Here is Chris Larsen’s recent Q&A from a Wall Street Journal Interview (Q&A: ‘Bringing Together George Bailey and Gordon Gekko’)
The Wall Street Journal: How would you describe your business?
Chris Larsen: An eBay for money and credit. Borrowers can make listings and any American with $50 or more are free to bid. It’s combining community banking with the high finance of Wall Street — bringing together George Bailey with a little Gordon Gekko.
WSJ: Why do people turn to sites such as Prosper to borrow or make a loan?
Mr. Larsen: On the borrower side, particularly with the credit crunch, even super-prime and prime customers are being shut out from sources like home-equity loans. Even credit cards have higher fees. Borrowers can get a better deal — a fixed, lower rate — and simpler terms on Prosper. For lenders, it’s a new asset class that’s non-correlated with other investments and a lender can make 7.5% to 11% using some of the portfolio plans. Another reason for the lenders is the social participation — that sense that I’m helping somebody like me — that I’m doing well by doing good.
WSJ: How do borrowers and lenders find each other?
Mr. Larsen: Prosper is a totally open marketplace so you can bring your friends in to bid on your listing. We make it easy for you to invite friends and family. Beyond that, it’s open to people who don’t know you. For lenders, there’s a ton of tools for searching manually for listings, based on borrowers’ credit data or social capital — such as how many friends have bid on their loans or what groups they belong to — basically any variable both financial and social that you can think of.
WSJ: What do borrowers say is the most popular reason for getting a loan? What about lenders?
Mr. Larsen: The most popular reason for borrowers is to replace high-cost credit sources — credit cards or bank loans or personal loans — with a lower-cost loan. The second has been starting a small business or supporting your existing business. By far, the most important reason for lenders is to make a good return — to make a superior return than other asset classes for the risk. Secondary to that, embedded in there, lenders do want to feel like they’re participating and affecting society in a positive way and helping deserving people. There’s economic advantages to both sides — and something that’s socially satisfying as well.
WSJ: How does Prosper make money?
Mr. Larsen: We are a transaction model, much like eBay. You can list for free as a borrower and once you get a loan, a borrower will pay a one-time fee between 1% to 3% of the loan amount. The lender will pay 0% to 1% every month, depending on the credit grade.
WSJ: What steps has Prosper taken to address concerns about fraud or identity theft?
Mr. Larsen: We have a 100% fraud ID theft guarantee. If there’s a fraudulent borrower who gets through our screens, we’ll buy that loan back. Beyond that, we’re also very aggressively prosecuting people and we did have our first conviction.
WSJ: What role will social networking play in financial services?
Mr. Larsen: We’re all just now getting into the second wave of social networking — going from the entertainment wave into financial services. We’ve tried to provide tactics that capture that. For example, borrowers who belong to small groups tend to get better rates than borrowers who belong to large groups. One thing that works really well is friends bidding on borrowers’ loans — that can result in a 35% to 50% improvement in default rates on those loans. We’ve tried to both capture social relationships and social reputations in a way that allows borrowers to monetize their social capital.
And from around the rest of the Prosper and personal finance blogosphere…
RateLadder Prosper Vintage Curve Update 3/1/2008
The Digerati Life says Don’t Get Scammed! Reduce The Risk of Identity Theft
Lazy Man asks Am I officially cheap?
Blogging Away Debt had A Weekend Present – Aurora Borealis
brip blap with 31 causes of failure #3: lack of ambition
Melissa at QueerCents has her Six Month Review: The Big Girl World
RateLadder is a Prosper lender and has been since July, 2006. He has a passion for p2p lending. He owns RateLadder — My Prosper.com Journey and other P2P Lending Adventures, P2P No Bank the P2P Blog Aggregate, and ProProsper — Professional Tools for Prosper Lenders featuring SQL access to Prosper data.