Prosper Registers With SEC to Create a $500 Million Secondary Market in Peer-to-Peer Loans
Erick Schonfeld
18 comments »
One of the most disruptive startups in the financial industry is Prosper, a peer-to-peer lending marketplace. Since its launch in February, 2006, Prosper has attracted more than 450,000 members who have loaned $96.4 million to each other. There is so much liquidity on Prosper now that the startup wants to create a secondary market for loans on the site.
Right now, if you loan money to someone on Prosper, you have to wait for the term of the loan to expire to get all of your money and interest back (unless the debt is paid back early). A secondary market would allow individual lenders on Prosper to sell loans to each other right away, and perhaps even package them together. Such a secondary market could make Prosper a more appealing place for larger financial institutions to invest in.
Hints of what Prosper is up to can be found in an S-1 registration the company filed yesterday with the SEC (see press release). The part of the S-1 (which is not yet effective) that caught my eye was this:
The Lender Participant Rights are associated with the $500,000,000 in aggregate principal amount of Notes to which this prospectus relates. This amount represents the aggregate principal amount of Notes that Prosper expects will be originated on the Platform during the one-year period beginning on the date of this prospectus together with the principal amount of Notes that have been originated on the Platform prior to the date of this prospectus.
In plain English, that means that Prosper expects that the cumulative amount of loans on the site a year from now will be worth up to $500 million. That would still be peanuts for most banks, but would represent a fivefold increase from the amount of loans originated on the site so far.
Prosper has raised $40 million from Accel Partners, Benchmark Capital, the Omidyar Network, and Fidelity Ventures.
I love proser, I took a cash loan about a year ago, paid it off recently, and about to get my car loan from there… just my 2 cents.
Isn’t Lending Club also in Crunchbase?
Unfortunately, Prosper has done a really poor job of servicing their lenders. Their collections process is a mess and most lenders with established loan portfolios (>6 months and >20 loans) are either losing money or barely making more than they would in a savings account.
I encourage anyone looking at Prosper to check out Prosper’s own lender forums. It doesn’t bode well for the long-term survival of the company.
I wonder if P2P lending is coming under FDIC regulations.
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Prosper sucks for lenders. Do your homework before lending a dime through this site that actually extends the hard-luck stories of borrowers, which has nothing to do when evaluating a person’s ability to repay the loan.
Lame model.
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Prosper is great. I have loaned a little bit of money. $500 million is a very aggressive goal considering that the time it takes to get a loan to the market place, bid and close is fairly slow. Also, with other groups also vying for the ability to loan it’s going to make it extremely challenging.- no different from seeing “deal flow”. Richard Branson’s recent acquisition could end up being the one to play catch up to. There seems to be more flexibility in that business model, greater geography reach and very deep pockets to build out the business.
I’ll read the filing tonight but Isn’t an S1 filing to go public?
Prosper is going to suffer in the near future. With the dollar weakening on the global marketplace and inflation continuing to be an issue, unsecured lending is going to take a hit. I am a pawnbroker by trade and I see on a daily basis how this economy is crushing people. I think peer to peer lending is great, but without security, it is very risky to a lender with no experience in the trade. I am trying to bring collateral peer to peer lending to web 2.0 with my website http://www.auctionbuyback.com. I believe people will find it better to lend to someone they consider a peer if they have security. If sites like prosper don’t grasp this concept, the lenders will suffer big losses. If you check their lender forums, you will understand what I mean.
I like Prosper as an idea, but the interest rates seem quite a bit high.
I was in love with the idea of Prosper when I first heard of it. I lent a few thousand dollars to various folks for various reasons. More than 90% of them look likely to pay it back. Some of the folks I lent to were fraudsters, and others were just liars. Many were honest folks who have never been late, but not nearly as many as you might expect. Prosper spends days sometimes verifying borrower information before approving loans and dispersing funds, but it’s not enough. There are still a number of wrinkles to iron out.
As a lender, you agree not to make any attempt to contact delinquent borrowers. So you have to put all your faith in the collections agencies Prosper contracts with. As a lender, you see credit report details and a person’s self-composed loan request, but you’re basically throwing your money into a black box and hoping everything is as it seems. They do work hard to avoid perverse incentives, though that’s after creating several as they worked through the trial and error of the early days.
To be fair, during the past 4 months I’ve only logged in to take my money out as the 90% pay it back. Maybe they’ve made sweeping changes that have improved things. If so, go to town. If not, be very careful with your money and spend a lot of time in the forums before you loan any money.
I have had a great experience lending on Prosper. I’ve put about $10k to work and am making a net 10%. The place to find out in a truly unbiased way who is making money on Prosper is not the forums - which all just people with an axe to grind - it’s http://www.lendingstats.com. I study the loans that the top lenders are making - the people who are making 17%+ in net returns - and I try and learn from them. There are some lenders lending only to sub-prime borrowers and have no defaults. They have obviously figured it out. It’s clear you should look a layer deeper beyond the credit score itself to some of the more granular data. The secret to great returns and lower defaults seems to be there.
Erick, I think you may have missed a brilliant regulatory innovation by Prosper with this filing. Prosper is facilitating the sale of registered debt by individuals. This is completely new and very powerful. See my blog for more details: finantech.wordpress.com.
Alll transactions are in US dollars, this really sucks since value of dollars is falling day by day.
I’m a Prosper lender and blogger. Lenders have asked for a secondary market for some time. This is an interesting development which I’m sure we will watch closely.
You may find some of our analysis useful if you want to lend or borrow:
http://prosperlending.blogspot.com
Also, like other posters have mentioned. The forums are a good source of information.
Lending Club is still the new player on the block, but we are doing well - and - for those that haven’t paid attention - we have been outside of Facebook now for a bit, and had some news yesterday:
http://rexduffdixon.com/?p=3185
Rex