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Prosper Reports Record Month in April

by Prosper on 04/30/13

Prosper has just finished its best month ever for loan originations – we have reached $20.2M in loans for April, and $500M since inception. April’s performance was achieved with the largest volume and the highest average loan amount in history with 1,969 loans and $10,277 respectively. This amount is a 34% growth over March, 2013 and 74% year over year from April, 2012.

Over the past week, many of you have asked about the changes in loan volume. We have seen two trends; first, there have been fewer B through HR rated loans available. Second, loan origination volume through Prosper’s platform has actually gone up, as you can see above. To explain these seemingly contradictory trends, I’d like to start by saying that I believe the industry has reached an inflection point. Peer-to-peer lending is increasingly accepted as a viable investment class. Both retail and institutional lenders are realizing that peer-to-peer loans represent a very interesting and potentially profitable way to obtain unprecedented access to investing in consumer loans. As a result, the industry (not just Prosper) is experiencing a spike in demand. We are aggressively ramping borrower marketing campaigns to generate more loan inventory to meet that lender demand. We are also looking closely at the borrower user experience and application process over the coming months.

All in all, these short term challenges are a positive development for the industry. As we grow, we will help more consumers get their loans funded and therefore offer our lenders more opportunities to expand their investments in consumer loans.

As I mentioned in my April update, we introduced a whole loans program in a beta period for our institutional investors. This has been going well – over $5.8M in loans originated through the whole loan pool in April. This makes up about 28% of loans originated through the platform in April and the remaining 72% originated through the fractional loan pool. On May 3rd we will officially add the whole loans pool as a permanent part of our service.

Here are some details on how it will work:

Prior to posting times, Monday thru Friday only, a subset of randomly selected loans will funnel into a whole loan pool, while all others will post normally into the standard, fractional loan pool. Those loans in the whole loan pool will remain there exclusively for a brief 45 minute period of time. If the loans are not purchased from the whole loan pool within 45 minutes, they will funnel into the fractional loan pool at regularly scheduled posting times, becoming available for funding on the standard Prosper platform. On Saturdays and Sundays all loans will funnel into the standard loan pool, giving our retail lenders the opportunity to bid on all loans available during that period.

This new process is in line with market conditions and enables us to offer whole loan buyers a solution to meeting their mandate and specifications without disrupting the retail lender experience. Additionally, for loans in the fractional loan pool, lenders will now be limited to 75% funding, ensuring that all retail lenders continue to have equal access to a large number of loan options.

Now back to April. In addition to a record month in terms of loan originations, we also made some great progress. We launched a new logo and identity. We would love to hear what you think. As promised, we increased the loan cap from $25,000 to $35,000. Many of you have noticed that this change also included removing our one year loan option. The reason for removing this is simple; one year loans are not in high demand by our borrowers. We will continue to make changes and enhancements like these to balance the needs of both lenders and borrowers.

We also welcomed back our Washington lenders. We appreciate your patience while we worked with the Securities Division of Washington’s Department of Finance to obtain approval and reopen peer-to-peer lending in Washington.

Finally, we are approaching the deadline to transfer to the new enhanced API service we introduced to our lenders back in March. The feedback on this has been tremendous and we are transitioning everyone over. The last day to transition to our new API for lenders is May 1st. If you’re interested in this, please email us at investorservices@prosper.com. If you’re already using it, great! A new password functionality in the settings section will be available in May. Stay tuned.

More exciting things are still to come over the next couple months.

  • Improved collections: We are still very focused on increasing the success of our collections. We have made several changes over the past couple months to increase call intensity and work closely with delinquent borrowers. We continue to enhance this service and will keep you updated here as changes are made.
  • Document Update Functionality: We have begun development on a tool that will allow our borrowers to upload documents directly to our site. This will help to streamline the borrower experience and allow our verification team to move more quickly on verification initiatives.
  • Ramping Borrower Inventory: Over March and April we focused a lot of resources and attention on the lender side of our platform. This has allowed us to onboard a lot of eager lenders. As stated above, in May, we are ramping up our borrower marketing initiatives to meet these new lender needs and will be funneling more and more loans onto the platform.

We are really proud of the progress we’ve made so far, and have many more exciting updates to come as we work to make Prosper the best peer-to-peer lending platform. I’d like to thank everyone who commented on my March post for their thoughtful questions and considerate debate. I’ll be reading and responding so feel free to ask questions or add comments below.

Thank you,

Aaron Vermut

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20 Responses

John J Radford | April 30th, 2013 at 5:46 pm

As an investor, I continue to watch very closely the changes being implemented. What is important to individual investors is the need for high quality loans within each category of risk profile. Ultimately it is a matter of economics and the risk/reward computation for individual investors. I appreciate the new effort and emphasis on collections and feel that is one area that Prosper should have had better results in the past. This obviously is of concern to investors and will be closely watched for improvement.

Simon Cunningham | May 1st, 2013 at 10:27 am

Thank you Aaron. As a WA lender, I am happy to be back on board. Michigan and West Virginia are open now as well, right?

I am continually interested by the tension p2p platforms have between serving the institutional investors and the retail investors. I understand institutions are how companies like Prosper will become profitable, while retail lenders are its internet presence and original constituency. Thank you for continuing to advocate for us retail lenders (IE: Sat/Sun no whole-loan days).


Jennifer Johnsen Brown | May 3rd, 2013 at 7:03 am

For the last 2 weeks, almost all verified loans available are AA or A rated. Are the others being funneled into whole loans or is there a problem with the verification process? You say you are excited to have new investors but they won’t be here long if there are no profitable loans available. I’m worried that thie shift toward institutional investors means the rest of us will be left with nothing more than scraps. Is this going to change or is this the new Prosper?

Aaron Vermut | May 3rd, 2013 at 10:05 am

Sean – You are correct, the B through HR loans have been funding faster than the A and AA rated loans. The relative balance of loans on the site across all ratings has not changed from historical averages. Now that the whole loan program has been made a permanent part of the platform, we have restricted bidding in the fractional pool to 75% of the total available loan amount. This should create a better dynamic with loans across all ratings staying up on the site longer.

As to the differences between the loans allocated to the pools – the loans are randomly allocated between fractional and whole loan pools and are therefore similar in composition.

Aaron Vermut | May 3rd, 2013 at 10:09 am

Jennifer – we are not “funneling” any loans to whole loans. We are offering a randomly selected pool of loans for whole loan purchase. What happened in April was actually that we had bidders buying the B through HR loans from the regular, fractional pool extremely quickly. As a result we have limited how much a single bidder can buy of a loan in the fractional pool to 75%. This will allow greater opportunity for everyone to get a piece of the higher yielding B through HR loans. Thanks for your patience and I hope you’ll let me know if things don’t change for the better.

Aaron Vermut | May 3rd, 2013 at 3:03 pm

I am glad to be able to address a comment like this head on. We are absolutely NOT abandoning peer-to-peer lending. The peer-to-peer fractional lending aspect of Prosper is, in fact, growing. It is now more protected from large bidders than ever before. Prior to the introduction of whole loans to our platform, lenders were able to bid up to 90% of a loan’s
value. Now, lenders are limited to a maximum bid of up to 75% of one loan, allowing other lenders to participate in the funding as well.

As to institutional lenders, adding whole loans augments our model with an additional segment lending money directly to borrowers. The real key here is for us to source more borrowers and loans so that everyone is happy.

Richard | May 4th, 2013 at 2:51 pm

“…and $500M since inception…”
Not to rain on anyone’s parade but my credit union (Boeing Employees CU) has $7 billion in consumer loans including mortgages outstanding and a total of $11 billion in assets. So IMO Prosper is still a “small potato”. But my cash is slowing rotating from the CU to Prosper. Discussion with the CU managment indicates they can’t find enought borrows who can meet their standards so $ 4 billion is “invested” elsewhere. My daugher’s mortage with them is 3.625% and my son’s car loan is $1.5%. What a crazy world The Bernank and ZIRP has created.
On a second point, I kind of miss the monthly newsletter, but if Prosper can put the human resouces to better use I understand.
This Blog is great!

Chris Lostrom | May 4th, 2013 at 4:35 pm

Very glad to hear about the 75% limit on fractional loans!

Sharif Hdairis | May 13th, 2013 at 12:27 pm

Perhaps I’m missing the point of the institutional lending limit. How does limiting a single bid to 75% allow retail lenders a chance to bid on quality loans if all it takes to lock us out is another institutional lender lender bidding the remaining 25%?

True protection would be to limit any single bid to 50% while giving retail investors an exclusive opportunity to invest in the loan until one of the following is true:
a) the loan reaches a certain funding goal (e.g. 25% or 40%)
b) an initial waiting period expires (24 or 48 hours)

Any other reasonable measure to prevent retail investors from competing with automated investing systems will do, as long as the the investment platform isn’t rigged to give preference and priority to any of the lender populations.

I believe returns should be available to anyone with the correct investment strategy, not the entity with the most resources and fastest internet connection.

Andrew Davidyock | May 17th, 2013 at 2:27 am

You have not had any loans available with a yield over 23% in more than a month. Where have the higher yield loans gone? It seems to me that the individual investor is being forced to invest money in loans that have very low yield with very high risk.

Eric Dobbertin | May 17th, 2013 at 1:18 pm

Like many of the others who have commented, I appreciate your efforts, but I think you could do more to help retail investors. I second the comment by Sharif that there should be no institutional investing allowed on a loan until a certain number of days passes or it is N% funded, whichever comes first. They would still have first dibs on whole loans, so it seems fair to me.

Also, if I understand correctly, the API could be used by either type of investor? You may want to additionally limit API investing, for example with throttling and rate limiting, and perhaps limited to a percentage of the full loan amount, too. I feel that high-frequency algorithmic trading is quietly destroying the stock market, and I’d hate to see the same thing happen here. Some things are not meant to be liquid.

It’s clear what retail investors want: a piece of the pie. But your current rules allow two institutional investors to swoop in and immediately eat each pie.

On the subjects of pie and transparency, I also suggest that you make daily/weekly/monthly pie charts available on the website showing the percentage of retail vs. investor, API vs. non-API note purchases by Prosper rating.

Matt Campbell | May 23rd, 2013 at 9:14 am

Thanks Aaron, very interesting reading. Are you able to share specifically (without compromising your strategy) some of the actions you’ve taken/plan to take to source more borrowers? It seems to me that without addressing the current supply-demand mismatch Prosper will plateau, or struggle to grow.

Eric | May 28th, 2013 at 8:27 am

I have also noticed that April had record quality loan availability, and has been a record investment month for myself since investing with prosper. As investors we cannot expect prosper to “hold our hands” and make the right decision, but I do appreciate the extra loan scrutiny and visual verification stages on each loan. I try to do my part in evaluating each loan, to avoid problematic loans with due diligence. I would very much like for prosper to return to showing the alias’s of who are investing in each loan and amount; it all goes with the social aspects of peer to peer investing, something I feel prosper is stepping away from. Prosper should ask itself if removing this feature will allow it to operate in the 20 or so states that currently ban it, and if it makes no difference in their decision to not allow prosper, then why are you doing it? Its not like there is any opportunity for collusion, and I wouldn’t mind if you just cut off lender to lender conversations emails to retain the feature. Maybe even add a visibility privacy option, if your large institutional lenders (which I presume is why you took away this feature) or others do not wish to be seen, and it can just state “anonymous” with the dollar amount invested. A tip for prosper would be to engage its lenders, and seek advice for how to make the drop down menus and loan browsing more user friendly while providing key information.

Aaron Vermut | May 28th, 2013 at 8:45 pm

Matt – thanks for your interest. We have lots of things cooking at Prosper and most of it is related to the borrower funnel. I plan to address your question in an upcoming blog post.

KeithTax | June 1st, 2013 at 6:17 am

All these changes may be great, but from my viewpoint there are fewer loans available at rates worth pursueing. I opened a Lending Club account and started moving in that direction solely on the quantity and type of loans available. There is no doubt a large percentage of the best notes are scooped up by the institutions and once again the retail investor gets the crumbs or worse. To be fair, retail investors should be granted the SAME opportunity as institutions or Prosper becomes an undesirable investment option for me and many others.

DrJerm | June 2nd, 2013 at 10:14 am

I’m satisfied with the site so far. I’ve been an investor since December, 2012, and the automated quick invest is really working for me, I do a combination of medium and low risk loans (A – C) and a few high risk loans, and so far, I can just check performance every now and then, while the money gets reinvested. I invest 10% of my paycheck each month into Prosper lending and it has paid off so far.

So long as on your end you are properly screening loans and improving the website, I can see no reason to not keep investing. Keep up the good work.

jkeller4000 | June 26th, 2013 at 4:49 am

I know i use the auto invest to get b and c loans, so i am one of those people who do not hand pick loans because it is faster to just use the auto invest.

jkeller4000 | June 26th, 2013 at 4:51 am

hm, how does one become an institutional lender? could i sign up so i can bid on whole loans? or do i need an account balance above 10 million?

jkeller4000 | June 26th, 2013 at 4:55 am

this is just stopping the regular investor from being able to to invest heavily into a good loan. like loaning to a family member. more regulation is always bad. they should let anyone invest all they want into 1 loan. do you like speed limits and stop signs and stop lights and head light requirements? more regulation leads to more inequality and more inequality leads to more people being upset. sure it is not too bad yet. but soon they will implement something to help me and it might hurt you then you will be saying the exact opposite. though yeah i have not yet come close to investing in over 1% of the loans. I do a large n to give the statistical return.

jkeller4000 | June 26th, 2013 at 4:59 am

the secured loans will always have a rate a few points above the fed rate. however prosper has unsecured loans so they must be higher rate. it would be interesting if prosper started offering secured loans and let people bid on the rate like they used to allow. you need a new car. but the loan secured by a car and get the car if the person defaults :) hm, i guess i would not want a truck full of pork bellies.

what rate for high risk credit card does your cu offer? i know most rates i have seen are like 14-20% or about the rates of prosper.

i still would be a big fan of bidding the interest rate down on a select group.

posted in Borrowers,Featured,Lenders,Prosper News 20 comments »

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