Lending Club vs. Prosper, One Week In
Last Monday, after the SEC approved Prosper’s registration filing, the peer to peer lender opened its doors to borrowers in 47 states and lenders in 16 states. Lending Club, whose securities filing was a relative cakewalk through the Bush SEC, has been operating with regulatory oversight since October 2008, and showing some nice growth in the first half of 2009. So a week into the melee, how do the rivals stack up?
As of this writing, on the surface, Prosper is showing a strong lead, with over four times the available loan requests that Lending Club offers, 485 to 108. On the lender demand side, Prosper is also leading with 115 loan listings over 10% funded, compared to Lending Club’s 90.
Of course, Lending Club is more selective of its borrowers, and applying Lending Club’s borrower requirements to Prosper’s listings puts Lending Club in the lead, 108 loan requests to Prosper’s 98. Another detail in Lending Club’s offering is that loans that are 100% funded are taken out of circulation: there is no bidding, so loans go away once they reach the amount requested. When Prosper’s 27 listings that are 100% funded are removed, Lending Club has nearly a 50% lead, 108 to 71.
How did Prosper drag in so many borrowers so quickly after launch? Prosper has been operating since 2006, and they claim over 830,000 registered users. So it’s not hard to imagine that tapping a small percentage of their existing user base could generate a ton of listings. But the Prosper PR machine has also been hard at work, and appearances like the one below on MSNBC can’t hurt to bring in some high-quality borrowers like the ones Prosper will need to get through their new credit requirements.
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Ultimately, measuring listings is a bit of a fool’s errand. What will matter in the long run will be whether Prosper and Lending Club can draw enough borrowers and lenders together to create a real business for the social lending middlemen. And those metrics will only be comparable once Prosper starts funding loans. So far they have actually funded one loan for $3,500, but if it’s a loan to the CEO’s dad, does it count?
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Actually, matching borrowers and lenders is only part of the equation. Creating an environment that deals harshly (and transparently) with fraud and imposing aggressive legal action (when warranted) are also key to sustained success for Prosper.
Additionally, Prosper needs to undo the systematic damage it has done to its constituency of lenders during the past several years through poor customer service and a community management style that makes Darth Vader and Hannibal Lechter look like Mr. Rogers in comparison. An internal review of “corporate ethics” would also be a good idea.
Borrowers only come once or twice to transact with Prosper, but lenders are stuck for years and will potentially re-invest again and again, allowing Prosper to collect fees again and again.
So, who is the real customer here?