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A Record Month for Both Lending Club and Prosper

by Peter Renton on April 30, 2013

What a great month for the two leading p2p lenders. Combined they issued $160.4 million in new loans. This is a staggering 199% more than the total both companies issued in April 2012. We are used to seeing these record months from Lending Club but April was a huge month for Prosper as well. They passed $20 million for the first time and in just two month their loan volume is up 125%. Clearly the new management team has been driving growth.

Lending Club Issues $140.1 Million in New Loans

April was an interesting month at Lending Club. Investor demand was so great that they could not keep the loans on their platform. Despite issuing a record $140.1 million in new loans the number of loans available for investors at any one time hovered between 100 and 200 for most of the month. In fact a couple of times this month I noticed available loans slip below 100 which is the first time I have seen that since I started investing in 2009.

It was a bit deceptive to the casual observer and I had several emails from readers saying that the volume at Lending Club was way down. In the big picture nothing could be further from the truth. They issued 9,418 loans in April or 428 every working day. That is a huge increase in the number of loans, it is almost triple the number that were issued one year ago.

You may have missed it but Lending Club published an official blog post earlier this month about this huge surge in investor demand and what they intend to do about it. The growth doesn’t look like stopping any time soon. Below is their always impressive 18-month chart that shows their three-month moving average (the black line) heading straight up.

P2P Loan volume chart for Lending Club

Prosper Has a Record Month With $20.2 Million in New Loans

[Update: As this post was being published there was a new update on Prosper’s blog from president Aaron Vermut. I recommend everyone read that for a more complete picture of what has been happening at Prosper this month.]

Prosper is also on an impressive run as far as loan volume goes. Back in February they issued a paltry $9 million in new loans but since then they have been on a tear. So much so, that in April they were up 125% in just the last two months.

The average loan amount at Prosper also continues its steady rise. After hovering between $7,000 and $8,500 for all of 2012 since the management change in January the average loan amount has increased every month. In April it stood at $10,277 as Prosper issued 1,969 loans. I expect this number will continue to rise to probably become more in line with Lending Club’s average loan size of around $15,000.

One of the interesting things I noticed this month is that the average interest rate on loans at Prosper has started to drop. I noticed there have been more A-grade loans than usual and less of the D, E and HR loans that I like to invest in. In fact, today when I checked there were no loans whatsoever below a C-grade. This explains why my cash balance has been building up this month. This seems like a temporary blip but will be interesting to monitor going forward.

Below is their 18-month loan volume chart. The three-month moving average is trending back up again nicely.

P2P loan volume chart through April 2013

{ 22 comments… read them below or add one }

Simon Cunningham April 30, 2013 at 5:46 pm

Awesome, particularly for Prosper. :) Really want continuing competition in the market; we benefit in so many ways. Here’s to hoping the rise continues and the stage is set for a good conference in June.

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Dennis May 1, 2013 at 1:10 am

I’d be a little more happy for Prosper had I been able to participate in April’s record month. I’m finding it (still) impossible to add money to Prosper due to the extreme lack of loans available. And when I say extreme I mean zero notes to choose from at the higher risk grades most of the time.

I’m scratching my head as to how Prosper attained record volume when what I see so often is very few notes to choose from. I realize that many get fully funded in seconds, thereby leaving few on the platform, but even so, it’s just not adding up for me. I’m perplexed……..

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Peter Renton May 1, 2013 at 9:49 am

Dennis, If you read Prosper’s blog post you will gain some insight into how this record month happened. The whole loan program was responsible for $5.8 million in loans. Prosper is also responding to investor demand and the large investors must be demanding the lower risk notes. I am also finding it impossible to add money to Prosper because it is difficult to reinvest the cash that is accumulating. For investors like us who focus on grades D-HR it was a pretty lean month.

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Dan B May 1, 2013 at 2:36 am

There’s no question that in terms of volume this was a huge month for Prosper. I believe it beats its previous best month by an impressive $4 million or so. But, as has been pointed out, most of the record increase is due to larger average loan. If you look just a little bit deeper into the numbers,you will see that the total number of loans issued this past month………………though a record,………….it only exceeds the previous record (July 2012) by 8 loans. (1969 versus 1961).

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writing2reality May 1, 2013 at 7:55 am

Dan, I think you have hit the nail on the head. To me, as an investor, the number of loans processed is a bit more important than the total dollar value in volume of loans. Much easier to get an apples to apples comparison to see the number of borrowers being driven to the platform and making it through the loan process.

Same concept applies to those thinking they are still buying a $3 half gallon of ice cream at the grocery store…

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Danny S May 1, 2013 at 8:58 am

Dan B. I think thats a very valid observation.

Although its good to see the $’s going up, the # of loans is more important to me…. and while the # of loans did also see a healthy increase as compared to the past few months, its still not anywhere near where it “needs to be” in order to attract more investment attention from people such as myself.

At this point, I’ve basically turned on AQI, set it to some very stringent investment standards, and I’m auto-transferring a mere $150 a month into the account, and not even really monitoring things at Prosper anymore. Until things change and there is more serious diversity to choose from, I’ve decided its not worth the time for me to be actively involved in any way.

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Simon Cunningham May 1, 2013 at 9:15 am

Excellent point Dan. I didn’t realize the volume was simple increase in loan size…

That said, the very fact that Prosper funded a number of loans equal to the previous record is great news. Their number of issued loans earlier in the year were ugly and I am eager for their company to get momentum again.

I know we’ve had trouble finding good loans on the platform as of late, and I hope this changes, but we would not even have loans to fund if Prosper shuts its doors.

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Peter Renton May 1, 2013 at 9:44 am

I have a slightly different opinion here. While number of loans is important I think the total dollar volume is far more important. Why? Because Prosper makes money on dollar volume not on number of loans. And I would like to see Prosper get to profitability as quickly as possible so they don’t get left behind by Lending Club. And a good way to go this is to increase the average loan size.

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Bilgefisher May 1, 2013 at 10:57 am

Peter,

Your point is valid and I don’t believe that anyone is against larger loan amounts.

Its also important to remember retail investors are a big key to prospers profitability. The retail investor relies on number of loans available, especially since 28% don’t reach them and 75% of the available loan can be still taken in one bite.

The fact that the loans don’t reach my quick invest is proof that the number of loans is limited. I am happy to see the changes prosper made (especially with collections), but as long as my money sits idle, it means squat to me. I hope their borrower marketing push in May helps.

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Peter Renton May 1, 2013 at 4:28 pm

I am in the same boat as you – my Quick Invest is not finding many loans. But I should point out as Hippp387 says below, it is not so much the lack of available loans that is the problem, it the lack of available loans that you and I like to invest in. If we were A-grade loan investors right now we would be very happy with the loan inventory.

Having said that Prosper must know that they have skewed too far away from the high yield loans. As I write this there are only three loans available with a yield of more than 12% – all the C-E loans that were added this morning have been fully funded already. Prosper knows what is happening so I expect this drought of high yield loans will not continue for much longer.

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Dan B May 1, 2013 at 2:23 pm

I completely agree that at this point in Prosper’s life, it is obviously more important to achieve higher volume & I’ve said so on a number of occasions. It is just important to understand that almost ALL of the increase from the previous month was due to this larger loan size & to keep the record month in perspective……………….especially since the dramatic increase in loan size is pretty much a one time thing. I guesstimate that they should be able to add another $2k in the short to intermediate term to that average size & that’s about all.

Most of us want Prosper to succeed. But having said that (& I don’t want to make this into a big deal) I think that sometimes some of us here (myself included) have to remind ourselves that we’re not shareholders of Prosper or VC backers of Prosper. We’re just investors or “customers” of Prosper, if you will………………& the frustration that is heard here is by & large justified.

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Peter Renton May 1, 2013 at 4:35 pm

Dan, Your statement “that almost ALL of the increase from the previous month was due to this larger loan size” is simply not true as I am sure you realize. In March 2013 there were 1,514 loans issued and in April 2013 the number issued was 1,969. The average loan size went up just 3% between March and April.

What I assume you meant is that back in July 2012 Prosper issued 1,961 loans at an average loan size of $7,611 for a $14.9 million total. Comparing that month to April 2013 then, yes, you could make that above statement.

Investors should note that the average loan size has been increasing steadily almost every month since July 2012 and there was not a huge bump in that number last month.

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Dan B May 1, 2013 at 4:45 pm

I stand corrected. Your assumption was correct & that the comparison I made isn’t quite the same as the one I intended to make. Mea culpa.

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Fred May 1, 2013 at 11:36 am

Has anyone analyzed Prosper’s April data based on loan terms (3-yr vs. 5-yr)?

Prosper charges 4.95% closing fee on all 5-yr loans (all grades), while it charges as little as 1.95% on 3-yr AA-grade loans.

Since April data seems to indicate more AA- and A-grade loans, it would be to Prosper’s advantage to issue more 5-yr loans.

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Peter Renton May 1, 2013 at 4:49 pm

I have not done any analysis on April’s numbers but I can say at least anecdotally that I saw very few 3-year AA-grade loans being issued at Prosper last month. I think we can assume that the vast majority of loans were for 4.95% service fees. Now, I have no inside information on this but I expect revenue topped $1 million for the first time last month at Prosper.

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Hippo387 May 1, 2013 at 12:40 pm

If I’m reading some of the comments correctly, the big complaint on Prosper is not necessarily the number of loans but the type of loans available. In this forum, many investors are focused on the high risk D-HR loans. While I understand the strategy and invest in some of those loans myself, I’m not at all disappointed with having A- and B- rated notes paying 8-15%. If you want to make money consistently over the long haul, avoiding charge-offs may become more and more important, and 99% of my charge-offs have been D-HR notes (in 3 years I’ve never had an A-rated charge-off). I personally don’t think there’s enough historical data from P2P lending to say that the higher risk loans are “better” over a 5-10 year period. Chasing yield often ends badly, but this is just my opinion of course.

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Peter Renton May 1, 2013 at 4:51 pm

Well said. Even though I am one of those investors chasing yield. I am doing so fully aware of the risks involved.

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Fred May 2, 2013 at 6:40 am

I have had 3 A-loans charged off. :(

I think a lot of retail investors — especially in this Forum — are savvy enough and post-anecdotal. Investors had some kind tools to analyze reward vs. risk, and made decisions based on this analysis.

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Hippo387 May 2, 2013 at 6:53 am

Fred that’s a good point and I don’t base my investments on anecdotes alone (even though I made an anecdotal remark). However, there can be a false confidence among investors who use detailed risk/reward analysis and advanced modeling. The reality is no matter how advanced your risk model is, P2P is only a few years old and there is no way to predict 10-year returns at this point — there simply is not enough data, and even if there were it would not guarantee future returns. I know some will disagree with this and that’s fair enough. I guess my overall point is that there’s a lot of assumptions underneath the strategy and the complaints about available loans. I personally find it hard to complain about lending to higher quality borrowers at 10%.

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dontvote May 3, 2013 at 4:03 pm

I’m of two minds on this.

If p2p lending is having trouble finding enough borrowers for these interest rates, this will necessarily push rates down and reduce profits for investors (lenders) of all stripes, including us junior boy scouts.

On the other hand, the pool of potential unsecured lending is very very large still. I see these companies still competing at the fringes of this marketplace and not really directly with the primary source of unsecured lending (credit card companies and banks). Imagine a world where you pull out your lendingclub visa and the company looks more like a national credit union than anything else (I know, not *quite*).

My initial attraction to this investment wasn’t the transparency (what’s that) but the idea that we are compressing the value chain by reducing a middle man between borrower and lender. The profit savings that BAC (or whoever) loses is hared by the two parties meaning increased returns for me and decreased interest rates for ‘other me’. We still have a ways to go here but it’s certainly neat to see it happening. I just wish they could find more ‘other me’s that I can invest in.

dontvote

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CA-Lender May 17, 2013 at 3:26 pm

I noticed that Lend-Stats is no longer updating Prosper totals.

Is there another site that updates the Prosper lending data?

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Peter Renton May 17, 2013 at 8:33 pm

Lendstats has not been recording Prosper data for some time now. NickelSteamroller was recording some Prosper info but even that has stopped now after Prosper switched to the new API. I am actually working on creating some kind of widget myself that will bring some data in from LC and Prosper and display it in real time. Stay tuned.

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