Prosper Lending Review examined how Fynanz, a p2p lending site for student loans, quietly halted operations recently. In the article Tom points out that Fynanz attempts to market itself as a whitelabel service to credit unions and other financial institutions.
Fynanz CEO Chirag Chaman is cited that the reason for no longer accepting new lenders and borrowers are market conditions with sinking interest rates. Chaman outlines the plans to cooperate with financial intstitutions/banks to finance student loans.
Smava: For several reasons. Poland is a fast growing economy with approx. 40 million residents. In Poland the span between deposit rate and base rate is very high – approx. 15 percent. Therefore the smava marketplace will be very attractive for polish customers right from the beginning. And regulation in Poland does not require a bank for the p2p lending model. This keeps transaction costs very low.
P2P-Banking.com: There are already 3 p2p lending services established in Poland. How does Smava plan to win market share as newcomer?
Smava: Compared to the active services smava is much more secure. Like in Germany it is a central product feature, that the risk for the lenders is transparently evaluated and can be factored into the calculation . To achieve this we cooperate with the polish credit rating agency (BIK).
P2P-Banking.com: How did you organize the operations? Does Smava have a branch or a subsidiary in Poland? Or do you operate from Berlin?
Smava: We have a subsidiary in Wroclaw, Poland, with a polish management team.
P2P-Banking.com: Where are the biggest challenges in international expansion: technical, legal/regulatory, marketing or recruiting team members?
Smava: On all fields, in the following order: legal/regulatory, recruiting and then marketing.
P2P-Banking.com: Which differences does the polish version of Smava have compared to the german Smava version?
Smava: Firstly we will start in Poland without the ‘Anleger-Pools’ (P2P-Banking: an insurance feature), because p2p loans are mostly short term there. Secondly all loan contracts will be directly between lenders and borrowers – not like in Germany with the biw bank as intermediary.
P2P-Banking.com: What will be the maximum loan amount that can be borrowed at Smava Poland?
Smava: A polish borrower can use smava.pl for loans up to 100,000 Zloty. Each lender can invest up to a maximum of 200,000 Zloty. (P2P-Banking.com: 100,000 Zloty equal approx. 34,000 US$)
P2P-Banking.com: Which credit rating information will Smava.pl supply for the lenders?
Smava: Like in Germany smava will supply a credit score (BIK) as well as a debt/income ratio.
P2P-Banking.com: Which fee structure does Smava.pl have?
Smava: Lenders can invest fee-free, borrowers pay 1%Â of the loan amount. Continue reading →
That’s the title of an email I’ve just received from PertuityDirect.com, a Virginia based p2p lending service in pre-launch stage. Pertuity Direct announces:
… If you have been keeping tabs on the space, you know that the social lending industry has been pretty interesting over the last two to three months. The guidance that regulators have given with regard to the segment, combined with the fact that consumer loans are still hard to come by, fits perfectly with what we are bringing to market. There is a real need for alternative sources of capital for consumers, as well as new and better investing options. Social lending is a great answer to the problem – and Pertuity Direct is poised to bring it to the mass market.
We are in final preparations to launch immediately after the New Year. All of the pieces are finally in place and we are revving up for Day 1.
We’re excited about 2009 and are looking forward to reaching out to you very shortly as we open for business. …
Since the Loanio delays I am a bit wary of launch dates, but ‘immediately after’ sounds confident – looking forward to the launch in January 2009 then.
Prosper.com yesterday announced it’s new registration filing.
The SEC filing follows an earlier one from last year that apparently did not succeed. Some speculation on the reasons Prosper’s first filing was ill-fated are on Fred93’s blog.
According to the filing, the class action lawsuit against Prosper reported previously on this blog, is currently the only class action lawsuit by lenders stated in the filing.
The sections on ‘Government regulation’ (page 73) and ‘Risks Relating to Compliance and Regulation’ (page 32) state numerous other legal risks the Prosper business model might face in the future.
For the year 2007 the filing reports that Prosper marketplace incurred a net loss of 11.8 million US$ – but still had more than 20 million US$ in cash or cash equivalents on Dec. 31st, 2007.
The following quote shows that in many attempted listings Prosper was not able to verify the income of the borrowers:
For example between September 1, 2007 and August 31, 2008, we verified employment and income for only approximately 22.6% of borrowers. …
Of the borrowers undergoing income verification for the period from September 1, 2007 to August 31, 2008:
+ approximately 56.7% provided us with satisfactory responses and received a borrower loan; + approximately 37.7% did not provide satisfactory responses, or did not respond, and their listings were cancelled; and + approximately 5.9% either withdrew their listings, or failed to receive bids totaling the amount of their requested loan.
On a side note: The document also discloses that Prosper bought the Prosper.com domain in 2006 for a price of 603,659 US$ (page F-14), of which 320,000 was payed in cash.
The SEC cease and desist order against Prosper offered the legal arguments on a plate, now the first class action lawsuit filed against Prosper Marketplace Inc. uses the SEC filing as exhibit A to state it’s case. Regarding numbers and affected lenders the lawsuit by The Rosen Law Firm, New York, states
“…As of October, 2008 approx. $21.7 million of loan notes purchased by Class Action members have become worthless because the borrowers did not pay the loans to Prosper. Additional loan notes will become worthless as more loans are charged off as uncollectible. … there are tens of thousands, and perhaps hundreds of thousands of, loan note purchasers that are class action members…”
Prosper is required to file a written response within 30 days. The first court date is set for May 1st, 2009.
On the same issue – selling unregistered securities – but in an otherwise unrelated case Prosper agreed to pay a 1 million US$ fine in a settlement to the states to avoid individual states suing against Prosper. More information on that in the press release of the North American Securities Administrators Association (NASAA). This is somewhat surprising to me as Prosper did obtain licenses in over 25 states and conducted lending under those, before it switched to the model using the WebBank. (see ‘Prosper riding the state-by-state roller coaster‘ and ‘Prosper goes national with 36 percent max interest rate‘). The same states that granted the licenses now wanting to sue Prosper?
Last week Zopa’s CEO Giles Andrews commented that regulation issue were the reason why Zopa did not use it’s UK model when it entered the US market.
While Lending Club has completed SEC registration and therefore is in compliance with the rules of the SEC, it might still face some risks. An article of the Oregonian on the NASAA settlement states:
“Oregon regulators also are investigating 40billion.com, owned by Atlanta-based 3 Guys in a Garage, and is currently reviewing a registration request by Sunnyvale, Calif.-based Lending Club, Anselm said.”
