Prosper Marketplace Inc., has successfully closed a the new funding round, which it announced two weeks ago. Prosper receives 14.7 million US$ from new investors Tomorrow Ventures and CompuCredit Holdings and existing investors Accel Partners, Benchmark Capital, DAG Ventures, Meritech Capital Partners, Omidyar Network, QED Investors and Volition Capital. TomorrowVentures is the investment vehicle for Google CEO Eric Schmidt.
P2P Lending Service Lending Club Raises 24.5 Million US$ Series C Round
P2P Lending service Lendingclub.com successfully raised further capital. The 24.5 million US$ series C round was led by Foundation Capital and joined by existing investors including Morgenthaler Ventures, Norwest Venture Partners and Canaan Partners.
Lending Club so far raised 52.7 million US$ in total funding.
Lending Club, on which lenders have funded loans to private borrowers for a total volume of over 103 million US$ since inception, is growing fast. Currently about 10,000 loans are originated per month equaling a loan volume of about 8 to 9 million US$ per month.
The monthly volume is a multiple of that of Prosper Marketplace, the main competitor in the US peer-to-peer lending market.
Renaud Laplanche, CEO of Lending Club says “This latest investment gives us considerable resources to further develop our platform, launch new products, offer better service to our existing customers and expand our reach to a whole new set of customers.”.
(Sources: press release via TechCrunch, Lending Club Statistics, own data)
Annualized Default Rate
I just watched the recorded webcast. It’s great that Lending Club uses these to communicate to the users. However I found the way some information were presented to the lenders to be controversial. About 11 minutes into the presentation the company advertises the Annualized Default Rate of 2.36%. Looking at the slide at 0:13:29 the company states “Less than Three Loans out of the 100 Default”. Is that right – does the percentage of Annualized Default Rate figure match the percentage of loans that default?
This does not match Lendingclub’s own definition of Annualized Default Rate, which is:
Annualized Default Rate is calculated by dividing the total amount of loans in default by the total amount of loans issued for more than 120 days, divided by the number of months loans in default have been outstanding and multiplied by twelve. The loans issued for less than 120 days are excluded from the calculation because loans are unlikely to default during the first 120 days.
I’ll create the following example to illustrate what Annualized Default Rate means to lenders. Imagine a bad-lucked lender that loaned 10 loans with 100 US$ each 12 months ago. First all went well, but after 10 months suddenly 5 of his borrowers failed to pay and defaulted. Colloquially that lender might swear: “That sucks, 50% of my loans defaulted”
Under the formula this gives us an annualized default rate of 8.3%. That sounds much better, doesn’t it? The important difference is that the annualized default rate figure is just a snapshot taken right now. It will rise over the time until the loans mature (if the lender does not invest in new loans). So after 36 months it will be much higher while the figure “50% of my loans defaulted” will not have changed after 36 months (if the other 5 loans continue to be paid on time).
You may want to ask, if the figure could fall instead of rise? No, for a given portfolio the annualized default rate can only go up over time – no loan can return form a default but addituionally further loans could default.
So what does that mean?
First: An annualized default rate of 2,36% does not match the message “Less than Three Loans out of the 100 Default”.
Second: Most of Lending Club’s loans are very young and the overall loan volume is growing. So even if – due to growth – the annualized default rate stays at 2,36% overall, it will rise higher for given loan portfolios orginated in the past. (Compare: ‘Lending Club Default Rates Much Higher than Initially Expected?‘).
Note that the same effects impact the Net Annualized Return rate.
P2P Lending Service Moneyauction Wins Savings Bank as Lender
In Korea, p2p lending service Moneyauction became so attractive for lenders that it won a Savings Bank as a lender. A company spokesman told P2P-Banking.com that the bank evaluated the repayment rate of borrowers on the p2p lending site and found it to be better compared to the rate of it’s own existing customer base even though the p2p borrowers credit scores are lower than the credit scores of their customers. Other financial institutions have expressed interest in utilising Moneyauction or entering cooperations.
Moneyauction is advancing in it’s product development. In March it released the new ‘Automatic portfolio lending’ feature as well as support for mobile bidding via smartphones. Lenders can now bid on loans using smart phones like the iPhone (see picture).
(Source: company management)
Smava Enters Marketing Partnership with Cortal Consors Bank
Smava has entered a marketing cooperation with Cortal Consors bank. Cortal Consors will promote Smava as a new asset class to it’s customer. Smava will pay Cortal Consors referral fees for referred lenders and borrowers.
Newsworthy is that this is the first marketing deal a bank has entered in with a p2p lending service. The implications of the deal itself are rather unspectacular as the information is buried deep inside the Cortal Consors website where few are likely to see it.
In other news Smava has redesigned the website and changed the slogan a couple of days ago. The former slogan was “Kredite von Mensch zu Mensch” which roughly translates to “Loans from human to human”. The new slogan is “Direkt Kredit” (engl. “direct loan(s)”). The motivation of this change according to Smava was to enhance the message that loans are direct, easy, and competitive. Smava says borrowers had wrong associations with the old slogan, thinking that long negotiations with individual lenders would be necessary.
Published feedback by users (lenders) on the new slogan critisizes that the new slogan resembles those of impersonal financial institutions – an image that p2p lending services aimed to differentiate themselves from.
The Current State of P2P Lending in Hungary
In 2008 we covered Noba with it’s plans for a p2p lending service in Hungary. Now CafeBabel.co.uk has great overview on the current situation of peer to peer lending in Hungary today. Noba has 3,450 (figure corrected) registered users. Most lenders are giving loans out of social motivations as due to regulation the loans do not carry interest.