P2P Lending News

It started off innocently enough with a post on the Prosper blog entitled “All sorts of people looking for loans on Prosper.com“, featuring alongside a police officer and a desk jockey, a borrower wanting to buy a camcorder to “expand further in the adult entertainment industry”. I’m sorry… a what? Really?

Well, apparently, yes, the borrower really is an adult entertainment professional (later shortened to “porn star” in a followup post), and she really was requesting a second loan from Prosper. Her first loan for a candy vending business back in April 2008, can be found here.

So Prosper, newly relaunched under SEC oversight, and eager for a followup to their Twitter contest, jumped at the opportunity. We hooked a porn star! the all-porn star post seemed to shout. Authored under the pseudonym “Prosper Pink” (complete with Twitter account and Facebook page), Prosper tackled the feminine side of P2P lending, strutting across the wide line that separates financial services from pornography, and wondering aloud why they couldn’t get a little “financially sassy”.
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Although the service is only a few years old, Twitter marketing is nothing new. First there was Ashton Kutcher’s race to a million followers. Nothing in it for the followers, but boy did the media swoon. Copyblogger gave away an iPod Nano, SmartyPig gave away $100 to people who could answer their Twitter questions, and Zappos gave free shoes to whoever would re-write their (self-admittedly) boring customer service messages.

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What is it about social lending that inspires people to write music and create videos promoting their favorite services? Okay, sometimes it’s just cold, hard cash, as in Lending Club’s $3,000 or Zopa UK’s £500 prizes for the top video posted on YouTube, or it’s a trip around the world, as with Zopa Italy’s launch-focused Zopacontest. But other times, it’s just creative folks with a little extra time on their hands who want to promote their favorite site.

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It’s hard to read TechCrunch anymore without seeing MicroPlace ads claiming you can earn up to 6% on your money. The microlending outfit backed by eBay launched 18 months ago as the first online microfinance platform that provided a return to investors, and has gradually brought on higher and higher-yielding partners over time. Initial returns were in the 1-3% range, then the highest investments crept up to 5% returns. Now there is a partner offering 6% returns. Kiva, the first microfinance platform available to consumers, does not pay interest to lenders.

MicroPlace breaks down the investments available on their site into three return buckets:

• <1% return – 1 investment (Habitat for Humanity)
• 1-3% return – 77 investments
• 4-6% return – 3 investments

So with only 3 investments in the 4-6% range, MicroPlace’s investments are still heavily weighted towards a 1-3% return.

In fact, if you’re looking for a 6% return, there is only one investment. Your only option is a 45 month investment to “extremely poor” borrowers in Nicaragua. Which is not necesarily bad, except that you might expect a few other options. Not to mention that the black woman featured in the advertisement suggests a different continent altogether.

That said, a 6% return is nothing to sneeze at, especially in this economic condition, and it is exciting to see microfinance start to offer real returns to investors. Hopefully MicroPlace can continue to attract more MFIs that will make that promise of 4-6% returns more widespread.

Affiliate marketing is the practice of paying other people to do your marketing for you. It’s quite common on the web, and P2P lending is no exception. Prosper (whose program is now suspended) and Lending Club have had programs for a while, and now Pertuity Direct has launched their own.

In the beginning, Lending Club had a simple pitch for members: bring your friends and we’ll give you $5. Your friend had to provide a name and email address, and you got $5. Easy money.

Probably a little too easy, because in late 2007, Lending Club changed the rules of their referral program to reward you and your friend $25 if your friend submitted a loan application, or became a lender ($50 if they transferred more than $1,000).

After re-opening their site late last year, Lending Club switched from a home-brewed program to an outsourced program with Commission Junction, and started paying affiliates $35 to $40 per loan application.

Now Lending Club seems to have a new program for existing members that looks a lot like an Amway multi-level marketing scheme. Just invite your friends, and earn $25 when they borrow. Then they invite their friends, and you still earn $15. Then the friends of your friends’ friends join, and you earn $10. In their example, if you invite 5 friends, and they invite 5 friends, and those people invite 5 friends, you earn $1,750. On the lender side, Lending Club pays $50 per new lender. It’s unclear whether they require a minimum amount to be committed, although they must.

Lastly, Lending Club has added a feel-good twist, offering referrers the opportunity to donate their earnings to the charity of their choice. The current list of charities includes  the United Way, the American Red Cross, the American Cancer Society, The Nature Conservancy, Habitat for Humanity, the World Wildlife Fund, and Doctors Without Borders.

Pertuity Direct just recently launched their affiliate program, and has a payment structure similar to an earlier Lending Club setup: $35 for each approved borrower application ($40 if >10 per month), and $50 for each new lender application ($60 if >10 per month). The program is set up through Commission Junction.

Since it’s not a true peer to peer lending site (lenders are basically investing in a mutual fund of borrower loans; not choosing borrowers directly or setting rates), Pertuity Direct is probably using Commission Junction because they don’t already have the infrastructure to support payments. CJ is an expensive proposition for advertisers, though. The maintenance fees can eat up between 20-30% of the program’s cost, so if you can roll your own, you can save a lot of money (or pay it out to the publishers). We’re eager to see how these marketing models evolve over time.