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2011 Was a Phenomenal Year for P2P Lending

by Peter Renton on December 30, 2011

Well 2011 certainly went out with a bang at Lending Club and Prosper. Both companies posted another month of solid loan volume increases and their combined total crossed $40 million for the first time. This compares very favorably to the $16.6 million combined volume for December 2010.

The total dollar amount for all new loans funded at Lending Club and Prosper in 2011 was $332.5 million up from $153.3 million in 2010. It will be very interesting to see whether this more than 100% growth can be maintained in 2012, while at the same time providing continued great returns for investors.

Lending Club Issues $257 Million in New Loans in 2011

The world’s largest p2p lender had another record month registering new loans in excess of $31 million in December. This brings their total in new loans in 2011 to over $257 million. This is up over 100% from 2010 when they did $126 million in new loans.

At one stage this month Lending Club had over 1,200 notes available for investors. They really made a big push to attract borrowers in early December that really helped drive this month. They went down from over 1,200 notes on December 7th to under 300 notes after Christmas. The average loan size in December was also a record at $13,678 and that will likely get even higher in January if their new “no fee” policy on loans over $20,000 continues.

It has been quite the year for Lending Club. There have been many milestones in 2011 that Renaud Laplanche, CEO of Lending Club, summarized in an email:

  • In February we launched loans up to $35,000 — allowing borrowers to view us as an efficient alternative to fund projects that previously required home equity loans.
  • In March we launched LC Advisors and our two private funds which have now attracted over $75MM in investment capital.
  • In May we moved into our new home in downtown San Francisco, appropriately sitting between Schwab and Twitter, and allowing us to host meetings with our strategic partners.
  • In August we took on a new equity investment at a substantially increased valuation via a round lead by Union Square Ventures –one of the most well regarded Venture Capital firms in the country.
  • In September we announced Peter Thomson of the Thomson Reuters family as a cornerstone investor in our new Conservative Consumer Credit Fund.
  • Closing out the quarter we were honored to be recognized with several prestigious awards, including being selected as a World Economic Forum Technology Pioneer and named to Forbes’ America’s Most Promising Companies List.

The chart below reflects the kind of year that Lending Club has had. Since February the numbers have just gone straight up and the three-month moving average (the black line) continues to steepen.

Lending Club p2p loan volume Dec 2011

Prosper Has Annual Growth of Over 178%

When Prosper started out the year things looked very different. They had just moved away from the auction platform to a fixed price model and there were very few loans on the platform. In January 2011 the total loan volume was just $3.3 million. Fast forward 11 months and we have a very different picture. This month Prosper recorded new loan volume of $9.5 million.

Worth-blanket2 had their biggest month ever since they came on board in May. According to Lendstats they invested over $4.3 million into Prosper this month, almost half the total loan volume. The next largest investor, as far as I could tell, was Managedfund who invested just $150,000. Obviously Prosper would prefer not to rely on just one major institutional investor but that was the reality in December.

As you can see in the chart below the black line (the three-month moving average) has moved steadily upwards every month of this year. With two funding rounds in the books Prosper is very well positioned entering 2012. When I reached out to Prosper for an official comment about their year this is what they said:

“Prosper has had a tremendous year of annual growth of more than 178%,” said, Chris Larsen, co founder and chief executive officer of Prosper. “I believe the growth we’ve seen on Prosper.com, and in peer-to-peer lending, is proof that borrowers and investors are looking for a better way of banking. Borrowers want an easy way to access affordable capital and investors want direct access to high-yield, risk-adjusted returns. P2P lending represents a win-win for both sides of the marketplace.”

Prosper chart showing p2p loan volume through Dec 2011

One last point about loan volume. from their inception through the end of 2011 Lending Club and Prosper have issued $749.8 million in new loans. On the first day of 2012 they will no doubt cross over $750 million.

{ 11 comments… read them below or add one }

Dan B December 31, 2011 at 5:48 am

So except for their largest institutional investor, all of Prosper’s other investors combined (including any new signups last 6 months), are investing about the same amount of money per month today……………..as they were investing (per month) 7 months ago. Even with the constant investor cash bonuses & free iPads, etc. That’s interesting.

Reply

Peter Renton December 31, 2011 at 6:44 am

@Dan, One could certainly look at it that way. Although December is a strange time for many companies and in the preceding months the trend was certainly moving higher for all investors other than WB2. I expect in January we will see vast improvement from the rest of the Prosper investors.

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Roy S December 31, 2011 at 10:35 am

@Peter, I think at this time it would be nice to revisit with LC and Prosper their projections on the monthly loan volume needed for them to reach their respective breakeven points. The whole “on-going concern” issue isn’t going to go away any time soon; not until they can prove to be profitable. For investors, this uncertainty can be keeping a lot of money on the sidelines until there is proof that LC and Prosper will be around in the next 5 years. VC can only keep them afloat for so long. Profits would be nice to see!

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Roy S December 31, 2011 at 11:03 am

Also, I would like to know their perspectives on the costs and regulations to offer other services, specifically banking services. For me, it would be more useful to have quicker access to my money (both for investing and withdrawing) instead of waiting for the transfers to process–I know $500+ deposits are available immediately for investing; I just want a more seamless transition between all my accounts to allow for greater liquidity. If they offered checking and savings services, I would be more inclined to utilize their services and invest greater amounts. Instead, I feel like whatever money I invest is basically trapped within the Prosper system. Yes, I’m more than likely to reinvest than withdraw funds held on Prosper’s platform (unless I am in need of emergency cash flows), but I am also less likely to invest more money into Prosper since it’s less liquid and difficult to transfer back into my bank accounts. It’d be nice to have the money flow immediately back into an interest bearing account if my savings starts to drop below my safety net amount and be able to transfer any into my day-to-day transactions account (i.e. checking account). Or maybe I just want to invest $250 immediately and not transfer a full $500. I may be the exception (especially since I am rather anal with keeping track of all my finances online), but I think there might be others who would also find these services of some use. Even if it is not something that would happen in the immediate future, I would prefer them to at least keep the option on their radar for sometime in the future.

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Charlie h December 31, 2011 at 11:55 am

@RS
I would be very surprised if LC tried to get into those kinds of banking services. They are not profitable, they are expensive from any overhead standpoint and I doubt they would drive that much more retail investor capital.

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Roy S December 31, 2011 at 1:35 pm

@Charlie, You’re probably right, but it never hurts to ask.

I am, however, interested to know what overhead you’re talking about. In my view, there would be no B&M branches. I do practically all my banking online. The nearest branch for my bank is about 1,000 miles away in a state I’ve never visited–I’ve never been inside one of my bank’s branches, not even to open up my checking and savings accounts! Any checks I need to deposit (which happens maybe 4 or 5 times a year at most), I mail to them. All my statements are electronic. The only reason I would need to go into a branch would be to take out a loan (something I would have liked to have done when purchasing my home but couldn’t), which just happens to be something Prosper and LC only do online. I think the overhead costs could be rather minimal, but I’m not in the banking business so I don’t know all the administrative costs that would be associated with offering these services. Perhaps you have some insight/knowledge into what I cannot see from the outside looking in.

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Dan B December 31, 2011 at 2:46 pm

Roy……….These are not banks, they have no banking licenses, nor have I heard anyone at either company ever suggest anything of the sort that you”re inquiring about. You may know all this of course, in which case I just don’t see the relevance of bringing it up, lest someone else bring up life insurance, mutual funds or annuities as items they’d like offered too.

As for profits, Lending Club has been operating profitably for a few months now, had it not? . Prosper may be able to do that as well sometime in 2013 assuming they can get more VC money tossed into their money pit.

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Roy S December 31, 2011 at 3:14 pm

@Dan, You forgot to mention a coffee shop so we have somewhere to gather and discuss our Note picking strategy and as well as a comfortable place in which to manage our accounts! I understand they are not banks and cannot currently perform banking services. I also think that they do need to concentrate on their core service of p2p lending, and I don’t really see it happening within the next year. But I think that if they haven’t thought about providing banking services in the future, that they should at least keep the idea on a back burner. I think that it is more in line with their current business structure than other ventures, like insurance, would be at this point. I could be wrong on all of this, but it is at least something that would make Prosper more useful for my personal needs. Therefore, as I state previously, it never hurts to ask!

I don’t remember hearing that LC is profitable, and I haven’t really been paying too much attention to their financial situation. But if they are, then that is a good sign, in my opinion, for the industry as a whole. I hope you’re right!

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Peter Renton December 31, 2011 at 3:52 pm

Great discussion gentlemen.

@Roy, I think these kinds of services may come as p2p lending matures but I suggest it is several years at best. I would like to see a Lending Club/Prosper credit card, home mortgage, HELOC maybe even a checking account one day but as Dan points out this would require a major shift in direction from today, not to mention new licensing.

Which brings me to my next point. I think eventually p2p lending will be regulated in the same way banks are: by the Fed and OCC. When and if this happens it should be relatively easy to introduce banking services.

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Dan B December 31, 2011 at 4:01 pm

Roy S…………. I agree, if we’re talking long term.

As for the coffee shop, why not? Coffee shop sounds great. After all, ING Bank has coffee shops in major US cities & is opening up one in San Francisco. It’s true!
I’m sure that if we invite Peter along he can get us big discounts at a Prosper’s Cafe. And I can score some passes in SF for, shall we say, the evenings exotic entertainment. I’d give more details but wouldn’t want to offend any sensibilities :)

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Peter Renton December 31, 2011 at 4:56 pm

@Dan, I can see it now – in 2020 we will be able to nip in to our local cobranded Starbucks/Prosper branch and enjoy a caramel frappuccino while browsing new loans on our iPad 9.

@Roy, Lending Club are definitely nowhere near profitable based on their third quarter SEC filings, but they are “functionally at break even” meaning they could be profitable if they stopped the rapid growth and pulled back the marketing budget. Which their investors most definitely do not want them to do.

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