Fynanz improves borrower vetting

Fynanz made several improvements in the vetting process for new borrowers including the following changes:

• School certification is obtained directly from a borrower’s school (or a borrower has to provide a school transcript and tuition bill) to verify enrollment, class standing, and whether the borrower is enrolled half-time or full-time.
• All borrowers are required to provide valid bank account information prior to application approval. If this information is determined to be invalid, the application is rejected until it can be verified.
• In most cases, Fynanz contacts personal references provided by the borrower.

Some loans that were listed prior to these changes have been canceled prior to funding until borrowers can meet these requirements. In addition, there are fewer available loans as a result of these changes. The available loans, however, are of a higher quality and much more likely to complete the funding process.

Fynanz is the first peer to peer lending company to match most bids from family and friends. They are currently running a promotion where they will give some new lenders up to 5% of the amount loaned.

Fynanz, which just launched a few months ago, has received a lot of publicity due to the current student loan crisis. Today, for example, they were featured in the U.S. News & World Report.

10% off Lending Club fees

New borrowers can get 10% off Lending Club loan origination fees through an exclusive Credit Karma offer.


Borrowers on Lending Club are only charged as a result of an accepted and approved loan. Fees range from 0.75% to 3% depending on the borrower's credit grade. For example, if a C borrower requests $5,000 they will be charged a processing fee of 2% or $100. This borrower would save $10 by signing up through Credit Karma. The fee breakdown on Lending Club fees is:

• A - 0.75%
• B - 1.50%
• C - 2.00%
• D - 2.50%
• E - 2.75%
• F - 3.00%
• G - 3.00%
  

The total fee could range from $7.50 (a A-credit grade borrower approved for $1,000) to $750 (a G-credit grade borrower approved for $25,000). Based on these fees, 10% off might only save a borrower with good credit on a small loan less than a dollar. However, a borrower with poor credit requesting a large loan could save as much as $75 through this offer.

Credit Karma is a new company which offers free credit scores. Yes, it's really free. Not one of those tricks where you are suddenly charged monthly fees. I signed up last month. Credit Karma makes money if you sign up for one of the offers which will be presented to you. Credit Karma shows personalized offers, such as this Lending Club offer, based on your credit profile.

The downside for those concerned about privacy - you do have to provide your social security number in order for them to pull the necessary information. Credit Karma claims they "will never share your personal information."

In addition, there are several different types of credit scores - FICO, Experian PlusScore, VantageScore, and others. The score provided to me through Credit Karma was a TransUnion score, not my FICO score. TransUnion's scale is 150-950 unlike FICO which is 300 to 850. It appears Credit Karma may provide different scores to different customers.

I also found Zopa listed on Credit Karma but there were no special offers or coupon codes. Prosper was running banner ads but did not provide other deals.

Lending Club nominated as top innovator

Lending Club has been nominated as one of the Top 100 Internet innovators in the U.S. by the Industry Standard in the 'Commerce' category. Others nominated include Mint, Zillow, Farecast and Wesabe. The winner will be decided by popular vote and announced at the end of October.

Peer to peer lending companies have received many awards. Earlier this year, Prosper joined Amazon, Walmart, IBM, and others on Fast Company's 2008 list of the 50 most innovative companies. Prosper was also Time magazine's #1 website of the year in 2006 and one of the 50 best websites of 2007. At the 2008 Retail Banker International Forum, Zopa won the 'Most Threatening Non-bank Competitor.'

So, here's the question - if they win are they going to reuse the speech from their 2008 Webby?

Prosper eliminates defaults

In a site update today, Prosper eliminated all defaults - well, they renamed them. Defaults will now be known as "charge-offs". As reported on their blog:

"We are changing the way we display seriously delinquent loans on the marketplace performance page, renaming “Defaults” as “Charge-offs”, and moving the “4+ months late” loans into the “Charge-offs” category. We want to have transparency in the reporting of our marketplace’s default rate, and this change should help lenders take a more direct measure of the market’s charge-off rate. This change is the first step in a larger change we will be making in the way delinquent loans are displayed in lender portfolios."

In addition, Prosper will now allow some new lenders to make loans with PayPal and credit cards. Borrowers can invite family and friends to bid on their loan. After clicking on the link in the invitation, new lenders can place their first bid via PayPal or credit card. This is an attempt to make the site easier to use for new members.

Prosper Releases Market Survey Results

Prosper just released their monthly market survey for July 2008. For the first time, the survey includes statistics showing how borrowers who list and get funded in the Prosper marketplace indicate how they plan to use their personal loans. Also noteworthy, the percentage of prime borrowers (borrowers with 720+ credit scores) hit an all time high in July, accounting for 47% of funded loans.

July 2008 Funded Loans

• Personal Loan for Debt Consolidation - 43%
• Personal Loan for Business Use - 25%
• Personal Loan for Home Improvement - 7%
• Personal Loan for Education - 3% (Fynanz is trying to own this niche)
• Personal Loan for Auto/Vehicle - 3%
• Personal Loan for Other Use - 19%
  

Last year, soon after Lending Club launched, Lending Club released similar statistics showing their "smart" borrowers were requesting most loans for debt consolidation or to pay of higher credit card rates.

Movie director promotes Lending Club (again)

Chris Barrett, film director and award winning movie producer, just published a book called Direct Your Own Lifewhere he promotes Lending Club as one way to finance your dreams.



Last year Chris Barrett won $3,000 in Lending Club's video contest. Chris Barrett's video, complete with an actual script and actors, shows a girl who is getting her Paris Hilton news through magazines instead of the internet since her laptop broke. "I can't believe their putting Paris Hilton in jail," she exclaims to her friend who can't believe she's so behind the news. The friend suggests Lending Club to borrow the money and replace her computer.



Here is a short excerpt from the book where Barrett discusses Lending Club:

Still can't find anyone to invest in your project? Look online. Today, a new way to finance just about any dream you have is peer-to-peer lending. One company at the forefront of this innovation is called LendingClub.com. Instead of maxing out a credit card to start a new business, you can take out a loan from a group of people at a lower interest rate than you would pay to a credit card company or bank. All you need to do is post your loan request on the site so that potential investors can get an idea of what your project is. This arrangement is a win-win for investors and borrowers, because investors split up the investment so that any losses they might suffer will be small, which in turn causes the borrower's interest rates to be small as well. For example, right now, on LendingClub.com, a member needs $25,000 to start a DVD vending machine rental company. He has already had $24,300 invested, so he only needs $700 more before his loan is filled and he will be able to launch his company.

Academic article on Prosper published - Dynamic Learning and Selection

Seth Freedman and Ginger Zhe Jin from the University of Maryland have published an academic article on Prosper called Dynamic Learning and Selection: the Early Years of Prosper.com.

Freedman considers the article a preliminary draft. Since first publishing the article they have already made a couple minor changes to the abstract and the introduction with an effort to to stress that the rate of return they calculate is the expected rate of return as opposed to the realized rate of return.

Abstract - Dynamic Learning and Selection: the Early Years of Prosper.com
This paper studies a new business model on the Internet. Prosper.com, the first peer-to- peer lending website in the US, matches individual lenders and borrowers for unsecured consumer loans. Since its inception in February 2006, Prosper has attracted over 500,000 members and has originated loans of over $100 millions. How do individual borrowers and lenders behave in this new marketplace? On what ground can Prosper survive the competition with traditional banks? Is Prosper positioned to replace the traditional lending market or serve a market that the banks have missed? We attempt to address these questions using the full transaction history since the birth of Prosper.com.

Compared to the traditional market, Prosper decreases operation and search costs, but may face information costs associated with anonymous online interaction. To overcome the information problem, Prosper has implemented a number of policies over the past two years. Our primary goal is to document the dynamics on both sides of the Prosper market, while accounting for changing Prosper policies and the macro environment.

We have several findings. On the borrower side, we find that the overall observable risks have worsened over time for the pool of listings. While part of this change is driven by the macro environment, Prosper policies are effective in countering this trend, especially for the sub-prime credit grades. On the lender side, we find that the risk perception that lenders apply to key borrower attributes is by and large consistent with how these attributes correlate with the loan’s ex-post performance, but there are significant exceptions. Over time, lenders exhibit significant selection and learning. This learning includes better understanding of the risk of low credit grades and group member loans.

Overall, we conclude that Prosper is evolving from a comprehensive market toward a market that primarily serves borrowers who have access to traditional credit. Using the estimated relationship between loan attributes and loan performance, we estimate the rate of return that a fully rational lender could expect if he can perfectly predict the probabilistic distribution of loan performance conditional on these attributes. If Prosper loans continue to perform according to what we have predicted from their existing performance, this average annual expected return on the funded loans will be approximately 6%. This return has varied by time and has been increasing as the composition of the funded listings shifts toward better credit risks.

Please see details about the empirical methods and assumptions in the full paper. Freedman said they will update the article with more current information later in the summer. The current data set used runs through the end of 2007.

Prosper Lending Review - the year in review

Happy birthday to Prosper Lending Review! We have been blogging for over a year now. In June 2007 my brother Matt told me about Prosper, a P2P lending site, that he had been funding loans on for about a year. I was immediately intrigued. On June 15, 2006 we launched Prosper Lending Review – a blog about the P2P lending marketplace with a focus on Prosper lenders.

Since then we have watched Lending Club grow, GlobeFunder launch, Virgin Money purchase Circle Lending, Zopa move to the U.S. and Fynanz launch. We expect to see Loanio launch soon and keep watching Canada to see if CommunityLend or IOU Central will open their doors. It's an exciting time for P2P lending and we are happy to be part of it.

Here's a look back at the past year. These are the most popular articles on the site as measured by the number of unique visitors.

• A Prosper scam: The story of Jessica Wolcott
• Revolution Money Exchange offers $25 sign-up bonus
• How does Prosper compare to other investments?
• Prosper: A hands-on education in risk management
• Why does Revolution Money Exchange require my social security number?
• Borrowing money to lend on Prosper: Wise or Foolish?
• When to bid on Prosper loans
• Why would a borrower use Prosper instead of a bank?
• Fynanz to tackle peer to peer student loan niche
• P2P Lending Review: Best of 2007
  

These are the top 10 referring blogs and forums over the past year.

• Prosper's official forum - The official forum was a great source of traffic before it closed in November 2007. The archived forum can be found here. I do not receive significant traffic from the new forum.
• P2PNoBank - blog aggregate run by Rateladder
• Prospers.org - great unofficial forum and wiki
• Prosper Report
• Rateladder
• Personal Loan Portfolio
• Lazy Man and Money
• Ted's take
• Lending Club's official blog - I have written a few guest posts for Lending Club.
• Prosperousland

What are people looking for when they come to Prosper Lending Review from Google? Here are the top 10 search terms driving traffic from search engines:

• prosper lending
• revolution money exchange
• prosper review
• loanio
• prosper blog
• revolution money exchange scam
• fynanz
• jessica wolcott
• prosper scam
• prosper lending review

Again, it's an exciting time for P2P lending. Stay with us over the coming weeks and months as we continue to follow the P2P lending marketplace.

Prosper referral program ends

Since announcing their referral program one year ago, Prosper has grown from about 300,000 members to nearly 800,000. Under the bonus program, both the referring lender and the new lender received $25. Over the last year the program has been modified several times. In addition, the program has been extended past several deadlines. According to Brad Prescott, Prosper's Director of Marketing, existing referral links will not generate referral payments for referrals that occur after 11:59PM PST on June 30, 2008.

Those that signed up prior to June 30th will still receive the $25 bonus when they fund their first loan. Prosper is expected to announce a new referral program this month with the goal of working directly with a few dozen, quality referral partners as opposed to hundreds of partners operating under a "one size fits all" approach.

Referral programs have been used by most peer to peer lending companies to grow their user base.

• Lending Club started off with a $5 referral bonus which they eventually increased to $25. Their program was halted in April 2008 when they entered their quiet period to register with the SEC. In addition, Lending Club briefly offered a 5% bonus to large lenders. It is expected that Lending Club will restore their referral program, perhaps in a different form, when they open again.
  
• Fynanz just announced a $25 referral bonus program with a 3-5% bonus to large lenders.
• Although it is not a peer to peer lending company, Revolution Money Exchange also has a $25 referral bonus program which has been very popular with our readers.

Although Prosper has announced that their referral program ended on June 30th, I received an email confirmation for a new referral generated on July 1st. This is no different than email confirmations generated prior to the end of the program and confirms a bonus will be generated if the new user becomes an active participant in the marketplace within the next 90 days. The Prosper referral page is unchanged and still allows you to invite friends with the same wording indicating a bonus will be awarded. Despite the deadline, perhaps it is not too late to sign up for the bonus. Prosper would be unwise to terminate awards until they make clear changes on their website, stop sending bonus confirmation emails and stop serving $25 bonus advertisements.

Why should I turn to peer to peer lending?

There has been so much talk in the past two or three years about peer to peer lending and its advantages and disadvantages. We’ve talked to countless people on both ends of the equation and have found the advantages overwhelmingly outweigh the disadvantages. There has been chatter that this is going to be the next big movement in the world of finance and a great way to help someone out and make a bit of cash on your own. Here are a few reasons why you should consider this emerging financial resource:

1. The lenders have great flexibility. As a lender you’re not making the loan, rather you are purchasing a part of the loan. You can get into a loan for as low as $25-$50. Accordingly, you can limit your risk by creating diversity through the purchase of many different loans. Prosper will put the loan out for bid and when there are enough lenders the loan is granted.
2. It’s a win-win situation all around. Everyone makes out in the peer to peer loan experience. The lender can sometimes see a turnaround of up to 15% on their investment. The borrower is granted the loan they were seeking and usually pays smaller interest than on a loan from bank because there is less overhead involved. A company like Prosper makes money as it takes a small percentage of the loan cost. Doesn’t this sound refreshing compared to the sour taste left in people’s mouths when dealing with the banks?
3. Lending is making you the bank. As the lender you are the bank and you get paid for taking the risk of lending money to a borrower. As you begin to get paid back you can choose to spread your money to new loans or you can simply withdraw your money. There is more risk involved in peer to peer lending than a guaranteed investment like a CD, but you can diversify your loan across risk classes and have a better chance at seeing a greater return.
4. Peer to peer lending is here to stay. This emerging market has enticed investors from all different walks of life and financial backgrounds. As we’ve already discussed there is risk involved, slightly more than stable money markets but you can also see your small investment grow. Prosper has been advertising that the average return is between 8 and 12 %.
   

This guest post was contributed by Heather Johnson, who writes on the subject of amex canada.