- Prosper Marketplace
Infobox Company |
company_name = Prosper Marketplace, Inc.
company_
company_type = Private
company_slogan =
foundation = flagicon|USACalifornia , USA
location_city = San Francisco
location_country = USA
key_people =Chris Larsen
num_employees =
industry =Credit (finance)
revenue =
products = Personal loan marketplace
homepage = www.prosper.comProsper Marketplace, Inc. is a
San Francisco, California -based company that operates Prosper.com, anonline auction website where individuals can buyloan s and request to borrow money. Borrowers set the maximuminterest rate they wish to pay [cite web|title=About Prosper Loans|author=Prosper Marketplace, Inc. |url=http://www.prosper.com/loans/about-person-to-person-loans.aspx] , and loan buyers, called "lenders," bid on specific loans by committing a portion of theprincipal and setting the minimum interest rate they wish to receive on a particular loan [cite web|title=About lending money to other people|author=Prosper Marketplace, Inc.|url=http://www.prosper.com/lend/about_lending.aspx] . Prosper manages the reversedutch auction , assembling bids with the lowest interest rates in order to fund the loan.Prosper verifies selected borrowers' identity and personal data before funding loans [cite web|title=Listing Review|author=Prosper Marketplace, Inc.|url=http://www.prosper.com/help/topics/borrower-listing_review.aspx] and manages loan repayment. These unsecured loans are fully amortized over three years, with no pre-payment penalty. Prosper generates revenue by collecting a one-time fee on funded loans from borrowers, and assessing an annual loan servicing fee to loan buyers. The idea for the service is derived from group banking concepts, such as rotating savings and credit associations. Other motivating ideas derive from the concept of
microlending .Prosper publishes performance statistics on the website; these are available to the public at large. [cite web |title=Prosper: Marketplace Performance |author=Prosper Marketplace, Inc. |url = http://www.prosper.com/lend/performance.aspx] All transactions are in US dollars; lenders and borrowers must be US residents.
Prosper opened to the public on February 5, 2006. Prosper was founded by
Chris Larsen , who also foundedE-loan , andJohn Witchel and is backed by Accel Partners,Benchmark Capital ,Fidelity Ventures ,Omidyar Network , DAG Ventures and Meritech Capital Partners.In April 2008, Prosper aligned with the Utah-charted Web Bank. Previously, Prosper operated under individual lending licenses issued by various states, and was subject to each state's maximum interest rate laws. By afiliating with Web Bank, Prosper borrowers nationwide (except in Texas and South Dakota) can offer a maximum interest rate of 36%, which lenders can then bid down.
Credit grades
Prosper rates prospective borrowers for creditworthiness by assigning a "credit grade" based on the borrower's
Experian 's Scorex PLUS credit score. Prosper credit grades are (starting with the highest) AA, A, B, C, D, E, and HR (high risk). Lenders considering a bid on the borrower's loan listing have access to the borrower's credit grade, along with summary credit data from the prospective borrower'sExperian credit history, including number of current delinquencies, amount currently delinquent, delinquencies in the past 7 years, and other data.Equivalent credit scores for Prosper credit grades are:
Grade: AA A B C D E HR Score: 760+ 720-759 680-719 640-679 600-639 560-599 520-559 In addition to credit data, lenders also see the borrower's group membership, if any, friendships with other Prosper members, endorsement from those friends, past listings and prior Prosper loans. Both borrowers and lenders are anonymous (identified only by screen names) to protect their privacy.
Business model
Prosper has a transaction-based business model, in which the company collects revenue by taking a fee on its customers' transactions. Borrowers who receive a loan pay an origination fee of 1-3% depending on the borrower's credit grade, and lenders pay a 1% annual servicing fee. Prosper's initial product is an unsecured 3-year loan for up to $25,000.
Liquidity of purchased loans
Lenders are a party to the loan for the full 3 year term. As the borrower repays over the life of the loan, the payments accumulate in the lender's Prosper account. This money may then be bid into new loans, or transfered to the lender's bank account once it reaches a minimum of $25. There is no secondary market for Prosper loans, and lenders have no access to funds invested in loans until borrowers repay.
Criticisms
False Court Filings
In May 2008, Prosper made a filing with a United States bankruptcy court in which it denied ever having originated a loan to the man declaring bankruptcy. Prosper claimed, instead, that it merely acted as an agent of the man to obtain small loans originating from many lenders. This filing is directly contrary to Prosper's statements in its legal agreements (Lender Registration Agreement) which state that Prosper itself would originate all loans and then sell pieces of them to the system's "lenders".
Loan performance
As of August 2008, approximately 18.5% of all money loaned on Prosper from inception (February 2006) through June 2008 are in some form of delinquency. Also, more than 35% of all loans that originated in February 2007 are in some form of delinquency. cite web | title=Avoid This Company Like the Plague | author=The Motley Fool/ Chuck Saletta | url=http://www.fool.com/investing/value/2008/08/29/avoid-this-company-like-the-plague.aspx]
Trademark dispute
Prosper sent a
cease and desist letter to a third-party commentary website, Prosper Report, for using the word "prosper" in its domain name. On December 24th, 2007,Public Citizen Litigation Group responded on behalf of Prosper Report. [cite web |title=Live Long and Prosper? Not with our name, says Prosper Marketplace|author=Chilling Effects |url =http://www.chillingeffects.org/domain/notice.cgi?NoticeID=16686]Delayed Debt Sale
On 5/2/08 Prosper announced on their "official blog" the delay of selling some $6 million of defaulted loans to junk debt buyers, which has been put on halt indefinitely. [http://blog.prosper.com/2008/05/02/debt-sale-update/ Debt Sale Update]
Deletion of Official Forums
Lenders have criticized Prosper for the deletion of all content on its own official forums which contained a large amount of data, analysis, and lender/borrower interaction.
Adverse Selection
Finance blogger Jim Bruene predicted, in a blog post when Prosper first opened to the public and before any data about actual results became available, that Prosper's business model would result in
adverse selection . He suggested that the market-clearing rates on Prosper would turn out to be higher than the ones offered by lending institutions, which he hypothesized would result in filtering out borrowers intending to pay back the loan and leaving non-credit worthy borrowers willing to agree to above-market rates. [cite web|title=Prosper.com Re-launches Chris Larsen of e-Loan Fame|author=Jim Bruene|url =http://www.netbanker.com/2006/02/prosper-chris-larsen-eloan.html] Verify credibility|date=June 2008Interest on deposits, transfer speed
Prosper does not pay interest on idle funds due to rules associated with pooled accounts [cite web |title=Prosper: How do I transfer funds in or out of Prosper? |author=Prosper Marketplace, Inc. |url =http://www.prosper.com/help/topics/lender-transfer_funds.aspx] . Persons transferring money to Prosper wait 4 business days before transferred funds can be bid [cite web |title=Prosper: Transfer Funds to Prosper for Bidding |author=Prosper Marketplace, Inc. |url =http://www.prosper.com/public/help/topics/lender-transfer_funds.aspx] , and then from 1 day to 2 weeks for the auctions to complete and loans to be funded for interest income to begin accrual. A lender's cash balance in his or her Prosper account can be transferred at any time to a linked external checking or savings account [cite web |title=Prosper: Frequently Asked Questions |author=Prosper Marketplace, Inc. |url =http://www.prosper.com/help/topics/start-faq.aspx#lending] .
In response to customer complaints, Prosper began allowing "instant transfers" of amounts between $500 and $20,000 for established lenders with at least one active loan. [cite web|title=Transfer Funds to Prosper for Bidding|author=Prosper Marketplace, Inc. |url=http://www.prosper.com/help/topics/lender-transfer_funds.aspx] Prosper has begun a new campaign which allows individual lenders with a facebook account to install a Prosper.com lender application within their facebook profile. This will enable instant transfer of amounts between $50 and $20,000. [cite web|title=facebook application|author=Prosper MarketPlace, Inc.|url=https://www.prosper.com/fbprosper/Description.aspx]
See also
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Peer-to-peer lending
*Microfinance
*Zopa
*Lending Club
*PRETp2p References
* [http://online.wsj.com/article/SB120526439925827991.html?mod=Financing/ Where Either a Borrower Or a Lender Can Be] Wall Street Journal on Peer-to-Peer Lending
* [http://online.wsj.com/article/SB120525138644627455.html?mod=Financing/ Wall Street Journal Q&A with Prosper Co-Founder: 'Bringing Together George Bailey and Gordon Gekko']
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*External links
* [http://www.prosper.com/join/ustfu Official site]
* [http://www.prospers.org An independent non-affiliated discussion site for Prosper borrowers and lenders]
* [http://www.prosper.com/tools/3rdParty.aspx Links to various third-party statistics and other sites]
* [http://prosperreport.com/ An independent non-affiliated site which contains a searchable cache of Prosper's original Official Forums before its deletion]
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