P2P Lending News

Prosper Lending Review broke the news this morning that Pertuity Direct seems to have ceased operations. Apparently a special meeting of the board of trustees of the National Retail Fund (the mutual fund that underlies Pertuity Direct’s investment vehicle) was convened “to approve the liquidation and distribution of all shares of the fund”.

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Today the Credit Card Accountability, Responsibility, and Disclosure (CARD) Act of 2009 goes into effect. Although the changes included in this reform are good for consumers,  and eliminate some of the credit card industry’s most egregious practices, smart consumers shouldn’t finance their purchases by paying the interest to credit card companies at all.

Here are five reasons a personal loan from a peer-to-peer lending company are better than a credit card loan…
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Two months after their official launch, Pertuity Direct has issued a press release stating that they have enabled $500,000 in new loans to consumers.

Other statistics provided include:

• 70% of interested users follow through to open an account
• The average FICO score is 740 for approved borrowers
• The average loan size is $9,800

How does this stack up against other P2P lending sites? Prosper, who launched to the public on Feb 6, 2006, had funded $1.8 million by Apr 6 (according to Prosper’s statistics page). Lending Club, who is probably a better comparison due to their credit quality requirements, launched to the public on Sep 13, 2007, and had funded $1.2 million by Nov 13 (according to LendingClubStats.com).

Granted, the financial world is quite different today than it was two or three years ago. Investors’ portfolios have been decimated, and would-be lenders are more risk-averse than ever. We wish Pertuity Direct the best, but they’ll need to come with bigger and bigger numbers if they really want to succeed in the peer lending space.

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.

In a press release today, peer to peer lending site Pertuity Direct took the “beta” label off their site and started accepting new borrowers and lenders.

Pertuity Direct’s tagline is “mutually responsible banking”, and the “mutual” part of that tagline hints at their method. Rather than having lenders choose the borrowers they wish to finance, lenders invest in an SEC-compliant mutual fund, and Pertuity Direct chooses the borrowers who get funded.

Loans are available to borrowers whose credit score is 660 or higher. The rate currently advertised on the home page is 9.6% APR, and the full range of interest rates offered is from 8.9% to 17.9%, although there are no specific details on how rates are set. If approved for a loan, borrowers pay a 1-2% origination fee (depending on their credit score), and if they go late, borrowers will pay failed payment and late payment fees.

On the lending side, the minimum investment is $1,000, and lenders are investing in one of two mutual funds, which have estimated fees of 3.17%. To add a human element to the process, lenders can also contribute Pertuity Bucks (which are free) to a borrower’s loan, reducing the balance that the borrower owes.

From the company’s perspective, this provides the following advantages to their customers over existing P2P lending models:

• For borrowers, there is complete privacy. Pertuity doesn’t require the public posting of personal credit information or any other information about the borrower’s loan.
• For lenders, there’s no choosing of loans. An investor has the choice of two mutual funds (organized by National Retail Fund), and that’s it.

Pertuity Direct’s model is a big paradigm shift from what Zopa, Prosper, and Lending Club have done in the past. The mutual fund route lets Pertuity Direct avoid the regulatory pitfalls that have plagued the other sites, but with minimums of $1,000 and annual fees of 3.17%, it will be hard to attract lenders. On the borrowing side, things should be fine if Pertuity can accruately gauge the risk of their borrowers. We look forward to seeing how things progress for this innovative company.