Month: October 2007

Prosper SEC filing – step towards secondary market

wiseclerk 1 Comment

A recent Prosper S1 SEC filing is a step towards the planned secondary market as this Prosper press release confirms. The secondary market will allow Prosper lenders to trade loans they have invested in. Excerpt from the press release:

…Following effectiveness of the registration statement, Prosper intends to establish and maintain a secondary trading market online auction platform, or Resale Platform, pursuant to which lenders may seek to transfer borrower notes to other Prosper registered lenders. …

Excerpt from the SEC filing:

If Prosper is able to establish the Resale Platform, Prosper intends to charge all selling Lenders a nonrefundable resale listing fee of $0.25 per Note being listed for auction resale, or $0.50 per Note being listed for resale with an automatic sale feature. Listing fees will be charged and collected at the time the listing is posted on the Resale Platform by deducting the resale listing fee from the selling Lender’s funding account. Prosper also intends to charge the selling Lender a resale transaction fee equal to 1.0% of the resale price, subject to a minimum fee of $0.50, which will be deducted from the resale proceeds.

Further discussion here.

Digesting new Zopa listings infomation

wiseclerk 1 Comment

Zopa's new Zopa listings contain several pieces of information. Apart from the "basic information" which include loan amount, loan length, preferred rate, loan purpose, borrower ID, borrower signup date and listing end date, these are:

Credit score

The rating we give to the borrower’s credit score at Callcredit, a UK credit reference agency, relative to other Zopa borrowers

Affordability

Zopa rating (stars) for the borrower based on income and expenditure details provided by the borrower.

Stability

Zopa rating (stars) for the borrower based on details provided by the borrower, such as residence and employment.

Personal profile

Listing text supplied by borrower

Income/Expenses

Self reported detailed budget (see screenshot above for example) Continue reading →

MyC4 lender headcount doubles after national TV coverage

wiseclerk

After MyC4.com was featured on Danish national TV in a 15 minute feature many new lenders signed up. Within 3 days lender count rose from about 500 to currently 964. At MyC4 lenders (called investors) loan money to African entrepreneurs. The bidding frency of new lenders did lower closing interest rate dramatically. Loans now closed at 2 to 3 percent lender interest rate (previously usually 10 to 12 percent). MyC4 will now have to increase the number of listings, otherwise they might be temporably be sold out like happened to Kiva.
Yesterday the first loan listings from Ivory Coast went online.


 

Changes at Prosper

wiseclerk

Prosper.com applied several changes as described in this announcement. Some of the changes were expected as plans had been known, some were surprises.

Portfolio plans

Portfolio plans allow the lender to automatically build a conservative, balanced, moderate or agressive portfolio. That means the lender no longer picks individual loans to bid on but chooses to invest in a plan. The feature is implemented based on Prosper's standing orders. The difference is that it uses standing orders predefined by Prosper, not by the lender. Prosper shows "estimated returns" for each portfolio – currently ranging from 8.37 to 11.06 percent.
Comment: Lendingclub introduced this concept earlier on. Lenders are currently examining and debating on which rationale Prosper did build the standing orders behind the portfolios.

Estimated ROI is shown in listings

Prosper now shows the estimated return on each listing, including predictions for defaults and costs for the servicing fee. The default estimate is now based on Prosper's own data (past performance) rather then Experian data.

Comment: This display does improve lender information especially for unexperienced lenders.

Ended listings hidden (surprise!)

Prosper now hides all data of expired listings. Continue reading →

How p2p lending is different from bank loans

wiseclerk 1 Comment

Part I: Platform & lender view

Occasionaly, when I talk to analysts or journalists, their perception is that p2p lending is very similar to bank loans. They argue:

  1. The platform does check, if the borrower is eligible to receive a loan by validating credit history, income and other documents just like a bank would do (note: this argument applies more to Zopa and Smava, less to Prosper)
  2. The listings descriptions and photos just give the lender the illusion that they know where their money is going and for what purpose. In reality nobody checks the information in the listings and the listings could be all false.
  3. The p2p lending platform is just taking the role of the bank. The platform earns fees on each loans which is comparable to the spread the banks live on.

My opinion is that p2p lending is very different from banks giving loans.
One main difference is that the platform does not have the loans in their own books. The risk is carried by the lender. The platform must aim to provide as much information as possible to allow the lender to gauge the risk and it must prevent the lenders from fraud. It is then the decision of the lender, if – based on the information – he wants to bid or refrains.

For the lender the ability to decide who gets the money is a major motivation compared to depositing the money in a banking product. The p2p lending services are aware that the listings are a central point to their marketing. Zopa, which currently does not have individual borrower listings, will introduce 'Zopa listings' in the future.
Regarding argument 2: It is true that listings are not checked on any of the platforms and a borrower could use the loan for a totally different purpose then stated in the listing. My opinion is that this is not a problem, as long as lenders are aware of this and as long as the protection from fraud (identity theft; no intention of borrower to repay in the first place) is high. I don't care if 2, 3 or even 20% of the borrowers lie in their listings. I believe that the majority is telling the truth and what I really care about is that my money is repaid. The borrower said he wanted to use the money for the college education of his daughter and actually used the money to buy a new car? I personally would not care as long as he repays the loan.

P2P lending services achieve a level of constant interaction with the lenders few banking products reach. In the Prosper forums many lenders express that they spend a lot of time on Prosper browsing and selecting listings and that they find this process somewhat addictive.
Conversely that means that p2p lending is not for lenders that to large amounts of money without spending time.

Conclusion: P2P lending IS different from the way banks loan money. It offers a different marketing angle, the risk is taken by the individual lender rather then the bank, and gives the lender has more control over what his money is used for.