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Asked about how his group succeeded in growing so large so rapidly, “TwoMillionaires1″ the group leader replied that he did a lot of internet marketing in the beginning to bring new members in, and it grew from there to the point where today word of mouth from contented borrowers brings in probably hundreds of new members each week.

“It didn’t hurt either to have a private website that has attracted more than 300,000 hits and 10,000 unique visitors,” the group leader added.

As of the date of this report, more than one and a half million dollars has been loaned to members of this popular people-to-people online borrowing and lending group, almost 400 individual loans.

Details are available at:

http://www.2mils.org

In less than a month this unique group attracted 200 members, placed 10 loans, and had 50 active listings.

Two Millionaires is helping high risk borrowers who can’t attract lenders even in the socially exciting Prosper.com people to people market. The goal of the Two Millionaires founders is to help sincere high risk members get to the point where they qualify as Prosper.com lenders and group leaders themselves.

Two Millionaires attracts lenders by offering a large selection of quality listings at high interest rates, and an opportunity to help others.

https://www.prosper.com/public/groups/group_home.aspx?group_short_name=Mayans2

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Instead of saying “goodbye” people are now saying “Prosper” in their farewell greetings. They sure would look silly saying Zopa!

Dave how about you surrender Zopa and merge with Prosper? Just like x.com and Paypal, That way zopa will not become irrellivant when Prosper goes worldwide!

In response to Phillip, there is a VC market here in the UK called Angel Bourse [http://www.angelbourse.com/], which seems to have established itself quite well.

These lending site will only start to make sense if they can allow investors to access new areas where capital is scarce, which is hard to do in the West. (I could borrow about $23k in a few days in England, which is just frightening.) Or if they can reduce the cost of financing for both parties, which seems feasible. To do that you need better information [make a single credit more predictable] or better diversification [blend credits into a single more predictable investment].

At the moment Zopa makes diversification easy (mandatory), while Prosper gives you more data to price risk. But there’s a real question of how accurate Prosper’s data is. Or how safe Zopa’s diversification of credit can be, given that it will be over a pool of potentially very similar borrowers.

On-line markets seem to start with a honeymoon period when most users are legitimate, then experience massive in-flows of fraud as the value transacted on them becomes worth stealing. (See https://www.financialcryptography.com/mt/archives/000580.html .) Prosper & Zopa are likely to have to go through what Paypal/eBay did if they become successful. They’re idea of Groups offers interesting ways of trying to manage this… Even if Zopa can diversify fraud risks away, the cost of dud loans would get priced into the cost of borrowing for everyone.

I think a better benchmark for evaluating these P2P lending services isn’t their social value (come on - they use the same credit card networks and debt collectors as General Loan Shark Inc.), but in how they can bring the efficiencies of the money/stock/bond market to the little guy. Prosper’s plans to allow lenders to sell on their debt would be a huge step forward in that. (Although perhaps not without its own legal issues.)

If I were running one of these services I’d be looking very seriously at issues like letters of credit, loans sales, collateralisation and insolvency. There’s a limited amount of social capital available for stranger-to-stranger transactions. For all the rhetoric, a low-income manual worker will still have to pay a nose-bleed interest rate to start their business, unless they can mortgage something or find someone to extend a guarantee. (Besides the ability to float a callable fixed-rate bond issue against a a five year old used car would be kind’a cool !)

So my questions to both Zopa and Prosper would be:
1. How will you deal with sustained organised attempts to defraud your lenders?
2. Will you take institutional money? If not, will there be enough capital from individuals?
3. Do you intend to be more efficient than banks? If so, how? If not, then what do you offer?

I’m generally quite keen about these sorts of new lending services. But you have to make a very good case before people will start abandoning bank borrowing.

Our belief is that some lenders will be attracted by this individual style and greater risk:return model, but that larger numbers will prefer a more hands off, safer environment for lending. We want to offer both, and we think it’s easier for Zopa to replicate Prosper than the other way around.

We’re busy planning our US launch - so we’ll get the chance to go head to head and find out. See you in SF Andrew!

It’s a fine idea, but I think it may be solving problems that don’t yet exist.

Do I have to pay taxes on the money I make at Prosper?

Your income from loan interest is normally classified as taxable income. Every tax year that you earn more than $600 in interest, Prosper will send you a 1099 form summarizing your taxable interest income earnings. Group leaders also have to pay taxes on their earnings at Prosper.