IOU Central halts operations to 'resolve a regulatory matter'

IOU Central, the first P2P lender in Canada, has suspended all new loan requests and stopped bidding on loans in order to "resolve a regulatory matter." This is the announcement on their website:

What Functionalities Are Available?

Please note that the posting of new loan requests and the placing of new bids on loans has been temporarily stopped. Any loans which have already closed and been funded will be repaid and serviced in accordance with the borrower and lender agreements.

Why Is IOU Central Operating With Limited Functionalities?

IOU Central is now operating with limited functionality while we resolve a regulatory matter. IOU Central is acting in a very new area. We are the first in Canada, although similar models are operating under similar regulatory environments in the US and the UK. We are modeled on those innovative enterprises. We are committed to working with all the relevant regulatory bodies in order for us to continue to offer this service to borrowers and lenders. We will take all measures necessary to ensure we are working in full compliance with all regulations.

When Will IOU Central Be Fully Operational?

We will notify all our users by email when the site is fully operational. If you are not already a user, you may register with us and we will notify you by email when the site is fully operational.

CommunityLend is also expected to open in Canada soon. In comments on Prosper Lending Review, Colin Henderson, the CTO and co-founder of CommunityLend has said, "We remain on plan for our upcoming launch as we work through it with our various partners."

(Thanks for the tip Wiseclerk)

Prosper #49 on the Fast 50

As announced on the official blog, Prosper joined the likes of Amazon, Walmart and IBM on Fast Company's 2008 list of the 50 most innovative companies.

From the award profile: "Borrowers include stretched homeowners, college-goers, credit-card junkies, and entrepreneurs; lenders are average folks, including Larsen himself, who has funded more than 450 loans. Intriguingly, with the credit crunch making it tougher on small-business owners to get capital to expand, more entrepreneurs are turning to Prosper as an alternative, posting business plans and photos as part of their pitches; these loans now account for about 20% of funded volume."

I also found this tidbit interesting, "So far, Prosper's lenders and borrowers are only in America, but a new joint venture would let Japanese lenders bid on American loans -- and the goal is to connect people (and capital) globally." We knew Prosper was looking to expand to Japan but I assumed that meant Japanese lenders lending money to Japanese borrowers. If the number of lenders increase without increasing the number of borrowers then interest rates will be driven down. Perhaps this is why Prosper recently increased their referral bonus for new borrowers.

The top three Fast Companies are Google, Apple and Facebook. Prosper has won numerous awards in the past including Time magazine's #1 website of the year in 2006 and one of the 50 best websites of 2007.

ABC 7 covers Prosper Days

ABC 7 has produced a short clip with highlights from Prosper Days. It includes an interview with "Freakoconomics" author Stephen Dubner and lender Marilyn Paguirigan. See our previous post for the rest of Prosper Days coverage by the mainstream media and blogs.

ABC 7: New lending site helps people "prosper"

Prosper Days 2008 wrap up and a look back to 2007

The long anticipated Prosper Days 2008 is now over. We have published notes on Chris Larsen's keynote address. Here is some other coverage around the net:

• SF Business Times - Prosper CEO sees company benefiting from credit crunch
• NetBanker - Prosper Helps Borrowers Tap the Value of Their "Social Capital"
• Lazy Man and Money - Prosper Days (Day 1 Overview)
• j9359 - Prosper Days 2008 is over now
• Prosper Marketplace Monitor - Prosper didn't catch fraudster using its services, but CEO takes credit for conviction
• Muychingon - Getting ready for Prosper Days
• Elaine Vigneault - Initial Thoughts - Prosper Days
• zcommodore - Things that make you go hmm
• bamalucky - Are you at Prosper Days? and The last Prosper Days?
• Prosper Forums - Live reporting from PD08 in IRC (login required)
• Rateladder - Bidding With the Prosper API Code Example QuickSnipe.java
• Prosperous Land - Vicarious Live-Blogging: Prosper Days

We expect Prosper to post videos and photos from Prosper Days 2008 in the near future. In the meantime, here's a look back to 2007:

Prosper Days 2007 Keynote Address by CEO Chris Larsen

Prosper Days 2007 - Lender Panel
RGlad, JaneyBooboo, Pensioner, L5



Prosper Days 2007: Town Hall Meeting



Prosper Days 2007: Group Leader Panel

Prosper Days 2008: Keynote from CEO Chris Larsen

Here are a few notes from Chris Larsen's Prosper Days keynote address.

• Prosper provides strong loyalty and strong diversification
• Shared several success stories of prosper loans (Soldier loan consolidation, loan for a toy business, super prime home improvement loan, charity loan for needy family, and a loan from a friend)
• Prosper can improve borrower's credit
• Prosper is growing - $120,000,000 in loans and 600,000 registered members
• As he has mentioned before, lenders are avoiding subprime loans; in January 2007 subprime loans represented 24% of loans and in January 2008 they made up 5% of loans
• "Attractive" ROI loans up nearly 200%
• Prosper started giving rate guidance to borrowers and added rate tools for lenders
• Prosper now warns bidders when they are likely to get a low estimated return
• Portfolio plans were introduced this year
• Rate guidance to borrowers has significantly reduced the number of borrowers requesting "low ROI" loans and increase the "attractive ROI" listings by 250%
• Borrower requested features: schedule a date for a future payment, save listing draft to finish later, preview listing, re-use listing as template, pay loan with lending balance, have two active loans
• Lender requested features: watch list, instant transfers, better guidance on manual bidding, addition of loan categories, show community payments on group, add "4+ months late" loan status, show history of second borrowers, instant transfers, 1099's on a single statement, increase max rate to 35%
• Prosper opened a new forum and now has an official blog
• Social capital - impact of groups on default rates; small groups do better than large groups
• Endorsements from friends improved performance and rates
• Collections improved - $34,665 collected in August 2007 and $69,807 in January 2008
• Fraud prevention - first conviction for fraud
• New feature - portfolio plans can be created and shared
• Looking ahead - More lender control (tools, transparency, secondary market), growing attractive listings, credit crunch is an opportunity

Update: There was lots of blog and news coverage of the conference - ABC 7 was also there.

Prosper Days '08 kicks off

Here's the first mainstream media report on Prosper Days:

SF Business Times - Prosper CEO sees company benefiting from credit crunch

"Prosper CEO Chris Larsen said Monday that the San Francisco company is benefiting from the credit crunch that's sending more lenders and borrowers to the person-to-person lending marketplace.

More people with good credit are coming to Prosper as home equity loans and credit cards become harder to obtain, Larsen told 350 people attending the company's Prosper Days in San Francisco.

"Banks are retrenching so aggressively," he said. Prosper lenders have also pulled back on loans made to subprime borrowers.

Larsen also anticipates more people might be willing to lend on Prosper as rates fall on other investments following the Fed's dramatic rate cuts.

...Lenders attending Prosper Days made it clear that they're eager for the company to do more to crack down on fraud, even as Larsen touted Prosper's first conviction for someone committing fraud through Prosper."

According to posts by lenders on Prosper.org's forum and IRC, the man convicted of fraud on Prosper is Jehoshua Sean Kilen. The News Tribune reported on the case in November 2007 without mentioning Prosper:

Lakewood man off to prison for bank fraud

Lakewood resident Jehoshua Sean Kilen was sentenced Friday to 18 months in federal prison after being convicted of bank fraud, the U.S. Attorney's Office reported in a news release Friday.

Kilen, a former employee of KeyBank, used insider information to identify inactive accounts that still had money in them. Some of the accounts were inactive because the customer had died, according to the release.

Kilen, 27, would transfer money from the inactive accounts into accounts he could withdraw cash from, federal authorities said. All told, he got away with $138,000 before getting caught.
The long arm of the law caught up with him in California in February and pleaded guilty in May in Tacoma.

Where did IOU Central come from?

A couple days ago we wrote about IOU Central and how they beat CommunityLend to become the first P2P lending marketplace in Canada. IOU Central seemly came out of nowhere. We wrote about CommunityLend last June and then again in December when they secured $2.5 million in funding but had not heard about IOU Central. In Netbank's post about IOU Central Jim Bruene also wrote, "We were surprised to learn today that someone beat Community Lend to market."

IOU Central was able to beat CommunityLend to market by purchasing a P2P lending startup from Denmark called Fairrates. Fairrates was built in 10 months by Arkadiusz Hajduk and opened in April 2007. They had lenders willing to invest but had a problem finding and vetting good borrowers. In Denmark there is no access to credit history and Fairrates was hit with a couple fraud cases. Hajduk is now the Product Manager for IOU Central and he spoke at a conference for entrepreneuers in Poland this week. Bartlomiej Owczarek from Virtuous cycle published his notes from Hajduk's speech reprinted here:

Presentation of Arkadiusz Hajduk about his P2P startup (IOU Central):

• The startup was initially located in Denmark
• Two guys on a sofa
• I liked the quote - “expert is a person who committed all possible mistakes in a narrow field of specialty”
• Idea was inspired by Prosper
• They didn’t bother with business plans and presentations (note: maybe not so good in the end, given later credit history problem, see below)
• Nevertheless, they got angel from early on - entrepreneur, house builder
• Features of their angel - did call from time to time, but otherwise didn’t require much reporting, in retrospect now they would prefer someone more of a “mentor” type
• They coded for 4 months without office
• Then they got office, at respectable location (good for customer trust)
• They coded another 6 months when they had office
• First version was seen and tested by some 30 people
• Operating model assumed that they don’t make credit decision or take on risk - all this is on the lender
• Highlight of the “growth” period - 90 minutes on the front page of a major business portal
• After launch, lenders turned out not a huge problem; in a first week, one person offered equivalent of ca. PLN 50k
• However, huge problem with (good) borrowers
• Also, in Denmark there is no access to credit history (only yes/no credit problems query possible)
• Side note: banks in Denmark do not care to advertise to people more than 25 years old, because no one ever changes the bank
• They had two evident fraud cases
• In the end, business model didn’t fly because of borrower problem (people took wait-and-see approach), resulting in the “decline” phase
• Luckily, they were approached by people from Canada, who had non-technical capabilities in the area but needed technology platform, and they sold out
• Angel apparently got 150% of his initial contribution
• Lessons learned: don’t hesitate to kill your own ideas

Virtuous cycle also had notes about a couple other P2P lending startups who were also at the conference - Finansowo, Monetto, and Kokos. They all hope to become the P2P lending platform for Poland. Of the three, Kokos is already active. Wiseclerk published an interview with Kokos a couple weeks ago. Finansowo will be launching within a week and Monetto is also close to launch.

Prosper unveils individual portfolio plans and improves search

Prosper rolled out several upgrades to their website ahead of Prosper Days. Last month Prosper lender HollowOak polled lenders on what upgrades might be coming. There may still be new features announced at Prosper Days but here's how we fared so far:

• The secondary market for loans
• Increase in the minimum credit grade that may create a listing
• Publication of legal actions against defaulting borrowers - Prosper did announce they would sue select delinquent borrowers. This, however, was not tied to the upgrade last night.
• Increase loans servicing fees - Prosper already raised borrower's fees a couple weeks ago.
• Increase state rate caps - Prosper did raise the interest rate cap in the District of Columbia from 6% to 24%. However, Arkansas, Delaware, Kentucky, and Tennessee have had interest rate caps lowered based on the change in federal interest rates.
• A national Prosper license - Lending Club is national but we are still waiting on Prosper
• Increased options on the search loans feature more granular credit data - Search options are improved but it does not feature credit data. Verified friends were added to the search feature.
• Credit report from more than one credit reporting agency
• Reduced minimum bid size - Prosper is at $50. Lending Club is at $25. We found most Prosper lenders do not diversify. In fact, a full 70% have less than 20 loans. A lower minimum bid size would help Prosper lenders diversify.
• Lenders can create their own portfolios - Yes! A nice upgrade here.
• Lenders can publicize their portfolios for other lenders to follow - Yes! It can be shared on your member page.
• Stock options for long-time lenders
• 3rd loans for borrowers - No, but they did change the eligibility criteria for borrowers who wish to create a listing for a 2nd loan, raising the minimum number of recent consecutive on-time payments from 2 to 6 months.
• Borrower refinancing their loans directly
• Revolving credit loans
• The entry of corporate lenders - Globefunder is the best P2P lending option for corporate lenders right now.
• Changes (unspecified) to loan verification - Lenders will no longer see the "Bank account verified" icon. Borrowers do not receive a loan until their bank account is verified so Prosper views this as an unnecessary item to publicize. Andrew Martinez-Fonts from Prosper says, "bank account verification is rarely the item that prevents origination."
• Streamlined borrowing for AA-B credit grades
• Enhancements to the Friends and Endorsements program - No, but Prosper did raise the referral bonus from $35 to $50.
• Complete elimination of groups

Again, there may still be new features announced at Prosper Days but these are the website upgrades. Prosper has detailed information on their blog and I've republished it below:

Portfolio Plans for everyone

Now lenders can create their own portfolio plans, with all of the controls available in the existing portfolio plan templates. Existing standing orders have also been converted to portfolio plans, and will include estimated return data (when available) to help lenders make better lending decisions.

Additionally, lenders can now share their portfolio plans on their member page. If you think you have a great lending strategy, share your plan, and other lenders can copy it for their own use (or even tweak it if they think it needs some changes). Building (or just editing) a portfolio plan is easy, and with built-in performance data, you’ll be able to better predict the performance of your plans.

Social criteria added to search

Ever wondered if having verified friends really makes a difference in a borrower’s default rate? Now you can find out, with four new search criteria added to advanced search, portfolio plans, and the marketplace performance page:

Bids from friends ($): Sum of highest single bids from the borrower’s friendsBids from friends (#): Total number of bids from unique friendsEndorsements: Number of endorsements from the borrower’s verified friendsFriends: Number of verified friends the borrower has

Bidding via API

You can now bid via the API with your personal account. Each account must be activated to allow API bidding. Send an email to APIServices@prosper.com to enable API bidding on your personal account.

Prosper expects developers will begin to create applications that make use of this capability; however, at this time, the terms of service on API bidding is limited to individual accounts.

Bid Source available in loan list

The “Your Account > Lending > Loans” page now includes a new column called “Bid source”, which will indicate what the source of each loan was. For example, if you placed a manual bid, the “Bid source” column will say “Manual”. If a loan came from a portfolio plan, the plan will be named in that column.

Lenders can use this to look back at loans made in the past and determine which bidding strategies are working, and which are not.

2nd Loan Criteria Changed

Prosper updated the eligibility criteria for borrowers who wish to create a listing for a 2nd loan, raising the minimum number of recent consecutive on-time payments from 2 to 6 months. This means that a borrower who wishes to take a 2nd loan on Prosper must have had at least 6 months of consecutive on-time payments (pre-payments don’t count) before he or she is allowed to create a listing for a second loan.

“Bank account verified” icon retired

The “Bank account verified” icon has been retired from the site as of this release. Initially, this icon was added to listings because having a verified bank account was the only hurdle to borrowers wishing to have their 100% funded loans originated, and a borrower’s failure to verify his or her bank account could delay the deployment of a lender’s bid. At present, however, bank account verification is just one of many verification procedures that gate a loan’s origination, and bank account verification is rarely the item that prevents origination. In addition, there are many misunderstandings among new borrowers and lenders over what the icon means, when it is activated vs. hidden, and how it affects the funding of a loan. As a result, we have decided to remove the icon from listings, search, and search results. No loans are originated without a borrower verifying ownership of his or her bank account.

Referral award for new borrowers raised from $35 to $50

If you refer a new borrower to Prosper whose loan is funded, you can earn $50 from Prosper. You can also still refer a lender, and both of you will earn $25 when he or she funds his or her first loan.

Washington DC interest rate cap raised to 24%

Prosper has raised the interest rate cap in the District of Columbia from 6% to 24%. Additionally, Arkansas, Delaware, Kentucky, and Tennessee have had interest rate caps lowered commensurate with the Fed’s lowering of interest rate indexes.

Instant 5% bonus becomes nearly 12% for one Lending Club lender

Odnal has been a lender on Prosper for awhile and recently started lending with Lending Club when they offered 5% bonus for lenders who invested more than $5,000 by February 3rd. Most of his loans have finally funded and he is very happy with the results. He provides a report on his blog:

"...I managed to get the minimum $5,000 invested in a portfolio, as well as an extra $375 from loans that had expired and I resubmitted. The bonus was based on how much you submitted, regardless of whether or not the loans got fully funded and approved or not. That means, the bonus was based off of my portfolios totaling $5,375 for a bonus amount of $268.75.

...When all is said and done, I will have $2950 in loans with a bonus of $268.75. That means, instead of just a 5% bonus, mine ended up at 9.11% of the loans that got funded. If I count my $75 in referral fees ($25 for signing up, $25 for referring my wife, and $25 in her account), I’ve already earned 11.65% on the money I have lent.

So far I like Lending Club."

I seriously considered lending $5,000 but let the time run out. I regret not taking advantage of the 5% bonus offer now. Lending Club - please bring it back!

Prosper under maintenance

"We are currently making enhancements to our site starting at 8:00 PM Pacific, February 22, 2008, and we should be back online by 1:00 AM."

Although I've been hard on Prosper in the past during maintenance outages, they are usually followed by new features. What new features do you think they are working on now? Traveler505 has a nice bit of speculation. Just four more hours to go...

Update: See the upgrades here.