Peer-To-Peer (P2P) lending platforms help businesses by raising funds and investments for companies’ growth. They serve as intermediaries that bridge borrowers with potential lenders. While opening doors to progress, P2P platforms encounter several challenges such as money laundering, payment scams, and investments from shell companies. These high fraud risks further drive sanctions, reputational damages, and legal scrutiny.
The P2P industry requires efficient identification checks to verify investors as potential-looking individuals can become criminals. Where these entities escalate the financial standing of businesses, they also drive their downfall. Therefore, the P2P industry needs to replace traditional loan-providing services with robust and automated Know Your Investor (KYI) solutions. This article further outlines applications of AI-powered IDV services in the crowdlending process.
Peer-to-Peer (P2P) Lending and the Contributions of Investors
The P2P market replaces traditional loan-providing institutions. As it involves the use of digital platforms to generate investments, this industry is experiencing tremendous growth. Therefore, the P2P lending market is forecasted to reach $558.91 billion by 2027. Remote fundraising, quick loan approvals, fewer complexities, and minimal operational costs are further aiding the progress of this industry. However, in the long-run, P2P platforms can not leave know your investor checks unattended.
With many lenders and buyers making their way to interact through P2P lending platforms, integrating online investor verification services has become crucial. This is to validate sources of income for preventing money laundering and identity proof for differentiating between potential entities and fraudsters. Furthermore, know your investor services help counter payment scams, restrict shell companies, and stay put with KYC/AML/CFT regulations.
Crowdlending Processes – Risk Involved in Funding Activities
Startups, small businesses, as well as established firms, are viewing P2P lending platforms as a safe haven for uplifting their revenue generation. Similarly, they are becoming a major attraction for criminals to convert their illicit funds. Due to lax regulatory standards, anonymity, and simpler registration opportunities, P2P companies are facing a severe backlash in terms of their reputation. Hence, online platforms should incorporate robust investor verification services to deter these threats.
AI-powered IDV solutions provide secure investor onboarding by ensuring presence during account creation. Cross-verification across watchlists, AML databases, and global identity register further increases accuracy for fundraising. Hence, P2P lending platforms can outline customers’ risk factors to mitigate money laundering.
As per KYC regulations, it is crucial for online sites facilitating remote investment to perform know your investor checks. This is crucial for P2P lending platforms to counter the following risks:
Synthetic Identity Fraud
Criminals create counterfeit identities by impersonating legitimate entities and forging documents to support their claims. Fraudsters looking to build partnerships and high-value investments put forth certain demands such as asking for a portion of shares. However, these urges tend to increase and cost millions to host businesses.
Fraudulent partnerships also negatively affect the reputation of respective P2P lending platforms. To prevent the financial downfall of companies, this industry needs to incorporate investor verification solutions. This way, online platforms can restrict criminals’ access before registration.
Compliance Risks
Anonymity, lax regulatory checks, inadequate identity verification, and inefficient ongoing monitoring expose P2P lending platforms to legal restrictions. In worse scenarios, they can experience hefty penalties. Fraudsters are involved in crowdlending to conceal their true selves, deposit illicit funds in online accounts, and invest their money in legitimate companies. Ultimately, they are left with legitimate earnings. Hence, P2P lending platforms need to place investor authentication checks in place to restrict criminals.
AI-powered know your investor solutions allow legitimate entities to indulge in fundraising. Furthermore, P2P platforms can ensure individuals’ presence during onboarding, which adds to efficient and secure investments.
Use of Illicit Funds for Investments
Criminals choose P2P lending platforms to conceal the proceeds of crimes they obtain from corruption, trafficking, smuggling, and bribery. Making high-value investments through anonymity helps them escape investor verification online checks. In return, the companies need to be made aware of who they are onboarding as a potential growth-promising entity.
Differences in regional/international regulations, insufficient identification, and inadequate ongoing monitoring leave enough room for fraudsters. Hence, integrating know your investor services is a liability for P2P lending platforms. The process involves risk assessments, due diligence, and background checks to deter money laundering attempts.
Endnotes
The P2P lending industry is experiencing increased fraud risks, including investment scams, fraudulent partnerships, and money laundering. It provides digital fundraising options to remote businesses in order to generate more growth. However, the involvement of criminal intentions is forcing P2P lending platforms to incorporate investor verification services. Hence, AI-powered IDV solutions ensure secure long-term investments without compromising their worth.
