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Social lending the next Web 2.0 phenomenon – Part II
- Part 1 – Overview of Social Lending
- Part 2 – Review of Zopa and Prosper
- Part 3 – Why of Social Lending
Yesterday I wrote an article about a report that was just published about social lending. Since the article became very popular over the past day, I thought it might be interesting to take a deeper look at Zopa and Prosper to see what they offer to both the borrower and the lender.
My belief is that social lending is working for the same reasons that MySpace, Facebook and the other social networking sites do. There is something “in it for me” when I help someone get the funds they need to do whatever it is they want to do. Both Zopa and Prosper state that even after bad debt, their rates are better than any bank can give you as a lender. The big difference between Zopa/Prosper and a bank savings account is that with the bank, there is virtually no risk. On these social lending sites, there can be huge risks, including the possibility of losing all of your money.
I also believe that if this takes off to a large extent, then the big banks will certainly create their own social lending sites. Citibank could easily create a one-off social lending site that could probably put some real pressure on Zopa and Prosper. In addition, and as others have suggested, when the large financial institutions will lower their rates to try to push these new social lenders out.
With that said… on to the reviews!
| Zopa |
Zopa is based in the UK and is currently looking to startup in the U.S. They have over 100,000 people signed up, though I am not sure if that is active borrower/lenders or just users in the system. They claim a very small percentage of loans have gone bad. Their web site is very Web 2.0 in its design and style. They even have some “social” stats:
- The average age of a Zopa member is 36.
- 5900 people registered on Zopa this month.
- Most members are from London.
Here is their overview of why you should signup as a lender on Zopa:
- Great returns
- It’s human
- It’s safe
And their list for why you should be a Zopa borrower is:
- Low, low rates
- Deal with Zopa lenders rather than banks
- Repay early at no extra cost
And the idea at Zopa is pretty simple… For lenders:
- You setup an account and decide how much money you are willing to loan and at what percentage
- You also decide to what credit level you are willing to loan the money to
- When a borrower wants a loan of over £500, the loan is split among many lenders to reduce the chance of losing your money — I like this feature a lot!
For borrowers, it is pretty simple as well:
- You setup an account and look at offers from the lenders above
- Once you are satisfied with the offers, you enter a legally binding contract with same
- If you miss a payment, your account will go to collections the same as with any bank loan
Final thoughts on Zopa:
Zopa pushes the social aspect of borrowing and lending over the actual transaction itself. There is a certain “fun” component to lending and borrowing on Zopa. You get that feeling the minute you load their home page and see the little people and learn more about them and their stories. I wonder if the “fun” component will become an issue if more loans are defaulted on.
|
Prosper |
Prosper describes themselves as: eBay + PayPal + Match.com = Prosper.com. Prosper takes a little bit of a different take than Zopa in terms of how they show their “social” side. It feels more like eBay as they suggest. Picking one listing at random, right now on their home page they show a man who is looking for a $6,000.00 @ 27% (28.75 effective) with a Credit grade: D and a Debt to income: 44%. She states he is looking to pay off her high rate credit cards. Even if he was delinquent with his cards, I can’t picture any being higher than 29.99%. You can see her full profile here. Frankly, I am not sure that I like the idea of all of this information being made public. At least require me to login first.
Using this example, you can see that Prosper works because the stories are real. A bank typically only cares about your credit score and risk. Here this woman explains why she needs the money, her story almost makes you feel drawn to her in a way that you believe you must help her, otherwise you are not a good person.
For an even better example, go read this bid request and tell me if it doesn’t bring a tear to your eye.
Like Zopa, they spread the requested amount across many lenders to reduce risk. I like this. One question that came up at the NY Tech Meetup when Prosper presented was about whether payment history is reported to the credit reporting firms. We know bad history is always reported. Jane from Prosper had no answer for the question. I just absolutely hate when companies report only the bad. Frankly, it should be against the law.
Final thoughts on Prosper:
Prosper pushes the “feeling” you get when you help someone with their financial needs. The site does push the match.com aspect of the site in terms of building a bond with the borrowers and lenders.
Overall final thoughts
I guess in summary, I would look at using Zopa or Prosper from the lender perspective the same way I would look at any other risk investment such as stocks, bonds and other annuities. Just because you want to help a woman get a set of boobs, does not mean you should not contemplate losing your money. If she defaults, you won’t get the silicon back!
From a design perspective, I prefer the style of Zopa. It feels more “social” and welcoming to the eye. The little people they use seem to feel like Sims and works well. And I think Prosper wins on the “feeling” for the borrowers. So overall it is probably a wash.
Also, a lot of the feedback on digg and so forth about my other article, discusses the idea that a VC-style social lending site might work very well in the current environment. I think looking for $5k or £5k is a lot different in terms of requirements than if a startup is looking for $150k or £100k. But it just might work for smaller startups!
[...] Part 2 – Review of Zopa and Prosper [...]
I’m actually in the process of getting a loan from prosper. I don’t know how it will turn out yet but I’ve heard good thinks about the site. It’s helped many with their debt problems, I’m hoping it will do the same for me. I’ll keep you updated.
https://www.prosper.com/lend/listing.aspx?listingID=149910
GlobeFunder is another social lending site as well with powerful tools to help the poor….with alot more to come to scale investment funding.
Thanks for your article.
You should check out kiva.org
It’s the same social lending idea but the funds are used in the same way as traditional microcredit.
From their website: “Kiva lets you lend to a specific entrepreneur in the developing world – empowering them to lift themselves out of poverty.”
Pretty cool stuff here. I work for a company that allows your to send and receive money with your mobile phone. it also allows you to keep track of social money and lending!
http://www.kushcash.com
Web20 is a big commercial bulb, which is going to explode, and left nothing from it. It is still the same web, call it 2.0 or something else.
–
Learn how to pick up Girls easy
http://www.SeduceAnyWoman.info
Good introductory article – however, must point out that Prosper is relatively new in the US. One of the initial ‘social lending’ (if you will) companies in the US is Circlelending (http://www.circlelending.com/). They have been around since 2002 and I think they have more appeal than Prosper at the moment. They also have been growing steadily over the past couple of years.
Zopa is definitely more ‘web 2.0′ than any of these, esp in the layout / design / interaction. I guess financial institutions in the US needs to come up with cooler UIs :)
That being said, check out Circlelending.
I would like to see Google, Ebay and Yahoo get into this business..
The two Prosper listings you linked to are from the same borrower. The first listing, the real tear-jerker, did not get funded, perhaps because of the interest rate, perhaps because of the lack of information on where the funds would come from to repay the loan.
Someone with a D credit rating and a 44% debt-to-income ratio is going to pay high interest rates on any new borrowing due to the significant risk of default. Even a loan at 27% could be a much better deal for someone who has taken out payday loans or is dealing with late charges all the time.
Another commenter on this series of articles wondered whether Prosper reports good payment history to credit bureaus. Their Credit Grade help page strongly implies that they do, since it talks about how someone with a NC (No Credit) rating could improve their credit score by getting a Prosper loan.
From that page:
“Prosper communicates repayment and delinquency information back to our credit bureau partner, Experian. Your credit score will be adjusted accordingly, based on your loan payment performance.”
So…yeah, they don’t just strongly imply it, it’s kinda said straight out ;)
I've been using prosper for a number of months and have written a few notes about some of the strategies you can use to invest with it effectively. You can read my thoughts here.
I have attempted to use Prosper on multiple occasions. I have used both the suggestions from the Prosper web site as well as joining a group and following forums posts and never had a successful funding. I have used minimum loan amounts with higher interest rates to encourage bidding. The real numbers behind the site can not match the advertised numbers by the site – the loans are being funded quickly enough, or at the amounts they advertise.
The idea sounds wonderful but the implementation is flawed – Prosper encourages you to join groups and seek advice from group moderators – most groups require that the moderator approve your loan before submission. You are handing an unknown your credit information and hoping that a) they will themselves practice secure practices with the information and b) allowing them to decide whether you are worthy of the credit request. Gosh wait the bank, credit unions do the same – did I miss something? At least if they dump my PII I have someone to blame, Prosper Group Leaders can disappear into the shadows with my information.
Anyone named “Wilbur” doesn’t deserve money. Now you know.
There have been large margins in this market for years and its been slowly eaten away as life gets harder for the big end of town.
How the early entrants fare will be interesting to watch. Their offering represents a component in the ‘finance’ chain that previously was not economically viable to smaller participants. I suspect one, two or five will fail before it really flies.
But fly it will, there are many small time speculators out there who will happily ‘day trade’ away the hours playing this market.
i had taken out a few payday loans when i went through a separation, to help me get into an apartment. although they helped me get into my new place the pay back on them was going to be really costly. i registered with prosper and posted my story for a loan. the first time i posted it i got no response, but was asked by a group moderator to join his group and repost my request. so i did. within 2 weeks my loan was funded and i was able to pay all the pay day loans off at once. i pay my prosper loan back by auto draft monthly and have never been late on a payment. i think prosper is great! and i highly recommend it.
Steve, couldn’t you use Kushcash the same way as prosper – with the social lending?