How Does a P2P Platform Differ from a Lending Company?

Oct 16, 2019

Over the years, the financial landscape has dramatically changed. Alternative or emerging forms of finance have continuously challenged traditional banking institutions because of the ease and convenience they bring to consumers. Powered largely by the internet, such companies have enabled people to bypass huge finance providers who take massive cuts from every transaction.

One particular example of this growth in alternative financial transactions is that of person-to-person, peer-to-peer, or P2P companies. This new source of financing involves connecting individual investors with borrowers.

Many people think that P2P marketplaces and lending companies are one and the same, and it’s easy to see why this is the case. Both platforms involve investors providing financial support to borrowers. However, the truth of the matter is that these are two completely different types of financial companies with different rules, procedures, and processes.

What does a lending company do?

For the purposes of this article, we’ll be using the term “lending” in the context of online lending. Online lending companies allow people to apply for loans by entering data into online application forms and submitting the necessary documentary requirements. The lender will evaluate your creditworthiness and decide whether your application is approved or not. If you get approved, your requested amount is sent immediately to you, ideally through your bank account. It’s usually easy especially when you have a good credit rating.

It’s nothing complicated, except that most of these loans come with outrageous interest rates and unreasonable terms. And just like traditional brick-and-mortar lenders, a lot of these online lending companies make money because some borrowers miss their payments. This usually happens when loan applicants don’t read the fine print or fully understand the particulars involved in the transaction.

What can you do in a P2P marketplace?

One of the major reasons why people confuse P2P marketplaces with lending companies is because P2P has a lending component to it. People think that P2P works exactly the same as online lending – you submit your complete information, you get evaluated, and boom, you get the money.

Peer-to-peer lending is a completely different ballgame – rather than getting disbursed money immediately after you get your loan application approved, there is an extra step wherein you need to find an investor on the platform who will fund your loan.

Another way to explain this is that your investor will need to do their due diligence before taking the risk of lending you the money.

Blend PH works this way. We do not directly provide you with the funding, but rather act as a middleman between you and your potential lender.

It’s always a two-way street

If you’re still having trouble understanding our platform, here’s another example for you. Have you ever used the popular online dating app, Tinder? For the uninformed, this app matches people based on their physical attraction to one another. On the platform, you would need to upload your photo(s), age, gender, distance or location, along with your preferences. If there’s another user who falls within the criteria you specify, Tinder will show you their profile, but you will still need to decide whether you like that person or not.

You swipe right if you like their profile and swipe left if you don’t. If that person swiped right on you (meaning they liked your profile), Tinder will let you know that a match has been made between you and that person and it will open up a messaging function so that you two can start communicating.

Think of this P2P platform as Tinder for finances. It’s always a two-way street. If no one swipes right on your profile, a.k.a. if no one is interested in funding your loan, you would not get a match or an investor despite getting your loan application approved by us.

If you see your loan application “stuck” on your Blend PH borrower dashboard for a month now, it only means that we cannot find a lender on the platform who is willing to lend you their money.

What to expect as a borrower on a P2P platform like Blend PH

If you’re interested in participating as a borrower with Blend, here are some of the things you should expect:

  • You will complete your application online. You would be asked to submit everything online so that we can assess your application.
  • You will be asked to provide a reason for borrowing money. Whether you say it’s to start a small business, or to fund an emergency situation, it’s best to be transparent or be as detailed as possible. You want to be able to convince more investors to fund your loan. While we won’t verify what you’ll use the money for, it pays to have the financial discipline to use the funds you’ll get wisely.
  • You will not get disbursed the money unless someone funds your loan. Unlike applying for a loan with an online lending company where your money is immediately disbursed upon loan approval, you will need to wait for a lender who will fund your loan on Blend. Keep in mind that P2P platforms like us do not carry as much cash as online lenders as we are greatly dependent on the number of investors and lenders actively participating in the platform.
  • You will be hit with fees and penalties if you miss payments. If there’s one thing similar about P2P lending companies and online lending companies, it is this. Late payments should be avoided at all costs.

Peer-to-peer vs. online lending

Comparing the two models, P2P might sound more complicated than straight-up online lending. There is an expected “wait time” even after a loan application has already been approved. There is even the possibility of not getting an investor to fund your application.

However, P2P’s strengths far outweigh its weaknesses. Think about it, you’re borrowing money because you need a helping hand with your finances. With online lending, you’ll get slapped with outrageous fees, sometimes even having to pay double what you owe. It’s like eating a salad so tasty but with loads of unhealthy ingredients. You think it’s good for you but it’s really not.

When you transact with actual people who take the time to hear you out, or maybe even offer flexible terms if they’re convinced, you’ll be in for a better deal. There is no catch, just plain and simple Filipinos helping Filipinos – peers helping peers – borrowers benefitting from lenders and vice versa, through a platform that prioritizes financial inclusion over profits.