Monday, July 2, 2007

Boston Globe features Prosper and competitors

The Boston Globe has a feature article about peer to peer lending - Need cash? Just ask. Zopa, Prosper, CircleLending, and Lending Club are all featured. Here's what the Globe has to say about each:

Zopa: A site launched by veterans of Britain's banking industry in 2005 to facilitate loans between strangers plans to launch a US service this year. Zopa.com already has 170,000 users, all of whom must pass the same kind of credit check they would undergo at a regular lending institution....Even if a borrower defaults, lenders won't take too much of a hit, because their money is lent out in increments of 10 British pounds, and spread among a number of borrowers whose credit ratings are acceptable to the lender. If one goes bad, the lender only loses a portion of his money. Dolton won't say exactly how many loans Zopa has made, but he said the company has had exactly two loan defaults in its history.

Prosper: ...was launched 16 months ago, using a lending structure similar to Zopa's. Already, Prosper.com claims 330,000 members and over $70 million in loans.

CircleLending: Zopa and Prosper are a bit unusual in that they arrange loans between strangers. Most peer-to-peer lending happens between people who know each other. CircleLending Inc., of Waltham, is the granddaddy of peer-to-peer lenders that tap into the "friends and family" market. CircleLending was launched in 2001 by Asheesh Advani, formerly of the World Bank...CircleLending has arranged about $210 million in loans so far, with about $150 million currently outstanding. CircleLending's default rate hovers below 5 percent, and less than 1 percent for mortgage loans.

Lending Club: For those who'd rather not borrow from friends, families, or strangers, there's Lending Club, a Sunnyvale, Calif., firm, launched in May in cooperation with the popular social networking site Facebook. Lending Club, which says it has already issued over $100,000 in loans, leverages Facebook's affinity groups. These groups, formed by millions of Facebook users, are built around shared interests -- attending the same college, for instance, or working at the same corporation.

A few things surprised me from this article. I was surprised to hear that Zopa has only had two loans default. Perhaps they are using some criteria to narrowly define default. For example, although many Prosper loans have defaulted due to late payments, only nine have defaulted due to bankruptcy.

I'm also amazed that CircleLending has arranged $210 million in loans. That's three times what Prosper has done. I had no idea they were so much bigger.

Update: Andrew from Prosper made some great points in the comments. For the benefit of those that only read the blog via RSS or email subscription I wanted to add his comment to the body of the post. He says, "Andrew from Prosper here. I like your commentary on the different stats, and thank you for the post. Here's my take on your points... First, Zopa's defaults are so low because they only accept the equivalent of AA, A, and B credit grades on Prosper. So the highest level of risk (and therefore reward) available on their market is lower by design. Second, CircleLending has made 3x the amount of Prosper loans, but considering that they started 7 years ago and Prosper started 1.5 years ago, Prosper is making loans at a 50% faster rate. Not to mention that Circlelending facilitates mortgage loans (which can be quite large), while Prosper's current limit is $25k."

6 comments:

Andrew said...

Hi Tom,

Andrew from Prosper here. I like your commentary on the different stats, and thank you for the post. Here's my take on your points... First, Zopa's defaults are so low because they only accept the equivalent of AA, A, and B credit grades on Prosper. So the highest level of risk (and therefore reward) available on their market is lower by design. Second, CircleLending has made 3x the amount of Prosper loans, but considering that they started 7 years ago and Prosper started 1.5 years ago, Prosper is making loans at a 50% faster rate. Not to mention that Circlelending facilitates mortgage loans (which can be quite large), while Prosper's current limit is $25k.

Tom said...

Andrew, great points and thanks for visiting our new Prosper blog. I'm going to move your comments up to the body of the article for greater visibility.

Anonymous said...

Tom,

Link to download spreadsheet with defaulted loans on Zopa can be found in this article:

http://www.wiseclerk.com/group-news/uncategorized-download-zopa-default-rate-figures/

Meanwhile there are more then 2, but the default rate of 0.1% is very good.

Wiseclerk
http://www.wiseclerk.com

Tom said...

Thanks for the link wiseclerk. Why would Zopa say there are "exactly two loan defaults" if there are more?

Anonymous said...

Tom,

maybe it is 2 in 2006?
Or the article misquoted the statements.
Often after talking with journalists I later see discrepancies in what they wrote to what I told them.

Now, whenever possible, I have them send me a draft version of the quotes they attribute to me, in order to approve or correct them.

Wiseclerk
wiseclerk.com

Matt said...

Either way Zopa has a very small defaults rate compared to Prosper. But, Zopa's interest rate is quite a bit smaller too. I would rather go with Prosper's AAs at 8-10%, than be stuck with better AAs on Zopa for 5-6%.

--Matt