P2P-Banking.com

Zopa UK said it will introduce 'Young Markets' (Young36 and Young60) specifically for borrowers aged 20 to 25. The need for this arises from the fact that currently many applications are turned down - not because the borrowers have any negative marks on their credit history - rather they don't have sufficient history of debt.

Zopa will still check borrowers in this age group (identity, fraud, affordability, adress and employment). As long as they have no history of bad debt they will be approved for borrowing on the Young Market. 

The new young market segment will allow Zopa to advertise the service focussed on young borrowers, which are internet savvy and open to the p2p lending concept.

Source

On June 20th, Lendingclub.com filed a registration statement with the SEC to issue up to 600 million US$ in Member Payment Dependent Notes. The notes will be backed by loans and sold to lenders. The process for lenders remains pretty much the same as before the quiet period, only the legal setup will change to comply with regulation.

Link to SEC filing of Lending Club

Press release by Lendingclub regarding the SEC filing

Netbanker extracted some interesting data from the 100+ page Lendingclub filing. 

Globefunder's site got a new layout. It looks more structured and professional now.

Also it seems that Globefunder will open its d2c lending (d2c="direct to consumer") to individual lenders. Only in May an announcement of Globefunder sounded like under dtc lending the company would on the lender site be open only to institutional investors.

Now there are "Coming soon Lend Money to make money" signs on the new site. But it's not available yet. Clicking on them displays the message

We're sorry, that option isn't available yet at GlobeFunder.com. Please check back again soon, as we continue to make improvements to the site.

Since the new release, MyC4.com has encoutered repeated accounting problems, sometimes with wrong interest calculations, sometimes requiring correction of user account balances. 

Examples of incidents: 1, 2, 3, 4, 5

MyC4's staff has been quick to respond to the problems and usually is fixing them fast.
But I believe the issue here is, that p2p lending through a foreign internet startup requires a great amount of trust. And while lenders are used to bugs in new internet application, they do expect a high standard when it comes to accounting. After all no user of online banking would accept that he has to check the interest calculations made by the bank. 

The MyC4 team did a good job developing the platform so far and earned at lot of trust; but if the problems persists this might be an obstacle to further growth. 

Fynanz announced a lending bonus.

We're excited to announce that we're giving you and other lenders who lend $3,000 or more, a 3% Lending Bonus. That's on top of the great rates that you're already earning as a lender through the Fynanz Student Loan Marketplace …

Lending Bonus is earned on the aggregate amount you lend across all the loans you make, provided you have lent at least $3,000 in loans between May 15th and September 15, 2008 up to a maximum of $50,000 in aggregate loans

Lenders can earn an additional 2%, if they refer at least 5 new lenders, which each lend 50 US$ minimum.

In a recent "Tips for Borrowers" post, Fynanz says it added 700 more approved schools whose students may apply for a Fynanz loan.

DhanaX.com introduces p2p lending to India. Lenders can loan to borrowers that a screened by an "agent". The agents typically are small microfinance organisations, rural technology centers or non goverment organizations. One current example is the SOS Family Strength Organisation of Dr. Hermann Gmeiner. Since there is no established credit rating system in India, agents will check the ability of the borrower to repay the loan looking at 40 parameters like borrowers income, stability, occupation.

Some key facts on the dhanaX lending model:

• Lenders can either loan to a single borrower or diversify and fund multiple loans with small amounts
• Minimum investment for lenders is 1,000 Rs (approx 23 US$)
• Maximum investment per lender is 1 million Rs
• Borrower can borrow up to 20,000 Rs (approx. 460 US$)
• Fees: dhanaX charges lenders a 100 Rs sign up fee and 1.5% fee of the monthly repayments. Borrowers are charged 6.5% of the loan amount
• Only Indian nationals can lend, non-resident Indians can lend provided their bank account matches certain specifications

Siva Prasad Cotipalli and Prashant Mishra founded dhanaX using family and friends, prize money from a business plan competition and funds from an angel investor. They talk about the aspects of entrepreneurship in India in a "Making Of" video.

The Prosper study I featured yesterday lists the Prosper fees. While it does not attempt to calculate the revenues of Prosper.com it gives some indications regarding the operating costs:

According to Mendelson (2006), the primary costs of Prosper consist of …, (2) a $4 fee for identity authentication, credit pulling, and bank-account setup per active borrower, (3) customer service at the average rate of four interactions per loan and $2 per interaction, and (4) a fixed overhead cost of approximately $3 million per year. …

Given these estimates, it is difficult to measure Prosper accounting in precision. However, there is no doubt that Prosper’s revenue does not cover its full cost (as of February 2008). The difference is met by a large stock of venture capital.

Regarding the Prosper revenues, Mike did a calculation estimating the November 2007 revenues at 114,000 US$. If this is correct, it did not even cover fixed overhead.

Prosper changed fees since that last calculation.

Kiva did billboard advertising on highway 101. Apparently the ad was sponsored by Paypal.

Matt Flannery of Kiva speculates whether the board brings 125 additional visits per day to the website (0.04% conversion rate) or if user growth on the sampled weeks had other causes.

(Photo Source)

The new study "Dynamic Learning and Selection: The Early Years of Prosper.com" by Seth Freedman and Ginger Zhe Jin, both at the Department of Economics, University of Maryland analyses Prosper data in a time frame from April 19th 2006 to December 31st 2007.

The study analyses the development of the Prosper.com marketplace and how lenders refined their strategies as a result to own experiences and changed settings.

They write:

Overall, we conclude that Prosper is evolving from a comprehensive market to a market that primarily serves the borrowers who have access to traditional credit. This implies that Prosper will compete head-to-head with the traditional banks rather than pick up a missing market. Assuming away any cost in information processing, we estimate that the average rate of return of a Prosper loan is 6% if Prosper loans continue to perform according to what we have predicted from their existing performance. From the lenders point of view, this number compares favorably to 6-month certificate of deposit and 3-year Treasury bill, but less favorably to the rate of return implied by the S&P 500 in the same time period.

Other findings are that high interest loans yield lower returns due to high default rates and that the probability for defaults of Prosper loans peak at month 10 and the edge down.

The main uses of Prosper loans are:

33% of all previous Prosper listings have mentioned credit card consolidation, which is higher than the mention of business (23%), mortgage (15%), education (22%), and family purposes (20%) such as weddings.  

Cited from the conclusion chapter of the study:

The first two years of Prosper has enlivened the concept of P2P lending, but the road towards success is full of challenge. While it is tempting to expect P2P lending to alleviate credit rationing for near- or sub-prime risks, we find Prosper evolving from a comprehensive market toward a market that primarily serves borrowers who have access to traditional credit. This implies that Prosper will compete head-to-head with the traditional banks, rather than pick up a missing market. This pattern is not unique to Prosper. …

How can Prosper compete with traditional banks? Our study suggests that the microfinance approach, as implemented through Prosper groups, has failed to select good risks or enhance loan performance. But on the up side, lenders are learning fast about the pitfalls of P2P lending thanks to the transparency of Prosper. Our calculation suggests that, if the loans continue to perform as what we have predicted from the market performance, Prosper loans could yield an average return of 6%.

See related post on the Prosper blog.

A recent Bankrate.com article gives an update on the development of p2p lending in the US.

Chris Larsen of Prosper.com sees the current financial situation as a chance for p2p lenders:

Home equity used to be the cash management tool for the credit-worthy borrower, and that has really, really dried up. In many ways, Prosper's three-year, 25,000 US$ loan is a pretty good proxy for what people were using home equity for — improving their home, starting a sole proprietorship, college costs and certainly for replacing credit card debt.

Javelin Strategy & Research is quoted that credit card debt is the main reason people want to use p2p lending:

We're forecasting that P2P lending specifically for credit card balances will grow from 38 billion US$ in 2007 to 159 billion US$ by 2012

The final advice of the article is:

Prospective borrowers and lenders would do well to thoroughly research P2P companies before jumping at the chance for a lower rate on a loan or a higher return on an investment. …