P2P-Banking.com

People Capital, a website for college students to obtain student loans via an online lending exchange, and Prosper.com have announced a referral partnership to help borrowers seeking both educational and non-educational loans on their respective Web sites. Borrowers who are unable to obtain educational loans that meet their financing needs on Prosper.com will be offered the opportunity to access the People Capital lending exchange. In return, People Capital will refer its Web borrowers, who are interested in taking out non-educational loans, to Prosper.

People Capital is currently in Beta.

Earlier examples of p2p lending services referring leads that could not be funded on their platform to another service were Zopa selling leads of low credit grade borrowers and Prosper refering loan applicants to other sites while Prosper was closed to new borrowers during SEC registration.

Prosper.com has added a website version for mobile use.

One interesting – though unrelated – fact: While on most western marketplaces “conventional” internet access dominates, over 90% of the users of Estonian Isepankur.ee access the site via mobile phone.

As the end of 2009 approaches here is a selection of main news and developments covered by P2P-Banking.com:

• January: Smava expands into Poland (interview); Pertuity Direct launched; German Smava raises fees; total global p2p lending loan volume is about 740 million US$
• February: Sobralaen launches in Estonia (later renamed Isepankur)
• March: Lending Club receives 12M US$ in VC funding and introduces self-directed IRA; Dutch p2p lending service Boober fails
• April: Aqush launches friends and family loans in Japan; Prosper very briefly reopens
• May: Vittana launch; IOU Central files SEC registration to open in the US; United Prosperity launches with a loan guarantee microfinance model
• June: Spanish bank Caja Navarra experiments with own p2p lending platform; my article ‘For Debate: A Flaw in Current P2P Lending Models?‘ gets quite some email feedback; Kiva launches with loans to US businesses; Loanio SEC filing; Zopa prospers in the UK; P2P Lending Services in Germany get a boost by media coverage; Kiva enacts currency risk coverage changes
• July: Prosper reopens with SEC approval and starts secondary market
• August: Blogs discus whether p2p lending is or will become disruptive; Pertuity Direct closes after only 7 month of operations
• September: Smava Poland interview; the article ‘P2P Lending Technology – Make or Buy‘ is one of the most-read and the most commented article in 2009
• October: Moneyauction booms in Korea
• November: Kiva surpasses 100 million US$ in loans; Prosper and MYC4 have problems with non-payments/defaults; Virgin Money exits US p2p lending market
• MYC4 reduces staff

Off to new shores (Photo credit: Nattu)

P2P Lending Company Prosper Marketplace (Prosper.com) has hired Nick Talwar, former head of Citibank Sweden. Talwar’s task as Chief Revenue Officer will be to bring Prosper back on a growth track.

As reported earlier Prosper is currently experiencing high losses and struggling to reconnect with earlier growth rates.

Prosper Marketplace, Inc. the company running the p2p lending site Prosper.com had a net loss of 2,238,138 US$ in the third quarter of 2009. Furthermore Prosper’s cash reserve is low. As of September 30th, 2009 Prosper had 2,079,624 US$ cash and cash equivalents left from an initial VC funding of 40 million US$. Even accounting for the recent 1 million US$ investment of a banker, at the current burn rate Prosper will need new funding soon.

However the timing and circumstances make chances for a new VC round look less than ideal.
Prosper reopened the site for new loans after completing the SEC registration process in July 2009, but still struggles to reach growth rates the marketplace had in 2007 and 2008.

(more…)

Nigel Morris, co-founder of Capital One, has invested 1 million US$ into Prosper.com via his venture capital company QED Investors.

The investment comes in form of a convertible promissory note for the amount of 1 million US$, which is due in one year and carries an interest rate of 15%. QED Investors may elect to convert the note into shares of Prosper’s preferred stock.

VC funding for Prosper now totals 41 million US$. Nigel Morris joins Prosper’s board of directors.

(via TechCrunch.com, sources press release & other)

Prosper has published a review of the results of a legal collection test. In November 2007, Prosper had selected 74 loans with an outstanding principal balance of approx. 704,000 US$ to conduct a test for a legal collection strategy instead of including them in a debt sale (which at that time was the usual Prosper procedure for bad debt).

The cases were handed over to the law firm Hunt & Henriques.

Since then there was none or little official communication about the progress. Relying on other sources, P2P-Banking.com reported last year that several of lawsuits in these cases were lost.

The new blog post by Prosper describes in detail which steps were undertaken and what results the measures yielded. The only step that can be counted as somewhat successful was the pre-legal phase of letters threatening lawsuits which recovered about 40,000 US$ payments. 66 accounts then went into the legal process.

Surprisingly 16 cases (24%) had to be closed because the debtor moved out of state (3) or Prosper was unable to obtain service.
On a sidenote: Interested parties have raised the questions why Prosper did not apply to the court to allow service by publication, which seem to legal and often used in California as P2P-Banking.com was told. In this case, after other measures failed the plaintiff runs an classified ad in a newspaper. It does not matter if the defendant actually sees this newspaper ad.

The remaining 50 cases further dwindled when Prosper deducted cases with bankruptcies and lowered credit scores which it deemed not worthwhile. (more…)

Financial startups have formed the ‘Coalition for new Credit Models’. Among the founding enterprises are Prosper and Loanio. Two of the changes the coalition asks Congress and the Administration to make are:

Adopt legislation classifying person-to-person lending as a consumer banking service, not a securities offering.

Create a Start Up Liaison at Treasury Department or within banking regulators to guide and fast-track the development of new financial products by start-up companies and organizations seeking to innovate the way consumers and businesses raise and access capital.

(Source: press release; photo credit: Vince Alongi)

Prosper.com picked up speed again fast after the relaunch. As of today there are already more than 500 loan listings open for bidding. 5 loans already originated, despite the short timespan since re-opening.

Today I saw the first note for resale on the note trading platform. It is sold in auction mode where lenders can bid (sealed bids) during a seven days auction. Currently there are four bids. Would the auction end right now, then the buyer would purchase the note at a steep discount (40.4 Cents on the dollar). But I am sure bid prices will rise fast when more lenders discover that there is now activity on Prosper’s secondary market.

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.