P2P-Banking.com

On most peer to peer lending services (Prosper, Lendingclub, Smava, Boober) the identity of the borrower is hidden to the lender. Only the service itself knows the identity of the borrower. Therefore the lender has no means to check if information given is accurate and has to trust the platform.

The service has to

• ensure that it takes adequate measures to verify the identity the borrower has stated at registration is correct
• instill trust to the lender that the fraud risk of borrowers impersonating under a false identity is minimal, non-existant or while existant not covered by the lender.

Prosper gives a "100% Identity Theft Guarantee" and in case of identity theft repurchases the fraudulent loan:

Prosper reserves the right to buy back loans at any time. If Prosper buys back a loan, the outstanding principal balance will be returned to lenders and the loan will be marked as "repurchased".

Prosper typically repurchases loans in accordance with Prosper's 100% Identity Theft Guarantee, under which Prosper has agreed to repurchase loans from lenders if the loan is found to involve identity theft of the named borrower's identity.

Prosper is committed to providing a safe and secure marketplace, and works with law enforcement authorities to prosecute to the fullest extent perpetrators of identity theft.

Rateladder had one of his loans repurchased today. But how often does this occur?

Looking at the Wiseclerk Prosper loan stats by status, the column Repurchased shows a value of 400000 US$. Out of the total loan value of 96 million US$ that is about 0.4%. Not all of the repurchased loans are due to identity fraud.

Prosper checks identity by several measures like checking documentaion supplied by the borrower, calling him, verifying bank adresses, sending postcards to his adress… There have been several discussions on this topic with details on the Prosper forum.

Other services use other measures. German Smava.de uses the PostIdent-process a service that requires the registering service to produce a government id (passport) in person. The Postident process is used by nearly all German online banks and is considered quite safe.

P2p lending services can tolerate only a low level of identity theft cases. The innovative approach of p2p lending requires that lenders trust the concept and the service. Fraud cases endanger that trust.

On March 24th Smava.de launched its peer-to-peer lending service in Germany. Time for a recap on how Smava fared in its first 6 month of operation. How Smava operates can be read in this earlier article.
First the very positive news: So far in only 3 cases borrowers missed payment dates and in two of these cases the borrowers payed with only a few days delay. Therefore only one loan is currently late, resulting in that more than 99% of all loans are current. On the usability and interface side there have been no problems or complaints, the interface is working as expected. Thereis however room for improvement, especially in the account section where the handling gets a little clumsy once the lender has many loans.

But despite receiving very positive and extensive media coverage Smava so far failed to achieve mass appeal. While Smava says it has over 13000 registered users, Wiseclerk figures show approximately 250 active lenders and 180 active borrowers.

Source: Wiseclerk.com

In the 6 month Smava handled a loan volume of 500000 Euro (approx 0.7 million US$), rather tiny compared to the loan volumes Prosper and Zopa handle. One move to foster growth was that Smava opened to lower credit grades in the beginning of August. While this led to a rise of loan listings (see chart below), fewer of the new loan listings were funded. But still over 50% of loan listings do get funded. It is to early to judge how the low credit rate loans will impact the default ratio.

Source: Wiseclerk.com

Possibly the main reason for Smava’s slow growth is the effficiency of German banking. German banks have automated the consumer loan process and small consumer credits have interest rates (APR) of as low as 4 to 5% (for best credit grade). At Smava the interest rates at which loans are funding have risen compared to launch date, voiding the argument that Smava offers better rates then a bank for many cases.

Source: Wiseclerk.com

Smava is still faring well in the absence of serious peer to peer lending competion. With Dutch Boober troubled by regulation worries, the long announced plans of Boober to expand into Germany have yet to happen. Smava avoided regulatory problems in the first place because it partnered with a bank, which fulfils all regulation requirements.

Like Prosper Smava has yet to define the benefit of groups, which exist but have no plausible way of influencing/reducing the default risk.

Reuters has a video on German p2p lending site Smava.de. This is the first video I saw that's in english language. Features Alexander Artope, co-founder and CEO of Smava.

The German site for social lending Smava.de today allowed borrowers of the lower credit grades G and H to participate. Previously only borrowers of credit grades A through F could participate. According to information published by Smava, 80% of the German population have credit grades in the range A-F, while credit grade G accounts for 10% and credit grade H accounts for 5% of the population.

This move is contrary to the development at Prosper.com which started with a very broad range of credit grades and only later restricted borrower access tighter.

However Smava, so far has experienced not one late payment. Three payment cycles have been completed with 100% of borrowers paying on time.

Other changes at the Smava site today included a lower minimum bid of 250 Euro (down from 500 Euro) and a higher interest rate ceiling (maximum interest rate 18%; up from 15%).

Last week at the end of my post on the Prosper referral program I suggested:

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.

And today German Smava.de has launched an affiliate program through Affilinet. Though probably not a result of my blog post (or is it?), it is nice to see the development headed in the direction I anticipated.

The Smava affiliate program pays 15 Euro for each referred borrower that creates a listing and 10 Euro for each referred lender (who completes process of opening an account).

(Source: p2p-kredite.com)

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)

Dutch p2p lending service Boober.nl changed the rules last week. Lenders are now restricted to a maximum investment sum of 39000 Euro. Boober told users that this step confirms that Boober is a platform for individuals and not for professionals or companies. It is believed that this step was neccessary due to regulation.

German Smava has restricted lenders to a maximum of 25000 Euros since the start. This too, is a precaution, since under German regulation professional lending without a license is not allowed.

Today I will take a look at the communication approaches of Prosper, Lendingclub, Zopa and Smava. Since it is hard to judge the individual customer support these companies offer, the focus of this post is on the mass communication channels. To communicate their services to the lenders and borrowers the services can use the website's FAQ/tutorials, a forum, blog(s) and newsletter(s).

Prosper.com
Prosper has very detailed FAQs, which leave no aspect open. There are tutorials, videos and webinars. The Prosper forums are very active. While Prosper announce changes to the service in detail (here), the policy usually seems not to comment on individual users questions (except for the bug report section). Prosper seems to rely on users to communicate and educate each other in the forums. There has been criticism about censorship and deleted posts in the forums which led some users to set up an prosper independent forum.
As far as I can tell Prosper has no blog of its own, but there is a personal blog of the CTO John Witchel. But it is not very active and will probably not be found by the average Prosper user.

Zopa
The Zopa FAQs are detailed, too. The Zopa Forum is quite active with Zopa staff members responding to posts and questions. Zopa has a company blog which has a leisurely tone and often is offtopic. In my opinion it could get more informative for lenders or borrowers.
The same applies to the newsletters Zopa sends out.

Smava
Smava maintains a very detailed and good FAQ. The Smava forum is pretty quite, but Smava staff usually is responsive to user questions. There is no blog. Smava is only 3 month old and so far there have been only 2 or 3 newsletters, which were mainly a summary of developments.

Lendingclub
Lendingclub communicates very different from the others. Mainly it relies on it's blog which is in fact directly on the Lendingclub.com homepage. The blog is very active with up to 2 or 3 posts per day. Not only does it explain details of the lendingclub service but also has general advice on personal finance, e.g. on obtaining and maintaining good credit. Lendingclub has lots of guest authors contributing to the blog. The FAQ are somewhat hidden and only available to logged in users (unless you know the direct link). The information, when located, is detailed (e.g. states). As far as I am aware there is no Lendingclub forum.

My impression is that Prosper and Smava communicate in a style that appears more corporate and 'old fashioned' always pondering what information can be released and what for. Prosper has occasionaly received rather aggresive feedback of users, citing them of being non-responsive to the wishes of their users.  Zopa has a more buddying tone - hey take it easy. Lendingclub sounds educational to borrowers, aiming to help them by supplying them information. On the other hand Lendingclub's approach seems a little marketing driven, because their approach gains them search engine and blog visibility.

It's been roughly 3 month since the launch of German p2p lending service Smava.de and I want to do a short résumé on the results so far. One huge achievement is that all borrowers made their first payment on time - no lates so far. While it certainly is to early for conclusions, since only one payment cycle (first repayment in the beginning of June) has taken place, the outlook for Smava concerning low default rates is very good. Looks like Smava will be much nearer to Zopa then to Prosper in this point.

Smava has a very restrictive approach for admitting borrowers and loan applications. Not only does Smava verify identity, credit score and income documentation - it goes one step further and calculates if the borrower's financial situation is well enough to allow repayment of the desired loan sum. Only after completions of all these checks is the borrower allowed to publish is loan listing.

As a result the majority of borrowers (about 70 to 80 percent of all applicants) are declined from using Smava. While this strict validation is good for quality it does slow the growth of Smava.

Since the launch Smava enjoyed large and positive press coverage (newspapers, magazines, TV, internet). Despite the good PR, Smava funded only about 50 loans with a loan volume of about 150000 Euro in the first 3 month. There are enough lenders - Smava lacks borrowers. The low volume contrasts sharply from the figures Boober.nl achieved in the Dutch market (see previous post)

The majority of loan listings that were published did get funded. Smava has two interesting functions that are unique and not used on other p2p lending services:

• Borrowers can close the loan early provided it is more than 50% funded
  At Smava, listings usually run 14 days. However a borrower can decide to take the funded amount (provided it is at least 50% of the total amount) and close the listing early. Several borrowers have used this function. A borrower can open another listing (provided he has not reached his personal maximum repayment allowance) instantly for the remainder (he can even choose a different interest rate for subsequent listings)
• Borrowers can increase the offered interest rates on their open listing. If this happens the change is applied for all bids on this listing. This is a widely used feature. Many borrowers start with (ridciously) low rates. After a few days they realise their loan will not fund and they increase their interest rate - often in several steps

Smava has yet to find a good concept for groups. While there are groups their purpose is yet to be defined. Consequently the majority of borrowers did not bother to join a group.

I will continue post updates on the development of Smava here on P2P-Banking.com.

4 month after the launch, Dutch p2p lending service boober.nl is approaching a total volume of 1 million Euro funded loans (chart shows development of loan volume since launch).

In comparision, German p2p lending service Smava.de, launched only 8 weeks after Boober is growing much slower. Currently it reached approx. 150000 Euro loan volume. Look forward for a post on the development of Smava in the near future.

Boober plans to launch in Belgium as next country. While not started yet, the domain boober.be is already up, saying "beta".