P2P-Banking.com

The State of Montana signed an agreement with Prosper Marketplace Inc. to resolve matters relating to unregistered securities and securities fraud. (more…)

Less than 2 weeks after reopening the p2p lending platform Prosper.com has closed down again, not accepting new lenders and borrowers.

The website currently displays the following message:

Prosper is Currently in a Quiet Period

We have been overwhelmed by the outcry from potential investors around the country who want to participate in peer-to-peer lending. Thank you for your support and your letters to us.

After much consideration we have decided to voluntarily shut down our operation in order to complete our SEC approval for a nationwide peer-to-peer lending platform. As a result, due to regulatory concerns, and in the interest of working toward getting our registration statement effective as soon as possible, we are discontinuing our California intrastate offering at this time.

If you’re an existing lender, your current lender agreements will be unaffected; your existing loans will continue to be serviced; you’ll be able to track and monitor your loans; and you’ll be able to withdraw funds from your Prosper account.

If you are a borrower with an existing loan, you will continue with your current borrower agreement and be unaffected by the registration process.

We want to assure you that Prosper is looking forward to being able to offer a transparent, durable and participatory lending institution very soon.

As a result of this decision, we will not be accepting new lender or borrower registrations or loans, or new commitments from existing lenders effective immediately. Until this process is complete, we are required to be in a quiet period and will be unable to respond to press, blogger or other inquiries related to our SEC registration process, even though we would like to.

We sincerely apologize to the Prosper community members for this inconvenience or disappointment our decision may have caused. We want to thank those of you who demonstrated your support through your active participation whether by investing with us again or referring friends to our site.

Thank you in advance for your understanding, support and patience once more. We look forward to serving the needs of the community in the hopefully not too distant future.

What a mess.

In the recently published study “Emergence of Financial Intermediaries in Electronic Markets: The Case of Online P2P Lending“, Sven Berger and Fabian Gleisner examined more then 14,000 Prosper loans (originated from Nov. 2005 to Sep. 2007) to evaluate the benefits borrowers derived from joining a Prosper group versus listings with no group affiliation.

They tested the following hypothesises for statistical evidence:

• Borrowers within groups are able to borrow at lower credit spreads.
• The recommendation of a credit listing by the group leader leads to lower credit spreads.
• A group leader’s bidding serves as a credible signal for the quality of the credit listing and results in lower credit spreads.
• A group leader’s bidding on a credit listing signals information quality and has a stronger impact on credit spreads than a recommendation by the group leader.
• A higher group rating leads to lower credit spreads.
• Increasing group size leads to lower credit spreads.

They found that the group leader as intermediary played a very important role on the ability of the borrower to obtain a loan and to obtain this loan at a lower then average interest rate.

Since most of the bids on group affiliated loans came from lenders that were not members of the group, the authors conclude that the group leader has an important signaling function.

Some of the empirical results:

1. The results … confirm our fundamental hypothesis H1: the use of an interme- diary in the electronic marketplace significantly lowers borrowers’ loan spread. Group affiliation ceteris paribus lowers the credit spread by 25 basis points. (page 15)
2. Does the choice of the intermediary matter? Should borrowers make demands on paid intermediary services? In order to be able to compare the net impact of unpaid and paid groups, we analyze Bor- rower Rate Net … and find that intermediation significantly lowers borrower’s cost of credit overall. However, we document a dif- ference in the net impact of group membership of 42 basis points: An unpaid intermediary reduces borrower’s credit spread by 107 basis points, a paid intermediary by 65 basis points. It follows that the group fee can turn the case for a paid intermedi- ary borderline. The average group fee of 110 basis points … will more than counter the net reduction in credit spread. Taken together, inter- mediation has a positive net impact but the choice of intermediary matters. We hereby do not com- ment on the overall impact of paid groups, since this analysis does not incorporate the intermediary’s role in overall access to credit or the long-run performance of the loan thus originated. (page 15ff)
3. the group leader’s bid for the borrower’s credit listing exerts a significant stronger impact on borrowers’ credit conditions than a recommendation. Moreover, Certification is only significant at the 10-percent level. We can confirm Hypothesis H3b: the regression coefficient of Group Leader Bid exceeds Certification. (page 18)

The study delivers strong evidence that Prosper borrowers benefited financially from joining Prosper groups.

Read the study now in BuR - Business Research.

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Prosper.com has restarted offering p2p lending to customers after an SEC imposed 6 months stop (quiet period).

Prosper chief executive Chris Larsen said the California Department of Corporations has authorized the company to resume raising money in California and then lending it out under a system that lets borrowers and lenders use bids to set the interest rates on loans. “I hope this leads to wider acceptance of peer-to-peer lending,” said Commissioner of Corporations Preston DuFauchard. He said the state’s experience with Prosper, prior to the SEC intervention, made it “comfortable” that its bidding system gives lenders the information they need to invest in loans wisely.

Prosper hopes to reopen for lenders from other states but it remains uncertain when Prosper will be allowed to do so.

Prosper raises the minimum credit score required to 640 (Grade C under the old rating). This applies only to new borrowers. Borrowers registered before the quiet period that have lower credit grades can still apply for second loans (example: loan listing of a HR borrower).

Besides “direct” p2p loan listings, Prosper offers “Open Market Listings“, which are described as following:

Open Market loans are existing loans that were underwritten by financial institutions that are credit experts in areas such as auto loans, small business loans or social impact loans. The loan seller describes the loan in an Open Market listing, and then sells and assigns the loan to Prosper.

Open Market loans may include existing consumer loans or retail installment sale contracts. They can be secured or unsecured loans, and may include small business loans, where the borrower is a business entity, not an individual.

Open Market listings describe the existing Open Market loan, owned by the loan seller, which is offered for sale on the Prosper marketplace. Each listing displays information to assist the lender in making an informed bidding decision. Lenders can review the sale price for the Open Market loan, the yield percentage that corresponds to the sales price, the remaining principal balance of the loan and the interest rate the borrower is obligated to pay on the loan.

In some instances on auto loans, you can even see the factory where the car was built. This is all part of the transparency Prosper brings to the marketplace so that you can make informed decisions on how to invest your money.

Prosper plans a secondary market which in future will allow lenders to trade notes.

(Sources: Prosper, San Francisco Chronicle)

The site Prosper.com shows only a maintenance note today saying “… We expect the site to be down both Saturday (4/25/2009) and Sunday (4/26/2009).”.

Speculation: Maybe Prosper will end its quiet period and resume its full p2p lending service on Monday?

Prosper.com, which is still in quiet period and not allowing new loans, made a new SEC filing yesterday. In this third amendment to the S-1 filing makes several amendments, most notably introducing securitization for initial offerings of loans.

Prosper plans “Open market loans”, which apparently are loans issued by traditional lenders which being securitized and resold to Prosper lenders. I am somewhat sceptical how many Prosper lenders will like the “open market loans” offer. To me this seems a far excursion from the peer to peer lending idea.

In the filing Prosper states that FolioFn will be the operator of the Prosper secondary market (named “Folio Investing Note Trader Platform”). FolioFn already operates the Note Trading Platform of Lending Club.

More changes in the new filing are in a review in this blog post at P2PLendingNews.

Peer to peer lending is innovative and new. New users usually have lots of questions when grasping the marketplace mechanisms. Beyond the FAQ of the p2p lending service, a great place to learn is usually a forum, where users (mostly lenders) exchange experiences and post and answer questions.

There are “official” forums provided by the lending services and independent ones. One of the first ones, the official Prosper forum, became one of the most notorious ones. After Prosper “moderated” negative and critical posts it later deleted the initial forum in total. When a copied version of the forum’s archive was made available on seperate internet site Prosper tried to  shut the site down, but failed.

But this is an extreme example. I found that on nearly all other forums a very helpful and supportive attitude rules.

List of p2p lending forums

General

• P2P lending forum at Wiseclerk.com
• Soclen.pl (polish language, focus on Polish p2p lending services)
• P2P-Kredite.com forum (german language, focus on Smava, Auxmoney, MYC4)

Focus on one p2p lending service

• Zopa UK (official)
• Smava (official, german language)
• Kivafriends.org (on Kiva and microfinance in general)
• MYC4 (official, mainly english, some danish)
• Lendingclubstats (on Lending Club)
• Booberwatch (dutch language, on Boober)
• Prosper (official)
• Prospers.org (on Prosper, prosper critic)
• PPdai (official, chinese language)

If I have missed any great p2p lending forum, please comment with the URL and I will add it to the above list. Thank you.

(Photo credit: wili_hybrid)

Recently I noticed two changes on p2p lender’s Lending Club website.

On the statistics page the link to download the loan data was removed. Before it was possible to download the complete loan data since inception of the service. Furthermore the predefined setting for the parameter “Loans issued from” is set on March 1,2008 now. That means, if you look on the page and do not change that parameter manually you see how loans performed that were issued between March 1, 2008 and today. Older loans issued between June 1, 2007 and Feb 29, 2008 are not included in the displayed results.

When I noticed that, I was reminded of what Prosper did with it’s statistics. Prosper segmented it’s loans (e.g. prosper select index) and cited only results for better performing segments in press releases. Furthermore the predefined values on Prosper’s statistic page, were set in a way that lowered the late payments and default ratios compared to an average over all Prosper loans.

But Lending Club had successfully positioned itself with transparency a core value in the past, so I asked Lending Club to comment on the reasons for the changes.

Rob Garcia, Director Product Strategy told P2P-Banking.com:

This is a temporary situation. We chose to take down the files due to privacy concerns raised by our customers. We are working to address these concerns in a way that continues to provide full transparency to platform data, while protecting the privacy of our customers….

On the setting of the parameter he stated:

The default setting for the statistics page is a year. So since we are now in March, the “From” date is defaulted to March 2008. This is to show the most relevant annualized indicators for the last year. Users can then change the “From” and “To” dates to explore the indicators for a specific time frame they may be interested in, including from inception (June 1, 2007). We did this based on numerous email inquiries from lenders asking for annual default rates instead of a general default rate since inception (so that they can compare annual defaults to annual interest rates to get actual net returns). We’re looking at tools to make that calculation easier…

Yesterday Lazy Man wrote about his observations on how Lending Club reports risk. The posted screenshots show that interpretation of the risk figures is not obvious under certain circumstances.

When analysing numbers on p2p lending activity, users can rely on independent third party sites gathering statistics for many p2p lending services. These services either obtain the raw data via an interface provided by the service or they do parse the web pages of the service to collect the data.

Most of the statistic sites offer reports and tools to analyse and graph the overall development of the marketplace as well as the status of an individual lender’s investments.

The majority of the users are lenders, as the borrower usually needs the information only once - before applying for a loan - to determine what interest rate is appropriate.

Tools for Prosper:

• Lendingstats.com
• Ericscc.com

Tools for Lending Club:

• Lendingclubstats.com

Tools for MyC4:

• MyC4stats.com by Wiseclerk
• MyC4watch.com
• Gladkristen (danish)

Tools for Zopa UK:

• Ljay

Tools for Smava:

• Wiseclerk (german)
• Beobach (german)
• Verchow (german)

Tools for Auxmoney:

• Wiseclerk (german)

Tools for Boober NL:

• Booberwatch (dutch)

Feel free to copy this list, but please do set a link citing this page as source. If you know another social lending / p2p lending stats site, please let me know.

Long term readers may remember that the Wiseclerk.com domain initially started as a report site on Prosper.com. It was in fact together with Savagenumber.com the first service of this kind.

(Photo credit: ArtemFinland)

As last year I’ll again attempt some predictions on what trends and developments can be expected in peer-to-peer lending 2009.

More competition and entering more national markets (probability 100%)
In many markets multiple p2p lending services will compete for the attention of lenders and borrowers. In other markets, where there is no national p2p lending service active yet (e.g. Canada, New Zealand), p2p lending will be introduced by the launch of a service. Possible candidates include Communitylend and Nexx.
It is hard to predict when the dormant US players (e.g. Prosper, Loanio) will overcome the regulatory hurdles and if that step is lasting.
The British market which has (compared to other markets) rather low regulatory barriers so far is dominated by a single player -  Zopa. I wonder if we’ll see the launch of a competitor there.

Boom of social lending services/p2p microfinance (probability 100%)
2008 saw the launch of Babyloan, Veecus and Wokai. Kiva funded more the 1 million US$ new loans in a single week in the end of December. The steep growth of Kiva, MyC4 and other services will continue and new p2p microfinance platforms will launch.

First Banks experiment with own p2p lending applications (probability 50%)
While p2p lending volumes are far from being a business threat to banks - banks do watch the developments. Possibly in 2009 a bank will launch its own p2p lending application. The principal aim will not be to generate revenue, but rather to collect experience and to gauge acceptance by the bank’s customers. It will be interesting to see banks testing the water on their path to implement a p2p lending concept that supplements their core business.

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