What changed on Prosper?

wiseclerk 1 Comment

Following up on my last post here are the largest operational changes  at the new Prosper.com:

  1. Minimum credit score requirement is now 640 (up from 520)
  2. Prosper calculates expected defaults (‘loss rate’) now by using the two factors: the credit score obtained by an external agency and the internal Prosper score (in the past the fore-casted value was based only on external data and way to low)
  3. There is a hard bid floor (a minimum interest rate set by Prosper) on each loan listing
    ‘The bid floor is the minimum yield a lender can bid on a listing. It’s not possible to bid any lower. This also affects the minimum rate a borrower can possibly receive.The bid floor for each listing is calculated by adding the national average 3yr CD rate to the minimum estimated loss rate assigned to each Prosper Rating. For example, a B-rated listing with a minimum estimated loss rate of 4.0% is added to a national average CD rate of 2.27%*, resulting in a bid floor of 6.27%.‘
  4. Minimum bid amount is now 25 US$, instead of 50 US$
  5. There are several legal changes affecting lenders (e.g. ‘In the unlikely event that we receive payments on the corresponding borrower loans relating to your Notes after the final maturity date, you will not receive payments on your Notes after maturity.‘ – this seems to mean that, if a late borrower who paid more than a year after the date the loan was supposed to be paid back in full, the lender is not credited that amount – but check yourself I might be misinterpreting the meaning)

New Lenders should read the SEC prospectus. Some disclosures might make them wary. Quotes:

  • You assume the risk that information provided by borrowers may be intentionally false.
  • Status information given on loans between inception and March 31, 2009 shows 31.3% of loans had been at least 15 days late at least once, and 20.1% had defaulted.
  • The fact that Prosper will have the exclusive right and ability to investigate claims of identity theft in the origination of loans creates a significant conflict of interest between Prosper and the lender members

That might we necessary legal disclaimers – but if Prosper performs in future like in the past, the risk for lenders will be high and by the prospectus Prosper will exclude liability for all risks spelled out.

I read that Prosper makes all lenders re-sign 6 new legal agreements.

Prosper Reopens with SEC Approval – Starts Secondary Market

wiseclerk 1 Comment

Prosper.com has reopened – now with the long sought approval of the SEC which was granted last Friday. In his blog statement “We mean it this time!” CEO Chris Larsen sheds light on what was delaying SEC approval. It was auction bidding on loan requests:

… the first Internet auction-based P2P loans marketplace and trading platform to have its SEC registration declared effective, which means the SEC is permitting Prosper to facilitate auctions in a way that has never been done before.

Selling securities by auction is not new and critical to greater efficiency in fair price discovery for both sides of the transaction. However, the SEC has never permitted Wall Street investment banks or any other institution to run a true auction where investors could make an irrevocable bid that committed funds prior to the establishment of a final rate….

Prosper introduces a secondary market. The internet auction priced trading platform for Prosper Notes is operated by FolioFN (like Lending Club’s Note Trading platform). Only loans (‘notes’) issued after July 13th can be traded.

At the moment lenders from California, Colorado, Delaware, Georgia, Illinois, Minnesota, Montana, Nevada, New York, South Carolina, South Dakota, Utah, Wisconsin and Wyoming can use Prosper, if they fulfill state set financial suitability requirements. Prosper is open to borrowers from almost all states.

With the PR Prosper will likely build up a large selection of loan listings again fast (as of now there are 10). The interesting question will be if Prosper lenders will continue to have faith investing via Prosper after extremely high default rates and low collection results in the past. Furthermore disappointed (former) long term lenders are critisizing risks for lenders embedded in the latest SEC filing.

With the likely press coverage of the relaunch all p2p lending companies in the US can expect to see a rise in traffic.

Mind-Boogling

wiseclerk 2 Comments

Free by Chris Anderson is one of the most thought provoking book, I have read in the last few years. Anderson argues convincingly, why most digital products will end up being priced at zero – free. And he show the reader how this could be turned from the author or musician, that created the content, to an advantage instead of a threat to his profits.

The book gives ample examples. You may have already heard of the electric cars that Better Place wants to roll out. But how can Better Place offer a free car? And still allow the user to benefit from lower operating costs than with a conventional car?
One sector that still has to embrace ‘Free’ seems to be the financial service industry – there is only one mention of Zecco, no other financial service let alone banks is among the examples.

Anderson takes wide strives into history, philosophy and science fiction literature. The topic being pricing models and pricing strategies it will still appeal to a readership beyond economists, since it is interesting and entertaining to read.

Above all I found it inspiring to consider the outcome of further sectors embracing ‘Free’ instead of  viewing ‘Free’ as the enemy.

I recommend the book.

Instead of buying the paper version you can read it for free online (limited July 2009 EDIT: this link works only from US, see below (next page) to read outside US) or download the audio book version free.

Continue reading →

Licence of Zopa Italy Revoked

wiseclerk 3 Comments

Zopa.it has posted a message on their frontpage that the Bank of Italy has revoked the licence to act as a financial intermediary.

As a result Zopa Italy has currently stopped issuing new loans and accepting new lenders.

EDIT: Speculation – It may have to do with this order of the Bank of Italy, which came into effect on July, 1st limiting the max. allowable interest rates.

UPDATED July 14th – Information provided by Carlo Vitali, Zopa Italy:

I can assure you that the action of Bank of Italy has nothing to do with this order of the Bank of Italy. The document you refer to has quarterly releases and it simply states the average interest rates for various credit products and says that any interest rate higher than 1.5x the average is considered usury (and therefore is illegal).
Zopa has never quoted a single loan even close to usury rate and our average rates are really appreciated by borrowers being in average 9,6 APR against a 15% industry average.
Bank of Italy accuse us of operating banking activity without being a bank while we sustain that we are just intermediating payments between private lenders and borrowers. Accusation is based on the fact that we have a transit lender account, where the money stays for few days, maximum a couple of weeks, before going out in loans. On this account we don’t get any interest and is not part of the assets of Zopa Italia. Nevertheless we had proposed an operative solution to solve the issue and we hope we will get the chance to implement it and reassume the business. I remind you that we got an authorization from Bank of Italy before launching Zopa in Italy.

Thanks to Carlo Vitali, for providing P2P-Banking.com with this information on the status.

How Bad Customer Service can Backfire

wiseclerk

In the age of the internet bad customer service can not only scare away the harmed customer – he can retaliate by appealing to the masses and unleashing a viral protest song.

This video was viewed 2.4 million times. I bet United Airlines badly regrets the events by now and wish the could turn back the clock.

While this is completly unrelated to p2p lending similar things could happen, if a lender or a borrower feels he did not receive appropriate service. With Twitter, Youtube and blogs word can be spread fast.

P2P Lending Service People Capital Gets More Funding

wiseclerk

People Capital, a p2p lending service for college students to obtain student loans via an online lending exchange, announced that it has closed a 500,000 US$ round of Series B funding. The Serious Change fund, helmed by investor Josh Mailman, led the round of financing. People Capital will use the funding to accelerate technological development of its peer-to-peer lending platform which will offer a unique solution for students to finance their college educations. This platform is poised to provide funding for students in the fall 2009-10 academic year. “We are delighted to welcome Serious Change as our new financial partner,” said Tom Shelton, CEO of People Capital. “With this financial commitment, we will continue to develop our proprietary lending technology which, when launched, will help students receive more favorable private student loans for high education needs.” “Although peer-to-peer lending technology is not new, we had been looking for a company that could bring the technology to the next level, one that offers a responsible alternative to students wishing to take out loans for college,” said Josh Mailman, head of Serious Change. “After extensive research, seeing the technology in action, and meeting company executives in person, we became convinced that People Capital presents by far the most exciting opportunity of companies in the peer-to-peer lending space.

(Source: press release)