Description

May 2007 Profile by Open Business at http://www.openbusiness.cc/2007/05/20/the-emergent-field-of-p2p-finance/

"Who: Prosper’s CEO and co-founder, Chris Larsen, was formerly the CEO, Chairman and Founder of E-LOAN, an online consumer lender “dedicated to providing consumers with a fast, transparent, and low cost way to obtain mortgage, auto and home equity loans.” Borrowers: Prospective borrowers register with the site and allow the company to review their credit history. Then they post a loan request of up to $25,000, along with an upper limit for the amount of interest they are willing to pay. Loans are not secured by collateral and are paid off over three years at a fixed rate, with no prepayment penalty. Once the bidding is complete, and if enough lenders bid enough money to finance the loan at a single rate acceptable to the borrower, Prosper transfers the money to the borrower’s account and establishes a monthly repayment system that withdraws money from the borrower’s checking account. Should a borrower default, Prosper hires a collection company on the lender’s behalf and alerts credit bureaus.

Lenders: All of Prosper’s loans are 3-year unsecured loans. People who want to lend set the minimum interest rate they are willing to earn and bid in increments of $50 to $25,000 on loan listings they select. People who lend can easily diversify using “standing orders”, which automatically make many small loans to different borrowers. Lenders essentially deposit their money with Prosper — which holds it in an interest-bearing account with Wells Fargo— and either review the loan requests individually or fill out a form permitting Prosper to allocate money to borrowers who meet certain criteria. Chief among those criteria is the borrower’s rating from the credit reporting bureau Experian, but borrowers can also join or create groups with defined interests or characteristics that, they hope, will make them more attractive to some lenders.

Community: Unlike Zopa, there is a greater emphasis on personally selecting and lending to particular borrowers. Loans can be fully funded by one person, so it is possible to lend an individual up to $25,000 (in Zopa the limit is just £200.) As a result there is much more interaction between lenders and borrowers. The ‘groups’ are an important part of this process, and make the service seem less like just another financial instrument.

Among the groups on Prosper are aficionados of the Porsche 914 model, associates and employees of a Berkeley cafe and Vietnamese-American students. Prosper’s group leaders receive a commission on the group’s lending and borrowing activities, which they sometimes share among the group. When you join a responsible group with a good payment history, you get a good reputation by association, and lenders are more likely to offer good interest rates. But, belonging to a good group puts some pressure on you, too. If you stop making your loan payments, you not only tarnish your own reputation, but the group’s as well. If you’re part of a group, the theory is that you’ll perform better as a borrower than if it was an impersonal bank or credit card company.

Typical transaction: Loans requested range widely between about $2000 and $25000. The average loan amount as of April 2007 is just shy of $5000. Most lenders lend between $50-200 to any one borrower, and the vast majority of lenders have a total portfolio size of less than $2000.

Business model: Prosper generates revenue by collecting a one-time 1% or 2% fee on funded loans from borrowers (depending on credit grade), and assessing a 0.5% or 1.0% annual loan servicing fee to lenders.

Establishing trust: Prosper obtains the borrower’s Experian credit score, and assigns one of seven credit grades, from AA to HR. Borrower credit grades are posted with their listing to help lenders plan their bidding. Further information is also provided, such as delinquencies, number of credit lines, debt-to-income ratio and debit or credit card utilisation. Additional data, which is self-reported by most borrowers when registering, includes occupation and income. This information combines with the personal and group interactions that Prosper enables, to give lenders and borrowers a credible sense of risk and trust in other people.

Performance: Prosper has 270,000 members and $61 million in loans to date. Their open API has spawned dozens of websites focused on Prosper users, and these communities and Prosper groups are very active. Prosper has raised approximately $20 million in investment for further expansion.

Problems or limitations: Like Zopa, Prosper’s contractual and enforcement structure is founded on specific territorial laws. Growing the network transnationally is impracticable due to regulatory considerations. Given the size of the US banking market this is not a fundamental problem, but it is necessarily a brake on growth, especially given the geographically dispersed nature of many online communities and affinity groups." (http://www.openbusiness.cc/2007/05/20/the-emergent-field-of-p2p-finance/)

More Citations

By Cuna News

From Cuna News at http://www.cuna.org/newsnow/06/system052406-9.html?:

"Prosper.com, which has been operating since February, uses the eBay approach to loans, enabling its users to bypass traditional financial institutions--including credit unions--in the person-to-person loan process (Salon.com May 22).

To list a loan on the site, borrowers determine how much they want to borrow and the maximum interest rate they want to pay. They provide personal information such as annual income, bank account number and Social Security number. They authorize Prosper to collect financial data from credit agencies. Prosper shows potential lenders the data, including a credit grade, the number of credit lines the borrowers opened in the past decade, number of delinquencies, and a ratio of debt to income. Prosper.com manages the loan. Borrowers pay 1% of each loan; lenders pay 0.5% on the money owed to them. Participants are urged to join "affinity" groups. It's easier to get a loan when one is a member of a group, and the rates received are better. The theory is that membership in a group instills some financial discipline because defaulting on a loan adversely affects others in that group.

Some experts say such lending sites could topple the credit industry, bringing transparency and fairness to the market. The premise is that borrowers shut out of the traditional loan market can find money at reasonable rates. Lenders can get a better rate of return than they would on some other investments. Critics question the risks involved for both borrowers and lenders, the site's adherence to equal opportunity regulations and the idea that people would risk their own money to lend to someone with a poor financial history. However, the site already is proving that people do loan to others in need. Some say the site would be one of the ways the Internet might transform the credit industry into a fairer, more equitable business.

Prosper.com CEO Chris Larsen was co-founder in 1996 of E-Loan, one of the first Internet loan brokers." (http://www.cuna.org/newsnow/06/system052406-9.html?)

By P2P Weblog

"Prosper launched in September 2006 and is based in San Francisco. The P2P lender has 200,000 members and has funded over $40 million in loans.

Prosper features developer tools to allow other companies to build on their lending platform. They invite its use for academic research, investment analysis, and even start-ups. An API is provided as a WSDL based web-service for ad-hoc querying of the Prosper Marketplace. Proper also provides Data Export for a complete snapshot of all listings, bids, user profiles, groups and loans ever created on Prosper

Prosper collects a one-time 1% or 2% fee on funded loans from borrowers and a 0.5% or 1.0% annual loan servicing fee from lenders.

CEO and co-founder Chris Larsen was the CEO and Founder of E-LOAN. Prosper has raised $20 million from Accel Partners, Benchmark Capital, Fidelity Ventures, and Omidyar Network." (http://www.p2p-weblog.com/50226711/p2p_lender_profile_prosper.php)

In French

"Prosper c'est un réseau social remixant la Banque : Prosper = eBay + MySpace + votre prêt étudiant.

Si vous avez plus de 25 ans, imaginez une banque "low cost", une banque de particulier à particulier, directement, sans intermédiaire. Zéro agence + zéro paperasserie = un crédit moins cher.

Banque 2.0 ? Mieux : Banque n+1 ! Le business model de Prosper se perfectionne tous les jours.

Prosper vient de fêter son 1er anniversaire et de franchir le cap des 180 000 membres aux Etats-Unis. Un montant total de 36 millions de dollars a été prêté de particulier à particulier. "La première année de Prosper a dépassé toutes nos attentes" s'est réjouit Chris Larsen, le CEO et co-fondateur de Prosper lors des Prosper Days à San-Francisco devant un parterre de 200 membres enthousiastes." (http://capelli.typepad.fr/capelli/2007/02/prosper_youpla_.html)

More Information

See our entries on

More at:

Lending Prosper Blog, http://www.topicpoint.com/lendingprosper/
Discussion forum on borrowing and lending at Prosper, http://www.borrowlend.com/
Prosper community, http://fanafifoundation.blogspot.com/
Financial expertise for Prosper, http://www.savagenumber.com/
The Online Banker reports on Prosper's first year, http://obr.typepad.com/financial_innovations/prosper/index.html

Prosper

Contents