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Social Lending Updates: Lending Club Passes $1 Billion in Loan Demand; Prosper Sees High Debt Consolidation
It’s been a while since we’ve taken a look at the social lending industry in the U.S. Both Lending Club and Prosper are out with new updates that are worth taking a look at. It’s no shock that social lending has taken off during the current economic crisis. If you are new to social lending, check out our 3-part series.
Earlier this week, Lending Club Sr. Director, Product Strategy Rob Garcia posted an update on the company’s progress. Rob noted the following stats:
- $1 billion in loan demand (these are people requesting loans)
- $95 million in funded loans
- 10,000 loans funded since June 2007
Lending Club provides a near real-time stats page that shows figures including: loans funded, total dollars funded, use for funds and investor return rates.
Last month Prosper released findings that showed debt consolidation loans at an all time high. “Over the course of the last six months, debt consolidation loans have been ticking up, and in January hit an all time high of 59% of loans. Historically debt consolidation has tracked at approximately 45% of loans.”
The Prosper release also discusses the new credit card rules and notes that will be included in customer’s statements beginning this month. Chris Larsen, Chief Executive Officer and Co-founder of Prosper noted, “We’ve always believed that credit cards provide a convenient payment mechanism, but are terrible as a financing solution. As more consumers start realizing it will take them approximately 30 years to pay off their credit card if they pay only the minimum payment each month, we think more will realize that they need to eliminate their credit card balances quickly. So seeing more people turning to Prosper to pay off destructive, high interest credit card debt is probably a trend that will continue for the foreseeable future.”
Have you used social lending tools to help with debt refinancing or new purchases? Leave a comment (you can post anonymously) about your experiences.
Social lending company Prosper has announced that they have resumed lending beginning today. Prosper CEO Chris Larsen has a blog post explaining the changes that are part of the updated offering.
From the release, “The California Department of Corporations, recognizing the urgent need to get consumer and small business credit flowing, accelerated the process of granting regulatory approval to Prosper so that it could reopen immediately. Prosper had ceased all lending activity on Prosper Loans Marketplace and has been in a quiet period since October 2008 while it registered for approval with the Securities & Exchange Commission. That process has not yet been completed and is still ongoing. As such, Prosper is open to borrowers nationwide, but for the time being only residents of California and institutional investors whose primary place of business is in California can take advantage of the alternative investment opportunity Prosper loans provide. Likewise, only California lending companies can list loans on the Prosper Open Market.”
The updated Prosper Loans Marketplace now require that individual borrowers have credit scores above 640 as part of their new “Prosper Ratings” system. Prosper notes, “Prosper Ratings are based on historical loan performance data and are designed to better convey risk. While the estimated loss rate and estimated returns have been shown at the point of bidding since October 2007, the Prosper Rating letter grade as well as the estimated loss rate will be shown in the listing along with a narrower credit score range and other extended credit data.”
Prosper has also launched an Open Market initiative which lets financial insitutions participate in their network.
We’ve got a couple updates on the social lending front this morning. First, Prosper has entered a quiet period which they note, "Prosper has started a process to register, with the appropriate securities authorities, promissory notes that may be offered and sold to lenders through our site in the future."
During this time Prosper will not accept any new loans but will continue to service the loans that have already been completed. Lending Club just completed this process which took about six months to complete.
I’ve also received some loan numbers from Lending Club on the 10-day period since the quiet period completion. They have signed up 1,072 new lenders and in total have transferred just under $2 million to their Lending Club account. These numbers are higher than before the quiet period began earlier this year.
If you are new to social lending, our three-part social lending series will get you up-to-speed.
We’ve written about social lending several times before including our 3-part series looking at Zopa, Prosper and LendingClub. Jim Bruene at NetBanker has put together a good financial analysis of the social lending scene for the first quarter of 2008. LendingClub and Prosper share their loan information while Zopa does not.
From Jim’s analysis, "In Q1, Prosper and Lending Club combined for more than $30 million in originations, up $10.7 million (55%) compared to about $20 million in Q1 2007." Jim goes on to note that for the lower risk loans, LendingClub actually passed Prosper in total volume.
With this new world of social lending, just how many bad debts will a lender be willing to take? In our 3-part social lending series we took an in-depth look at the industry and the companies in the space but with the area so new, it was difficult to anticipate the percentage of bad debt that would be forthcoming.
Andy Swan has been documenting his travels into social lending and his latest post discusses the bad debt in his account with Prosper. We originally wrote about Swan when one of his borrowers, a Slim123, defaulted on the loan. Today Andy’s back with an overall update where he shares the following bad debt in his portfolio:
- 15 day late (2)
- 30 day late (2)
- 60 day late (1)
- 90 day late (1)
This amounts to 6 of the 49 total loans which results in a current bad debt at 12%. Swan ends the post with, "It’s almost as if the kind of people who take out loans on prosper are in some type of credit situation. I feel a “write-down” coming in Q2." I have requested updates from Prosper, Zopa and Lending Club regarding late payments and defaults and will post once received.
Zopa, the social finance lender, has spoken for months about their U.S. launch. Today I received additional information on the launch. They say that the launch will be in just a "few days". Perfect timing for the holiday season.
Here are the features they claim will be different than the U.K. version:
Looks familiar, right? Lots of real people taking money out and putting money in. But Zopa in the USA will be very different, too. Here are just some of the ways we’ll be different from the sites that exist today:
- No risk for investors.
Your funds will be federally insured. No more worrying about whether your borrowers will pay your loan back.
- Pick who you want to help.
Investors will choose exactly who they want to help.
- Set your rate.
Investors will choose how much they want to earn, up to a ceiling.
- No waiting.
Borrowers will get their loans immediately upon approval.
- Lower your monthly payment.
Borrowers can actually reduce their loan payments after they’ve borrowed. They’ll do that using rich profiles…
How will we do all this? By using some very cool technology and a terrific partnership with leading credit unions.
I’ve highlighted the option that could be "game-changing" for the social finance and social lending movement. From what I gather, neither competitor Prosper nor Lending Club provide any sort of federal insurance for the loans created on the respective site. Isn’t a loan all about risk? I have no further details at this point but I do have a mail into Zopa to try to learn more.
We’ve written extensively on social finance and social lending. Our 3-part series on social lending is a great place to start if you are new to the area. I remain confident that social lending will continue to grow in 2008.
When I was a little kid growing up on the mean streets of Brooklyn, the corner candy store had a big sign with photos of anyone who stole from them. Then as I grew up, the video store had a sign with the bad checks they received with the name of the person in large type for all of the customers to see. And we all remember the Seinfeld episode all about a bad check to a grocer.
So what happens today when a person gets stiffed on a social finance site such as Prosper, Zopa or Lending Club? You guessed it – they blog about it! And if the blog is popular, it will be worse than a bad check posted on a wall. (of course if the person is a scammer, they won’t care)
Yesterday Andy Swan posted about just such a deadbeat. He notes:
I loaned the guy $500 through Prosper. Apparently he is involved in some type of credit crunch situation. Probably some type of adjustable rate mortgage that just rolled over to 24% APR on his delinquent ass.
Now he’s stiffing me and everyone else on Prosper that fell for his enthusiasm and sparkling smile. I just hope he’s driving around in a sweet ride with a hot girl and the money’s not rotting away in some casino coffers right now.
In hindsight, the “endorsements” from his friends should have been a tip off.
You can click over to the profile and photo of the man called "Slim123". I am confident we will see more of public humiliation payment tactics as social finance and social lending explodes.
For more information about social lending and social finance, check out our 3-part series.