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Prosper publishes performance statistics on the website; these are available to the public at large.<ref>{{cite web |title=Prosper: Marketplace Performance |author=Prosper Marketplace, Inc. |url = http://www.prosper.com/lend/performance.aspx}}</ref> All transactions are in US dollars; lenders and borrowers must be US residents. Prosper launched on February 5, 2006. Prosper Marketplace, Inc. (the company's official name) was founded by ], who also founded ], and ]. The company is based in ], CA, and is backed by Accel Partners, ], ], ], DAG Ventures, and Meritech Capital Partners. Prosper publishes performance statistics on the website; these are available to the public at large.<ref>{{cite web |title=Prosper: Marketplace Performance |author=Prosper Marketplace, Inc. |url = http://www.prosper.com/lend/performance.aspx}}</ref> All transactions are in US dollars; lenders and borrowers must be US residents. Prosper launched on February 5, 2006. Prosper Marketplace, Inc. (the company's official name) was founded by ], who also founded ], and ]. The company is based in ], CA, and is backed by Accel Partners, ], ], ], DAG Ventures, and Meritech Capital Partners.



== Credit Grades ==

Prosper rates prospective borrowers for creditworthiness by assigning a Prosper "credit grade" based on the borrower's ]'s Scorex PLUS (SM) 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's credit history, including number of current delinquencies, amount currently delinquent, delinquencies in the past 7 years, and other data.

Here is a table that shows the equivalent credit scores for Prosper credit grades:
<br/>
<br/>
<table cellpadding="0" cellspacing="0" border="0" width="100%">
<tr>
<td class="table_data separator_right"><b>Grade:</b></td>
<td class="table_data separator_right" align="center">AA</td>
<td class="table_data separator_right" align="center">A</td>
<td class="table_data separator_right" align="center">B</td>
<td class="table_data separator_right" align="center">C</td>
<td class="table_data separator_right" align="center">D</td>
<td class="table_data separator_right" align="center">E</td>
<td class="table_data" align="center">HR</td>
</tr>
<tr>
<td class="table_data_odd separator_right"><b>Score:</b></td>
<td class="table_data_odd separator_right" align="center">760+</td>
<td class="table_data_odd separator_right" align="center">720-759</td>
<td class="table_data_odd separator_right" align="center">680-719</td>
<td class="table_data_odd separator_right" align="center">640-679</td>
<td class="table_data_odd separator_right" align="center">600-639</td>
<td class="table_data_odd separator_right" align="center">560-599</td>
<td class="table_data_odd" align="center">520-559</td>
</tr>
</table>


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 == == Business Model ==
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=== Liquidity of Purchased Loans === === Liquidity of Purchased Loans ===
There is no secondary market for Prosper loans, and lenders have no access to funds invested in loans until borrowers repay. Lenders must wait until $25 accumulates in their account before they can withdraw funds. To overcome this limit, lenders may transfer money into the system, bringing the balance to $25 or more, so that they may initiate a withdrawal. With funds in transit a minimum of 4 business days, the loss of interest on the idle funds limits the lender's profit. There is no secondary market for Prosper loans, and lenders have no access to funds invested in loans until borrowers repay. Lenders must wait until $25 accumulates in their account before they can withdraw funds. To overcome this limit, lenders may transfer money into the system, bringing the balance to $25 or more, so that they may initiate a withdrawal. With funds in transit a minimum of 4 business days, the loss of interest on the idle funds limits the lender's profit.

== Criticisms ==

=== Interest on Deposits, Transfer Speed ===
Prosper does not pay interest on idle funds due to rules associated with pooled accounts<ref>{{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}}</ref>. Persons transferring money to Prosper wait 4 business days before transferred funds can be bid<ref>{{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}}</ref>, 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<ref>{{cite web |title=Prosper: Frequently Asked Questions |author=Prosper Marketplace, Inc. |url =http://www.prosper.com/help/topics/start-faq.aspx#lending}}</ref>.

=== Loan Performance & Collections===
Prosper's performance statistics report that as of April 21, 2007, 636 of 6570 active loans over three months in age, or 9.68%, are "1+ months late".<ref>{{cite web |title=Prosper: Marketplace Performance |author=Prosper Marketplace, Inc. |url = http://www.prosper.com/public/lend/performance.aspx}}</ref> Over 400 (over 6%) of these are "three plus" months late, and Prosper's best collection agency has historically cured only a tiny fraction of those.<ref>{{cite web |title=Prosper: Collection Agencies |author=Prosper Marketplace, Inc. |url =http://www.prosper.com/public/help/topics/lender-collection_agencies.aspx}}</ref> One commentator who is highly respected by veteran Prosper lenders (and who is currently Prosper's third largest lender with almost $800,000 invested)<ref>{{cite web |title=Prosper's Largest Lenders|author=Lendingstats |url =http://www.lendingstats.com}}</ref> has written a highly detailed Open Letter to Prosper titled that should be required reading for every Prosper lender.


As a group, E and HR borrowers have resulted in negative return on investment for loan buyers.<ref>{{cite web |title=Prosper: Marketplace Performance - Estimated ROI |author=Prosper Marketplace, Inc. |url = http://www.prosper.com/public/lend/performance.aspx?af=0&esba=63&gc=&gm=0&gr=0%2c1%2c2%2c3%2c4%2c5&hw=0&iba=255&ibid=0&lq=&maxAmt=25000&maxDTI=1000000&maxFund=1&minAmt=0&minDTI=0&minFund=0&occ=&od=04%2f01%2f2007&oer=03%2f01%2f2007&osr=11%2f01%2f2005&sf=1&sh=0&sn=&tg=0&vb=0}}</ref> Lenders and group leaders who contact late borrowers requesting payment will be banned from the site, as most lack the necessary knowledge of collections law to make appropriate collections contact.<ref>{{cite web |title=Prosper Etiquette|author=Prosper Marketplace, Inc. |url =https://www.prosper.com/help/topics/start-etiquette.aspx}}</ref>




As of November 8, 2007, the median estimated Return On Investment ("ROI") for relatively experienced lenders (all Prosper lenders with >20 loans and an average loan age >6 months) is 4.89% .<ref>{{cite web |title=Lendingstats Lender List|author=Lendingstats |url =http://www.lendingstats.com/prosperInvestors?loanCountFilter=1&loanAgeFilter=3&loanAmountFilter=0&submit=Filter&sort=estimatedROI&sortDirection=DESC&pageNum=233}}</ref> -- considerably less than what is available from fully liquid FDIC-insured accounts (such as at ) after taking into account Prosper's servicing fee charged to lenders (1% annual fee on A-HR loans).<ref>{{cite web |title=Prosper Fees|author=Prosper Marketplace, Inc. |url =http://www.prosper.com/welcome/fees.aspx}}</ref> Of the 5,846 relatively experienced lenders, 1,333 (22.8%) have an estimated ROI <0% (i.e., they can expect to net no interest and actually lose some of their principal), while fewer than half as many (630, or 10.8%) have an expected ROI >10%.<ref>{{cite web |title=Lendingstats Lender List|author=Lendingstats |url =http://www.lendingstats.com/prosperInvestors?loanCountFilter=1&loanAgeFilter=3&loanAmountFilter=0&submit=Filter&sort=estimatedROI&sortDirection=DESC&pageNum=233}}</ref>


== See also == == See also ==
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== External links == == External links ==
* The official homepage of Prosper. * The official homepage of Prosper.
* New and prospective lenders absolutely should review carefully before investing.
* Censorship-free alternative to Prosper's Official Forum.
*
*
*
*
*
*
*
*


] ]

Revision as of 18:47, 10 November 2007

Prosper Marketplace, Inc.
Company typePrivate
IndustryCredit (finance)
FoundedUnited States California, USA
HeadquartersSan Francisco, USA
Key peopleChris Larsen John Witchel
ProductsPersonal loan marketplace
Websitewww.prosper.com

Prosper is an online auction website where people can buy loans and request to borrow money. Borrowers set the maximum rate they wish to pay, and loan buyers set the minimum rate they wish to receive. Prosper matches borrowers with loan buyers, verifies borrowers' identity and personal data before funding loans, 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. All transactions are in US dollars; lenders and borrowers must be US residents. Prosper launched on February 5, 2006. Prosper Marketplace, Inc. (the company's official name) was founded by Chris Larsen, who also founded E-loan, and John Witchel. The company is based in San Francisco, CA, and is backed by Accel Partners, Benchmark Capital, Fidelity Ventures, Omidyar Network, DAG Ventures, and Meritech Capital Partners.


Credit Grades

Prosper rates prospective borrowers for creditworthiness by assigning a Prosper "credit grade" based on the borrower's Experian's Scorex PLUS (SM) 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's credit history, including number of current delinquencies, amount currently delinquent, delinquencies in the past 7 years, and other data.

Here is a table that shows the equivalent credit scores for Prosper credit grades:

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 on Prosper pay 1-2% (depending on their credit grade) of the principal amount at the time the loan is funded. Lenders who make a loan on Prosper pay a 0-1% (depending on the borrower's credit grade) annual servicing fee.

Liquidity of Purchased Loans

There is no secondary market for Prosper loans, and lenders have no access to funds invested in loans until borrowers repay. Lenders must wait until $25 accumulates in their account before they can withdraw funds. To overcome this limit, lenders may transfer money into the system, bringing the balance to $25 or more, so that they may initiate a withdrawal. With funds in transit a minimum of 4 business days, the loss of interest on the idle funds limits the lender's profit.

Criticisms

Interest on Deposits, Transfer Speed

Prosper does not pay interest on idle funds due to rules associated with pooled accounts. Persons transferring money to Prosper wait 4 business days before transferred funds can be bid, 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.

Loan Performance & Collections

Prosper's performance statistics report that as of April 21, 2007, 636 of 6570 active loans over three months in age, or 9.68%, are "1+ months late". Over 400 (over 6%) of these are "three plus" months late, and Prosper's best collection agency has historically cured only a tiny fraction of those. One commentator who is highly respected by veteran Prosper lenders (and who is currently Prosper's third largest lender with almost $800,000 invested) has written a highly detailed Open Letter to Prosper titled Collections is Broken that should be required reading for every Prosper lender.


As a group, E and HR borrowers have resulted in negative return on investment for loan buyers. Lenders and group leaders who contact late borrowers requesting payment will be banned from the site, as most lack the necessary knowledge of collections law to make appropriate collections contact.


As of November 8, 2007, the median estimated Return On Investment ("ROI") for relatively experienced lenders (all Prosper lenders with >20 loans and an average loan age >6 months) is 4.89% . -- considerably less than what is available from fully liquid FDIC-insured accounts (such as at E-Loan) after taking into account Prosper's servicing fee charged to lenders (1% annual fee on A-HR loans). Of the 5,846 relatively experienced lenders, 1,333 (22.8%) have an estimated ROI <0% (i.e., they can expect to net no interest and actually lose some of their principal), while fewer than half as many (630, or 10.8%) have an expected ROI >10%.

See also

References

  1. Prosper Marketplace, Inc. "Prosper: Marketplace Performance".
  2. Prosper Marketplace, Inc. "Prosper: How do I transfer funds in or out of Prosper?".
  3. Prosper Marketplace, Inc. "Prosper: Transfer Funds to Prosper for Bidding".
  4. Prosper Marketplace, Inc. "Prosper: Frequently Asked Questions".
  5. Prosper Marketplace, Inc. "Prosper: Marketplace Performance".
  6. Prosper Marketplace, Inc. "Prosper: Collection Agencies".
  7. Lendingstats. "Prosper's Largest Lenders".
  8. Prosper Marketplace, Inc. "Prosper: Marketplace Performance - Estimated ROI".
  9. Prosper Marketplace, Inc. "Prosper Etiquette".
  10. Lendingstats. "Lendingstats Lender List".
  11. Prosper Marketplace, Inc. "Prosper Fees".
  12. Lendingstats. "Lendingstats Lender List".

External links

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