P2P-Banking.com

2007 was a year of launch and growth for most players. What trends in peer to peer lending can be expected in 2008?

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, especially in the largest market: In the United States Globefunder.com and Loanio.com will launch. In other markets, where there is no national p2p lending service established yet (e.g. Canada, New Zealand, Spain), p2p lending will be introduced by the launch of a service.

Insurance against defaults (probability 75%)
Not totally new, since Boober.nl and Smava.de already offer some protection of the loan principal. Insurance can be implemented as a classical insurance product (supplied by an insurance company) or as a market mechanism, spreading the risk over multiple loans.

Secondary market (probability 25%)
One of the disadvantages for lenders currently is that on all p2p lending platforms, the invested money i locked in for the duration of the loan term. Prosper.com has allready announced that it plans a secondary market, enabling lenders to sell and buy loans any time. Depending on the market there are huge regulatory hurdles to allow trading of loans. For example German executives told P2P-Banking.com that on the German market a secondary market is unlikely for years to come.

Cross-market lending (probability <25%)
Aside form the social lending approaches (Kiva, MyC4, Microplace) so far all service are open only for lenders and borrowers that live in the same market. If lenders could lend to borrowers in markets with higher key interest rate than the market the lender lives in, the advantages could outweight the risks. In the European Union due to the Euro zone there would be no currency exchange risk. Again there are steep regulatory hurdles to be taken.

Variable interest loans (probability ?)
So far all loans are for fixed terms (prepayment allowed) with fixed interest rates. Variable interest loans could add flexibility. The interest rate could rise or decline following an indicator (e.g. market prime rate). Another possibility would be a mechanism where the variable interest rate would rise or fall as a result of the level of defaults of the credit grade. This could protect lenders, if the actual default ratio is higher then the forecasted default ratio.

Third party bidding management (probability?)
Just a thought. Lenders could allow a third party to manage their portfolio. Like an investment funds the lender would invest an amount of money, while the funds manager does the actual selection of loans. This could possibly be done by a sophisticated software (would you trust this?) selecting loans by statistical analysis of performance of loans with similiar parameters or by a fonds manager. The later is unlikely because the amount of time needed for each loan is too high to be covered by fees.

I'll check at the end of 2008 to see how these trends developed.

More and more p2p lending services are launching, each catering to different markets and different target audiences. Some derive more features from "ancestors" Prosper or Zopa, some less.

All follow the aim to allow lenders to directly lend money to borrowers without a bank acting as intermediary. This aim is sometimes not pursued strictly to the point. Smava actually partnered with a bank to comply with regulation, Zopa US partnered with credit unions, but nevertheless it serves as comprehensive definition.

Dividing p2p lending services in categories could follow several possible factors:

• price building mechanism (auction/non-auction; interest set by platform/by borrower/by lender)
• purpose of loan (private/business/both)
• social lending vs. lending for profit

I think the last factor is most useful for the definition of categories. It affects all parts of the service from marketing to operations. The differentiation is in the objective the majority of the lenders had when selecting the platform. Were they attracted by the motivation to help an individual through a loan or by the motivation to earn interest? (more…)

Effective today Prosper.com has raised the closing fees for borrowers:

…The rationale behind this increase is to enable us to better cover our administrative costs and bring our fees more in line with the market. We have endeavored to continue to keep the fees very straightforward for our borrowers.

The origination fee schedule for borrowers of first and second loans will be as follows:

AA 1.00% (no change)
A 2.00%
B 2.00%
C 3.00%
D 3.00%
E 3.00%
HR 3.00%

…

Origination fees paid by existing borrowers and for listings that have already been created will not be impacted.

2007 was an exciting and eventful year in the development of peer to peer lending. Looking back these were the highlights:

• February: Boober.nl launches the first p2p lending service in the Netherlands.
  Prosper.com raises required borrower credit score to 520 and introduces other major changes
• March: Smava.de launches German p2p lending service
• April: Fairrates.dk offers person to person lending in Denmark
• May: Lendingclub.com launch in the US, initially limited to Facebook members
• June: Prosper raises another 20M US$ VC. PPdai p2p lending launch in China
• July: Globefunder raises 1.5M US$ VC 
• August: Boober is temporarily forced to stop lending by financial authorities. MyC4, which allows lenders to fund microloans to African entrepreneurs, grows steadily while still in private beta 
• September: Kiva sold out after extensive media coverage.
• October: Microplace launches with microlending. Microplace is an Ebay company. Australia gets peer to peer lending through iGrin. Zopa UK launches 'Zopa Listings'. Prosper portfolio plans introduced. A Prosper SEC filing is the first step towards a secondary market for Prosper loans
• November: Boober and Zopa launch in Italy. Prosper reaches 100 million US$ loan volume.
• December: Zopa US launch. Lendingclub goes nationwide. Canadian Communitylend receives 2.5M VC. In Sweden Loanland is the first p2p lending service.

I will write another article on which trends to expect in p2p lending in 2008.

Lendingclub.com announced today that now users of all 50 states can borrow money through Lendingclub.

Prosper.com is covering 47 states, but in some states borrowing is restricted to business purpose loans. 

The Wikipedia article on Prosper was for months subject to heated editing and deleting. Not much diplomacy. Some edits wanted to get as much criticism in as possible while others removed as much negative tone as possible to get it more neutral. Currently the article is locked.
See the discussion on what should be stated in the article in the future when it will be unlocked again.

With several posts by CEO Chris Larsen Prosper.com starts blogging.

Welcome to the new Prosper Blog.

We’ll be using this blog to create a place to find up-to-the-minute news on the latest Prosper enhancements, enlightening and thoughtful Personal Finance opinions, touching Prosper Member Stories, and more. Your contributions are welcome. Please feel free to submit comments to any of the blog posts or send new articles and ideas to us at blog @ prosper.com (please remove spaces before using this email address) or submit a guest post.

We’ll be adding in posts regularly, so please stop back in again soon.

Warmly,

Prosper

The blog has been in preparation for some time. I believe we can look forward to some interesting articles by Prosper staff, borrowers, lenders and other guest writers.

As some of you might have noticed, the main page of Wiseclerk.com changed today and now offers a p2p lending discussion forum. I believe there is a huge need for information on the developing p2p lending services. In this spirit I started Wiseclerk.com in April 2006 to create useful overview reports on Prosper. While it was not the first site of this kind (some oldtimers may remember Savagenumber.com by atlantageek) it did grow quickly and built a loyal userbase among Prosper lenders.

Prosper did from the beginning support the efforts of developers by providing data publicly and later offering data export interfaces and APIs.

Both the Wiseclerk reports and the later added blog were started with a focus on Prosper. That was appropriate at that point in time but now I think a broader view is needed. Lenders can choose between several p2p lending services and the flow of information needs to be taken to a meta platform level. Lenders that lend on several platforms will not want to check several forums - each one tied to the single platform.

The new forum will also serve as a feedback and discussion location for ideas and news published in the p2p-banking blog. Later today I will add a display into the blog that shows the latest discussion threads from the forum.

(more…)

Launched in February 2006 American peer to peer lending service Prosper.com has surpassed the threshold of 100 million US$ in loans funded. Prosper is the largest peer to peer lending service. Growth peaked during 2nd quarter of 2007, where funded loan volume per month reached approx 8 million US$.

Prosper.com recently allowed borrowers to take out a second loan while the first is still active.

Now Prosper changed the Borrower's Agreement and included the following rule: "You may not obtain a Loan from the Prosper marketplace to pay off an existing Prosper Loan."

The discussion on this change is lively, with many lenders wondering about the reason behind this and how Prosper will enforce this rule. Prosper allows prepayments with no penalty. How will Prosper know where the money for the repayment came from?

A possibility is that Prosper added this clause to benefit from servicing fees longer.