platform development was dictated not only by an intention to optimize development costs, but also because apps on Flutter provide high security — code in Dart language used in Flutter gets compiled into non-human readable code, complicating the reverse rendering process. This makes the app even more secure compared to native solutions. In 2020, the Rosbank app developed by Surf was named the best app in the Banking, Finance, and Insurance category, according to Tagline Awards, the highest Russian award for interactive projects.

    Development team location. Where developers of your project reside determines their salaries. For example, hiring a development team in the US, where hourly rates start at $90/hr, makes the cost of developing the same app twice higher compared to outsourcing the development to specialists in Eastern Europe, for example, Russia or Ukraine, where average hourly rates are $35-40. Since the whole development process can be managed remotely, if your business is based in North America or Western Europe, outsourcing might be a better choice than hiring a local team. Read more about the pros & cons of outsourcing fintech development in our dedicated article.

    Conclusion

    Building a startup in P2P lending is no easy task: there are still many ‘gray’ areas in the legislations of even the most forward-looking countries, while big banks won’t easily lose their credit and investment solutions’ customers to rival fintech companies. On the other hand, a successful lending startup has all the potential of becoming a highly profitable business and acquiring hundreds of thousands of users. The growing popularity of Bitcoin opens new opportunities for crypto lending apps, while AI algorithms and machine learning offer accurate matching of lenders and borrowers, based on their rates and credit scores, along with strong fraud protection.
    As more people appreciate the convenience of fintech solutions and prefer to manage their money from the comfort of their homes rather than visiting bank offices, the “mobile-first” approach becomes the staple among fintech startups. Choosing an experienced development team with other fintech projects in their portfolio is the safest way to create a loan app that is stable, secure and smooth working. At Surf, we have been developing mobile apps for over a decade and have done several fintech projects, including apps for banks and cryptocurrency trading platform. If you want to estimate your app idea and discuss it in detail fill in the form, and we’ll contact you shortly.