I don't know...do you think these gents are good for it?
Since I recently wrote a couple of posts about Lending Club, I thought I would look at Prosper, one of the other big players in the Peer to Peer Lending space. Prosper is built on the same concept as Lending Club. People who need money borrow it from regular people instead of banks. People who have extra money can invest it in loans to the people that need money, and in return can get a better rate of return than they could have gotten from their bank.
Prosper and Lending Club won’t be the last internet players to enter this space. They’ll be the pioneers that are paving the way with a short lived, small competitive advantage based on longevity and name recognition. Once the kinks are worked out, the market is going to be flooded with these types of sites, assuming that it’s a success. I predict it will be. It makes sense to me, and it’s the type of movement that people like to be a part of.
I had unanswered questions and unanswered emails from Lending Club, so before I wrote this post I emailed Prosper to ask a few questions that were raised by a commenter named Patrick on my Lending Club post. Patrick’s questions were concerning Missouri’s approved status as a state. I’m pretty sure all 50 states will eventually be approved in both cases. So far, Prosper has 17 approved states, and their goal is to be approved in 25 states by September (according to their email).
Like Lending Club, they’ve been approved by Federal Regulators and now have to go through the process of becoming approved with the appropriate regulatory bodies in each state. This process takes a considerable amount of time in some cases, but I assume that both companies are working on it. I’m a little sour towards Lending Club because I emailed Rob from their company after he left a comment on my blog and got no response. When I emailed Prosper asking for the same info, I got a same day response. Here’s a blog post on what Prosper is doing as far as the regulatory process goes.
Prosper is a little different as far as the system of setting interest rates goes. You can actually place a bid based on what interest rate you are willing to lend at, and so are others, and interest rates are moved in that way, through an auction process. Lenders compete for the loan and by doing so, bid down the interest rate on the loan.
I think we can only expect Peer to Peer Lending to get bigger. I don’t have a recommendation as to investing with Lending Club or Prosper. They’re both fine options. Lending Club boasts of slightly higher average returns (9.61%) than Prosper’s (just over 7%, in A and B loans), but Prosper’s auction system appears to be a little better one for borrowers, and therefore maybe that’s where all the most credit worthy borrowers will end up. I don’t know. I think it’s a good place to have a little of your money. More than anything else, whether they make money or not, I love ideas. I especially love ideas that aren’t pursued in the name of money, but because they make sense. Sometimes those ideas end up making people money, anyway. If you have experiences with Prosper, or an opinion as to why one would be better than another, I’d love to hear about it by email or in the comments. Thanks for reading.
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#1 by Frank Fitton on August 6th, 2009 - 1:21 pm
I think peer to peer lending is a great thing. For borrowers it’s totally fantastic. For lenders its a little less so, but it is an investment on their part so there’s an inherent risk involved with doing that.
I think its here to stay. In these hard times even people with good credit are being denied bank loans. Its great to see an alternative. Even if the interest rates were identical, I’d much rather give my interest money to someone rather than the big banks inflated pocketbook.
I also wrote a blog about peer to peer, check it out at http://www.thedebtgazette.com/2009/08/peer-to-peer-alternative/
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