In May Virgin Group purchased a majority stake in CircleLending. Today they have announced they are using that as a platform for a new US peer to peer lending site. Virgin Group is a $20 billion dollar company, and is run by well known billionaire Richard Branson. A coming out party is scheduled to be held in Boston today where Richard Branson is going to hand out red dollar bills with pictures of him and his mom on them. Reportedly Richard's mom lent him several thousand pounds through the new peer-to-peer lending site.
Virgin Group plans to use this site to expand its offerings over the next year to include things like small business financing, student loans, and larger-scale loans.
Showing posts with label CircleLending. Show all posts
Showing posts with label CircleLending. Show all posts
Monday, October 15, 2007
Tuesday, July 17, 2007
Wall Street Journal: Options grow for investors to lend online
Today's Wall Street Journal has an article about Prosper, Options Grow For Investors To Lend Online, which features several lenders and third party sites. Despite the headline and teaser "more sites join prosper.com in luring the risk-tolerant" the article is mostly about Prosper. Here are a few quotes from the article along with my comments:The peer to peer lending market. "The market is tiny, but it appears to be growing. Prosper, a unit of Prosper Marketplace Inc., says its loans outstanding have more than doubled so far this year to $60 million currently. More firms, with names like Lending Club Corp., Loanio Inc. and Zopa Ltd. are jumping in. And in a related move, Virgin USA, the North American arm of Sir Richard Branson's Virgin Group PLC, recently bought a majority stake in CircleLending Inc., which coordinates loans and payment plans between friends and family members. About $100 million in new person-to-person loans will be issued this year, and that will increase to as much as $1 billion in new loans in 2010, according to a recent study by Online Banking Report, a research firm. "
Loanio? The Loanio website reads COMING SOON and is collecting email addresses of interested parties. I have been very curious about new Prosper competitors, especially after seeing advertisements in Rent a Coder and iFreelance for programmers to create a "working, stripped-down version of prosper.com." We will keep our eye on Loanio for you. [Update: Just wrote a post about Loanio.]
Lender featured - Andrew Balto. Andrew Balto Jr. of Churchville, Md., says he pulled some money out of certificates of deposits and money-market accounts last year to put into Prosper loans, where he is now earning returns equivalent to an average annual interest rate in the midteens. "What really attracted me were the rates people were paying for the loans," says the 39-year-old small-business owner, who has about $30,000 spread out over 350 Prosper loans. He says those loans make up only a small part of his total investment portfolio.
Lender featured - Dan Foster. Dan Foster of Mountain View, Calif., says as much as 17% of his Prosper loans -- which had been returning on average about 20% -- got "hammered" last fall with late payments and defaults. Mr. Foster has since tightened up his lending criteria and is taking a harder look at borrowers' credit histories. "Over time, I started relying less on the sob stories and relying more on the hard data," says the 31-year-old financial analyst for an Internet firm. Now, out of the 60 new loans that he's made since last fall, which are on average returning 15% to 18%, only two or three loans are late, he says.
This lending pattern fits the description Matt wrote about in his article about risk management.
Lender featured - Tim Rohner. Tim Rohner of San Diego views as a test the $15,000 that he has invested across three different portfolios at LendingClub.com, which are posting average annual returns ranging from 8% to 12%. "If it all disappears, it will be a lesson," says the 45-year-old small-business owner. "If it does what it's supposed to be doing, I'll double it."
Third party tools (ProProsper, Wiseclerk, Eric's CC) featured. Over a dozen independent Web sites, mostly geared to Prosper lenders, have emerged in recent months to help lenders make better investing decisions. ProProsper.com, for example, helps lenders determine what the market rate would be for a particular loan, while Wiseclerk.com provides a "loan aging" tool that tracks historical default rates of Prosper loans. Eric's Credit Community (www.ericscc.com) maintains a list of the 10 largest lenders on Prosper (some of whom have close to $700,000 invested) and offers tools that can help users track the moves of other lenders.
Read the full WSJ article here.
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."
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."
Tuesday, June 26, 2007
eBay + MySpace + ? = Peer to peer lending
Brad Slavin has written an informative 15-page paper reviewing the peer to peer (P2P) lending industry (pdf) with a focus on Prosper and Zopa. His outlook is very optimistic. I've extracted a few of the highlights from his article. Quotes are in italics.
"The timing is right for sites like Zopa and Prosper, which are part of a broader wave of sites aimed at fostering online communities. These companies are challenging the status quo using an online loan marketplace with a social computing twist. These online lending communities can be considered as a combination of eBay and MySpace.com — a place where consumers come together to loan and borrow money from each other."
It looks like Brad is not the only one that has an optimistic outlook. Prosper just secured an additional $20 million in venture capital and Facebook's Lending Club is off to a great start. He thinks the current conditions are just right for peer to peer lending.
"...an increase in individual debt, a low return on savings, and increasing asset prices are also changing consumers' borrowing and lending behavior thereby creating a favorable environment for alternative investment platforms such as peer-to-peer online lending exchanges. The success of these web based P2P lending communities can be gauged by the strong growth in their members and loan volume. Zopa has attracted 87,000 members and Prosper currently boast of approximately 100,000 members."
Although he published the article yesterday, Brad must have pulled his stats some time ago. Prosper currently has over 310,000 registered members. Later in the article he mentions that Prosper has loaned $24 million. The figure is now $71 million. Even though his stats are dated that just further reinforces his point that the peer to peer lending industry is in a period of rapid growth. He mentions some of Zopa's awards:
"Zopa won "Internet Innovation of the Year" at the 2006 CNet Technology awards and was named by American magazine Business 2.0 as one of the eleven most disruptive companies in the world."
He did not mention similar accolades that Prosper has won including the #1 website of the year in 2006 by Time Magazine.
Brad talks about the success of other online communities and user generated content including eBay, MySpace, blogs, Wikipedia, Amazon, Flickr, YouTube and others and compares that to the success of the social lending space. I think he is very correct there. Beyond all financial considerations, the social aspect is one of the big allures to many at Prosper. Brad also makes the point that online communities can do what financial institutions do at less cost.
"...it turns out that online communities can do a lot of what banks, credit card and payday loan companies do and cheaper. The opportunity lies in consumers' mistrust of financial institutions. According to a Forrester study, 'most people believe their banks put their own interests ahead of consumers', and a majority doesn’t think their financial institutions have strong ethics.'”
I have mixed feelings about this statement. In many ways Prosper and other peer to peer marketplaces are less efficient. The cumulative time that dozens, sometimes hundreds, of lenders expend to fund one loan is very high. Although time consuming, in some ways, the social lending marketplace can be more vigilant than banks. The story of Jessica Wolcott's scam is a good example. Hundreds of lenders engaged in online detective work to prevent fraud, something that would have been cost prohibitive for a normal bank.
Brad provides a bullet list of the nine advantages of peer to peer lending. They are:
"The timing is right for sites like Zopa and Prosper, which are part of a broader wave of sites aimed at fostering online communities. These companies are challenging the status quo using an online loan marketplace with a social computing twist. These online lending communities can be considered as a combination of eBay and MySpace.com — a place where consumers come together to loan and borrow money from each other."
It looks like Brad is not the only one that has an optimistic outlook. Prosper just secured an additional $20 million in venture capital and Facebook's Lending Club is off to a great start. He thinks the current conditions are just right for peer to peer lending.
"...an increase in individual debt, a low return on savings, and increasing asset prices are also changing consumers' borrowing and lending behavior thereby creating a favorable environment for alternative investment platforms such as peer-to-peer online lending exchanges. The success of these web based P2P lending communities can be gauged by the strong growth in their members and loan volume. Zopa has attracted 87,000 members and Prosper currently boast of approximately 100,000 members."
Although he published the article yesterday, Brad must have pulled his stats some time ago. Prosper currently has over 310,000 registered members. Later in the article he mentions that Prosper has loaned $24 million. The figure is now $71 million. Even though his stats are dated that just further reinforces his point that the peer to peer lending industry is in a period of rapid growth. He mentions some of Zopa's awards:
"Zopa won "Internet Innovation of the Year" at the 2006 CNet Technology awards and was named by American magazine Business 2.0 as one of the eleven most disruptive companies in the world."
He did not mention similar accolades that Prosper has won including the #1 website of the year in 2006 by Time Magazine.
Brad talks about the success of other online communities and user generated content including eBay, MySpace, blogs, Wikipedia, Amazon, Flickr, YouTube and others and compares that to the success of the social lending space. I think he is very correct there. Beyond all financial considerations, the social aspect is one of the big allures to many at Prosper. Brad also makes the point that online communities can do what financial institutions do at less cost.
"...it turns out that online communities can do a lot of what banks, credit card and payday loan companies do and cheaper. The opportunity lies in consumers' mistrust of financial institutions. According to a Forrester study, 'most people believe their banks put their own interests ahead of consumers', and a majority doesn’t think their financial institutions have strong ethics.'”
I have mixed feelings about this statement. In many ways Prosper and other peer to peer marketplaces are less efficient. The cumulative time that dozens, sometimes hundreds, of lenders expend to fund one loan is very high. Although time consuming, in some ways, the social lending marketplace can be more vigilant than banks. The story of Jessica Wolcott's scam is a good example. Hundreds of lenders engaged in online detective work to prevent fraud, something that would have been cost prohibitive for a normal bank.
Brad provides a bullet list of the nine advantages of peer to peer lending. They are:
- Avoid banks and other middleman
- Anonymous transaction
- A whole new asset class
- Optional rates and loan amount
- Lower interest rates for borrowers
- Higher returns for lenders
- Faster and easier process
- Increased transparency and control
- Satisfaction
I disagree with one of his points - anonymous transaction. He argues, "All transactions are done anonymously and borrowers are not inundated with emails and telephone calls as are borrowers registering with traditional online lending companies." I think that loans which occur on Prosper are less anonymous than loans might be through a bank. You place your credit history and other personally identifiable information where they can be accessed by anyone. Even though it is against Prosper's TOS, group leaders bombard borrowers with invitations to join their group. Many borrowers send pay statements and other personal financial records to group leaders to become vetted.
Brad makes a point about the imbalance between lenders and borrowers.
"...the biggest problem at the moment at these online lending marketplaces is theimbalance between number of lenders and borrowers. There is just not enough money in thesystem to meet all the reasonable needs."
He's right. There are many more borrowers than lenders. This is good for lenders but, in my opinion, if the market were to become much more competitive then interest rates would come down and lenders will lose the incentive to bid. I don't think interest rates can come down much more and still provide an attractive investment option to lenders. In addition, according to a post on Money Walks, about 80% of the listings are made up of E and HR credit grades. As Matt has discussed earlier, too many of these high risk loans on Prosper default to make it worth bidding.
There is an interesting comparison between Prosper and Zopa in the article. Some of the information is dated but I thought the paragraph on diversification was interesting.
"Zopa extensively use diversification as the key to mitigate default risk. Zopa is able to manage default risk by taking a more protective approach with respect to lenders by only accepting borrowers with high credit quality and by forcing lenders to diversify their loans across at least 50 borrowers. At Prosper, lenders can diversify, but are not forced to do so. It allows lenders to bid small amounts on all or part of loans; it is easy for lenders to create well-diversified portfolios."
I didn't know Zopa forced diversification. I can see pros and cons to that. It probably reduces the lenders remorse of inexperienced lenders who place bad bids but I can see how it might frustrate more experienced or aggressive lenders.
Brad highlights the social aspect of Prosper.
"Prosper.com was created with the objective of making consumer lending more financially and socially rewarding for everyone....Compared to Zopa, Prosper has added a number of community elements, the most important one being groups. Prosper relies on a strategy borrowed from hoi: shame, believing that people repay real-world co-operatives because they fear losing face among peers. It works on the principle that people from close communities act more responsibly towards each other."
I think this statement is right on the mark, but also runs counter to his earlier contention about the ability of borrowers to receive funds anonymously through the peer to peer marketplace.
Brad wraps up the article by mentioning several players in the peer to peer lending marketplace. Many I had not heard of before - kiva, PalTrust, Moneytwins, Rippleplay and CircleLending. From his conclusion:
"Currently these websites work for relatively small, unsecured, and primarily personal loans. With maturity the market may potentially see some other entrepreneurs entering the market and eventually starting up other financial services e.g., mortgages for homeowners to finance purchases or refinances. Such sites could ultimately supplant the existing financial institutions. As a response, the incumbent financial institutions may either start their own lending marketplaces or will partner with the niche P2P lending marketplaces."
What do you think? Will the peer to peer loan marketplace expand to include mortgages and other financial services? Is the outlook as optimistic as Brad contends?
(Thanks wiseclerk for the tip.)
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