Peer-to-peer lending…or not.
Prosper.com bills itself as a peer-to-peer lending network where borrowers post the amount of money they are looking to lend, the term of the loan they desire, and the max interest rate they want to pay. Prospective lenders then bid an amount and rate they are willing to pay, the lowest of which are pooled to grant the loan. Loans can be made in increments of $50 to $25,000 and borrowers create loan listings for up to $25,000 and set the maximum rate they are willing to pay a lender. Prosper charges a 1% fee on the loans made to borrowers and a 0.5% annual loan servicing fee to the lenders.
The concept is an interesting one, and the company, funded by Benchmark Capital and eBay founder Pierre Omidyar and piloted by Chris Larsen of E-Loan, has made nearly $40M in loans during the past 12 months. Tangentially, the site illuminates how comfortable people have become in transactions with strangers.
However, all loans on the site are unsecured, and Prosper is less clear about the fact that lenders deposit their funds into a Wells Fargo account and that Prosper actually makes the loan to the borrower and then immediately resells it to the “winning” lender…so it’s not really peer-to-peer lending at all. While lenders do get pretty good rates, Prosper sits in the middle and retains rights to dish the loan when borrowers default, and while this gets around the inevitable collective action problem that would arise with en mass lending, it can also leave lenders holding the bag on bad loans. It will be interesting to see how Prosper fares down the road.
Washington Post on Prosper: “Want to Loan Me Money? Here’s a Picture of My Dog.“
