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.

Lending Club

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.

Prosper

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.

Find more stories about: Lending Club, Prosper, Social Finance, social lending

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.

Competitor Lending Club exited the SEC quiet period last October. If you are new to social lending, our three-part social lending series will get you up-to-speed. 

Find more stories about: money, Prosper, Social Finance, social lending

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.

Find more stories about: Lending Club, Prosper, Quick News, Social Finance, social lending

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.

If the economy continues to sour, my guess is that loan applications at Zopa, Prosper and LendingClub will increase dramatically.

Find more stories about: Insights, Lending Club, Prosper, Social Finance, social lending, Zopa

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.

Find more stories about: Insights, Prosper, Social Finance, social lending

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.

Find more stories about: Insights, Lending Club, Prosper, Social Finance, social lending, Zopa

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.

Find more stories about: Insights, Lending Club, Prosper, Social Finance, social lending, Zopa

Are the big P2P lending companies (Zopa, Prosper and to some extent Lending Club) starting to make Citibank a bit nervous? While the immediate answer is no, I have to believe that eventually it might account for a small percentage of loans that the big banks would have normally been able to sell. Over time, this small percentage could account for billions of dollars worldwide. I wrote a 3-part series about social lending earlier this year which is a great primer if you are new to this market.

Typically personal loans have some of the highest interest rates which is the category that P2P lending falls into. Yesterday I noticed the advertisement below for a personal loan at Citibank. The terms are very simple and the interest rate is 10.05% which is extremely low. This low interest rate plus no collateral or down payment make me really wonder if they want to lock up as many personal loans as possible before Prosper/Zopa hit the U.S.

Here is the ad on citi.com:

Find more stories about: Insights, Lending Club, Prosper, social lending, Zopa

social lending earlier this year. Companies such as Zopa and Prosper are expanding across international lines as the market continues to grow. Lending Club is a new entrant into the social lending market and currently works exclusively within the Facebook platform. To find out more about Lending Club, I spoke with Founder and CEO, Renaud Laplanche.

Allen: Can you provide a brief background about yourself?

Renaud: I grew up in France, was trained as a lawyer, completed my MBA in London Business School and worked for New York law firm Cleary Gottlieb in Paris and in New York for a few years, then founding TripleHop Technologies, the software company that designed MatchPoint, in 1999 and sold it to Oracle in 2005.

Allen: What is Lending Club and where did the idea come from?

Renaud: When I started TripleHop, I charged the first few expenses on my credit card. In 3 months, I had accumulated $20,000 on my card, and realized I was paying 18% interest despite my good credit score. This was before raising any capital for the company, so I refinanced the expenses with a small loan from a group friends from my sailing club, at a 10% interest rate. This experience set the founding principles of Lending Club:

• Most people are paying high interest rates on personal loans and credit cards, because they don’t have the time to shop around for better rates.
• Technology can be used to match lenders with borrowers, and identify connections among people through social networks and online communities. These connections build up trust on the lender side and responsibility on the borrower side.

Allen: How does the service work?

Renaud: Lending Club essentially disintermediates the banks. Banks typically collect deposit from the public and pay 1% to 5% in return through savings accounts and CDs, then turn around and lend that same money out to borrowers at a 13% rate or more through unsecured personal loans and credit cards. We have created a platform that lets borrowers and lenders meet directly online and trade money at an average rate of about 10%. As a way to help build confidence on the lenders’ side, we have decided to limit access to borrowers with at least a 640 Fico score and less than 20% debt-to-income ratio. This combination will result in low defaults and excellent net returns for the lenders. The flip side is that we have to turn down a fair number of borrowers.

Allen: What’s the team like at Lending Club?

Renaud: It is an interesting mix of technology and finance geeks :) We have many experienced finance professionals from Mastercard, Wells, GE Capital, First Data, a group of bright engineers from Oracle, user experience folks from Razorfish, and marketing people from eBay. The result is the highest performing team I have ever seen working together.

Allen: Who is your typical customer?

Renaud: Quite frankly we are still figuring this one out. An analysis of our current base might be misleading because traffic is currently gated through Facebook. We anticipate, however, that most borrowers will be 22-34 year old urban professionals. Lenders population break down into multiple segments: we’re seeing a lot of people loading $200-$300 into their Lending Club account (but that might very well be people "tryign it out"), quite a few $1,000 – $5,000 investments, and also a few larger investments from "super-lenders". Lenders’ demographics are all over the place at this point.

Allen: Who are your competitors?

Renaud: Prosper is really the only other person-to-person lending marketplace available in the US at this point, but we do not feel competitive with them at all. Both Prosper and Lending Club can be very successful, and the success of both companies will be much more dependent on how fast we can grow the p2p lending space together rather than how well we compete against each other. With 2.4 trillion dollar in personal consumer debt (other than mortgages), it is a big market out there.

Allen: Prosper and Zopa are available outside of Facebook. Since you are exclusive to FB, do you think this hinders your ability to generate continued loans?

Renaud: We’re definitely generating less loans than we could, because traffic is cureently gated through Facebook. The Facebook-only launch was the perfect way to test the power of the affinity model, using connections among users to increase trust and desire to help each other, and to gather a lot more user feedback before opening up further. We will be announcing more partnerships and expanding beyond Facebook soon.

Allen: Do you have a monetization plan? If so, can you share some details? Are you funded?

Renaud: Lending Club charges an origination fee of 0.75% to 2% to the borrowers and a servicing fee of 1% to the lenders. That’s how we monetize the loans.

Allen: Can you share some details about your marketing plan?

Renaud: We will be expanding beyond Facebook and will be announcing a number of partnerships before the end of the year. Tactically, we have a few more "surprises" coming up, like the video contest that you have seen running for the last couple of weeks that generated lots of attention on YouTube and elsewhere.

Allen: What’s coming in the next 3-6 months for Lending Club?

Renaud: There is so much I can reveal at this point; all I can say is that you should expect many changes, annoucements and bold moves. Our expansion beyond Facebook will materialize in several ways.

Allen: What’s been your biggest lesson learned since you started Lending Club?

Renaud: Sharing problems openly with the community works. We have been very open from Day 1 about the issues we are having with our high decline rate (we are declining about 70% of all applications) and as a result were contacted by several lenders and borrowers with very interesting thoughts about how to better handle this issue, and will be coming up with concrete steps towards a solution as a result in the next few weeks.

Allen: Where do you see Facebook moving this year? Do you believe the growth it has experienced will continue?

Renaud: I think Facebook’s growth will be very dependent on their ability to appeal to the 25-34 age range. It seems that this portion of their user base is rapidly growing; I certainly hope that will continue to be that way.

Allen: Since Facebook is a closed environment, do you believe Lending Club has a cap on how many loans you can actually offer?

Renaud: Facebook says it has 29 million users right now. You can make a lot of loans among 29 million tech-savvy, college-educated people.

Allen: What advice do you have for those thinking about starting a web application?

Renaud: Make it social, lively, open to the community. All these things work.

Allen: Which RSS feeds are you reading these days?

Renaud: I get sailing news, and the usual suspects like Techcrunch, Read/WriteWeb, Mashable and CenterNetworks. I also get finance news from Kiplinger and NetBanker.

Find more stories about: Facebook, Interviews, Lending Club, Prosper, social lending, Zopa

• 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 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 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!

Find more stories about: Insights, Prosper, social lending, Web 2.0, Zopa