Note: Most of the following is an observation of lenders opinions voiced in the Prosper forums (with sources given). The opinions voiced in the cited threads are the opinions of the individual lenders who posted them.
Topics include lack of communication from prosper, failure to adress process problems, banning lenders, closing threads, … .
Posts call for "Class Action Lawsuit", informing Venture Capital firms who funded Prosper about the situation as the lenders posting see it and the call for withrawing funds.
One main cause for the unrest are the low ROIs large long term lenders are experiencing. This post says there are 203 lenders which have loans over 6 month old and more the 25K invested. For these the post says the average estimated ROI is 1.91%.
The result is that some long time lenders churn Prosper.com and stopped investing, while new lenders continue to pour in money.
As the following chart shows the count of lenders who have bid within the last 30 days stalls since April.
Prosper.com announced in a press release, that Prosper will expand into Japan and other Asian markets (countries were not disclosed). Excerpt from Prosper press release:
Prosper and SBI Holdings to Establish Prosper in Japan and Other Asian Countries
San Francisco – August 6, 2007 – Prosper (www.prosper.com), America’s first people-to-people lending marketplace, and SBI Holdings, Inc., a holding company for SBI Group, the financial innovation leader of Japan, today announced an agreement to form a joint venture to facilitate the launch of Prosper in Japan and explore other Asian markets.
“As Prosper takes the first step toward expanding to Japan, we’re confident SBI is the optimal partner to navigate the regulatory landscape and successfully launch and operate the Prosper marketplace in the region,” said Chris Larsen, co-founder and Chief Executive Officer of Prosper.
“With over $78 million in funded loans and more than 360,000 members, Prosper is the leading person-to-person lending marketplace,” said Hayato Kameta, incoming Chief Executive Officer of the joint venture. “SBI Group’s experience and resources in both the Internet and financial sectors, combined with the vision and infrastructure of Prosper, makes this joint venture well positioned to develop and execute a business plan which meets the regulatory and business environment in Japan and other Asian countries.”
SBI Group has a market capitalization in excess of $8 billion and consists of 65 consolidated subsidiaries and 12 affiliated companies, including 9 public companies. SBI online finance business include SBI E*Trade Securities Co., Ltd., Morningstar Japan K.K. and E-LOAN as a business unit of SBI Holdings. To find out more about SBI Holdings, Inc., visit www.sbigroup.co.jp/english/.
If you invest at Prosper.com lenders should not need your money for the next 3 years. Because at the moment all loans have 36 month terms. And – apart from the chance that the borrower might select to pay back the loan early – lenders can not withdraw money still loaned early (this does not apply to interest and monthly repayments).
Lenders have called for a secondary market as early as February 2006.
What is "secondary market"?
The idea is that a lender can sell his investment in a loan to another lender who buys it. It could work similar to trading bonds.
Suppose a lender have invested $100 in a AA loan at 12% interest, it is current and has still 18 month to run. Depending on the assessment of the buyers it could sell for a premium, that means the buyer pays the lender a price above $100 e.g. $102 or it could sell at a discount below $100 e.g. $97.
A premium would occur if buyer demand is strong, assessing that the 12% (and the other loan specifics) are an above average market deal. A discount could occur if the loan is assessed by the buyers as below average (on interest rate or other loan specifics) or if the risk for default is impacting (e.g. the loan is already late).
Advantages
Aside from liquidity advantages a secondary market would offer more options for lenders. Since some loans fail first payment a lender might choose to build his portfolio by buying loans that have made their first three payments and are current. It even seems possibly that loans would be packaged (like mortages) and auctioned off. This way a lender could specialize in picking loans and then reselling them after several month – reselling risk (and living of his reputation as in delivering good picks – okay sounds a little farfetched, I admit).
Will the Prosper secondary market launch?
In a webinar in June 2007 there was the first mention by Prosper, that they are working on a secondary market. (Source: Tom) However this could happen soon … or in x years as far as I can tell.
Zopaconfirmed that a secondary market is in their decelopment plans.
The other (international) p2p lending platforms are not even close to implementing secondary market functions.
Deutsche Bank research published a new 4 page report giving a good summary on the state of p2p lending. The report mentions Prosper, Zopa, Smava, Kiva and Boober. (Found through Marketingfacts.nl)
Since June Prosper.com runs a referral program that allows Prosper members to refer new lenders or borrowers.
How does it work?
Prosper members are encouraged to put up text links, buttons or banners on their websites that advertise for Prosper. If someone clicks on that link, a tracking parameter included in the link format allows Prosper to detect which Prosper member refered the surfer. Should the surfer sign up the member who referred him will earn:
in case of a new borrower: 0.5% of the loan amount (up to $125) when the first monthly payment clears
in case of a new lender: $25 as soon as the first loan bidded on originates
Example: If you click on one of the following buttons and sign up as a new Prosper members I am eligable to earn the referral bonus if you get active:
Up to August 31st there is a huge incentive since new lenders that sign up through the referral program get credited $25 as well to their account.
Does it work?
Although I do not heavily use the Prosper referral links on Wiseclerk.com and considering that most of the Wiseclerk audience are already Prosper users before they discover Wiseclerk, I did have several members sign up through my referral links in the past weeks. Every time somebody signs up through my link, I get an email with the new member's screenname. Most are still in the status 'Registered' meaning after signup they did not take any further steps yet to become a lender or borrower. One became or borrower, but so far failed to receive a loan.
More interesting ways to use referrer links
Wondering how the referral links can be turned from pure ads to a widget that offers additional information and is spread through viral marketing methods. Kevin at Rateladder.com has created a tool that creates code for borrowers to promote their listing on MySpace or other webpages. The tool creates an ad for the borrower listing, showing the title, the photo, the interest rate and the percentage funded. It calls for action through a 'Bid Now' button. Cleary of interest to borrowers. And Kevin profits, since he incorporated his referral links. Therefore should somebody wishing to bid sign up as a lender, he can profit.
The Prosper referral program compared to the referral programs of other p2p lending services
British Zopapays members 30 pounds for refering an active lender or borrower. This scheme exists since summer 2006 and occassionaly the bonus was increased to 50 pounds for a limited time. German Smava.de pays members 25 Euro for referring an active lender or borrower. Dutch Boober.nl awards points for sucessful referral of lenders. These can be exchanged for merchandise, e.g. for 3 referred lenders a member can earn an iPod. As far as I am aware of Lendingclub does not (yet) have an referral program. (Correct me if necessary!). It will be interesting to see if and what new entrants like Communitylend.com and Ireloans.com will offer for referring new users.
The next step for even more growth
Currently all referral programs mentioned above have one thing in common. They are open only to existing members of the p2p lending services. Assuming they are successful and the p2p lending serves are seeking opportunities to enable even faster growth then the next step could be to start an affiliate program through networks like Zanox, CJ or Affilinet.
This would allow (semi-)professional internet marketeers to promote the offers. This step would offer two advantages:
Huge exposure of the ads on many websites. Experienced marketeers promoting the offers (still on pay for performance base – no untargeted advertising spendings)
Simply by beeing listed many people will sign up for themselves instead of marketing the offer to others.
The only downside are the costs which are typically 30 percent of transaction value. In case of Prosper seeking lender referrals this would add up to $32.5 (25 for the marketeer plus $7.5 for the affiliate network).
