Crowdfunding has become one of the results of technological development. This is a new funding scheme that has expanded significantly in recent years. Her popularity is growing every day. More and more new projects are resorting to this method of raising funds.

With the development of financial activities, crowdfunding comes with risks that can materialize in the daily life of these platforms. Among these risks are non-payments, operational risks, liquidation, money laundering, fraud, and conflict of interest, among others. Therefore, we will consider the main difficulties that you may encounter. Before embarking on crowdfunding app development, you should study all the risks in order to avoid them.

Main difficulties

• Default Risk: This is the risk that the investment will not be returned. In the traditional scheme (banking), this risk is assumed by the financial system, which manages it and assumes it in case of materialization. However, in crowdfunding models, this risk is assumed by the group that owns the capital.
• Operational risk: these are possible errors in the systems, models, and internal processes of the platforms, as well as cyber-attacks and operational failures in general, which can lead to the closure of the platform and the loss of all investments. Ideally, platforms should have an Operational Risk Management System (SARO).
• ML/TF Risk: Due to the nature of crowdfunding activities that involve many people, platforms can be seen as mere vehicles for this illegal activity, so the regulation in this section should be strict.
• Risk of Conflict of Interest: To the extent that the platform earns a commission on the loan issued and based on its size, there is a risk that the credit analysis carried out by the platform is not entirely objective and includes projects that do not meet minimum standards. This is why some platforms take into account the client’s risk profile when building a portfolio.

In addition, special requirements were set for intermediaries, such as:

• Provide communication channels with creditors through which the parties will be informed about investments, resources, risks, and reward schemes.
• Have reasonable grounds to know whether the credit company complies with the legal requirements for the crowdfunding system.
• Comply with the requirements for the transfer and management of funds
• For fund portals, respect the privacy policy.

To avoid all problems and difficulties, you need to ensure the following points:

• A business plan from companies detailing the actions to be taken and the associated risks, budgets, and resources.
• Have non-financial resources (managers with knowledge and experience in the field of financial regulation), financial resources, and a liquid base for company registration.
• Have an active website with an advanced level of development.

Crowdfunding also contains some drawbacks and complications. On the one hand, this is a great opportunity for new projects to receive funding, and on the other hand, you can face a huge number of risks.

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• Source: Plato Data Intelligence: PlatoData.io