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Lending Club Marches On and Prosper is Back on Track in September

by Peter Renton on September 28, 2012

We close out September with another solid month for Lending Club, although their rate of growth did slow down slightly from the breakneck pace of previous months. Prosper was back with a great month and between the two companies $92.9 million in new loans were funded. I think it is safe to say that in October we will have our first ever $100 million month.

Lending Club Finishes With $77 Million in New Loans Issued

After two consecutive months of $10 million increases in loan volume some of us were expecting an $80 million month from Lending Club. That was not to be but it was an excellent month nonetheless with $77 million in new loans, bringing Lending Club’s total loans issued since they began to $914 million. They are within shouting distance now of the $1 billion mark something that will likely happen on November 1st I expect.

When you dig inside the numbers you can see how busy the underwriters are at Lending Club these days. They issued 6,087 loans in September, well over double the number of six months ago. The average loan size dipped slightly to $12,654, which is the lowest level in the last year. This amounts to around 300 new loans every working day.

Below is the 18-month chart for Lending Club – the black line is the three month moving average.

Lending Club p2p loan history through Sept 2012

Prosper Back to Another Record Month with $15.8 Million in New Loans

Prosper finished the month with a flourish and are back into record territory with over $15.8 million in new loans issued in September. The new underwriting standards are starting to have an impact. You may recall that I mentioned last month the higher loan maximums now allowed for B and C grade borrowers – this change cause a record high in average loan size in September: $8,553.

The big problem for Prosper this month was the loan inventory. For most of this year Prosper has had 300-400 new loans available for investor at any one time. For most of this month it was 75-100 loans which is really not good enough. The investor interest in Prosper is strong, as demonstrated by their record month, but the loans are just not staying on the platform long enough. Many loans are fully invested in barely 10 minutes as many investors compete with the large institutional investors for the most popular loans. I spoke with Joe Toms, the chief investment officer at Prosper, earlier today and he acknowledges that they need to do much better here.

The good news is that this month one of my readers shared a new Prosper utility he has developed that allows anyone to run queries on the Prosper loan history. Since Lendstats went offline in July investors have had no tool to do any analysis. Why I am mentioning this here is that this tool allowed me to look at the loan volumes of the largest investors this past month. The landscape has certainly changed from three months ago.

Prosper’s number one investor, Worth-blanket2, had a typical month with $2.3 million invested in September. Index_plus has dropped back from their pace of a few months ago and invested just $498,000. The number two investor in September as far as I can tell was MI2, an institutional investor that just signed up in August but kicked in $638,000 in September. What is interesting is that the large investors are not taking up the lion’s share of the volume like they did 6-9 months ago – Prosper has a very diversified investor base these days.

Below is Prosper’s 18-month loan volume chart.

Prosper.com p2p loans issued through September 2012

{ 8 comments… read them below or add one }

Roy S September 28, 2012 at 11:24 pm

I agree 100% that Prosper needs to attract more borrowers to their platform. I think the demand is outstripping the supply. Had there been more loans on the platform, their numbers could have been a lot better. With another record month for them, it is nice to hear that their investor base is more diversified, too. Perhaps the institutional investors were having difficulty finding loans to invest in as well?

Peter, you mentioned that Mr. Toms acknowledges the issues with the dearth of Notes on the platform. Did he discuss what, if anything, Prosper is planning on doing to increase the availability of Notes on their platform?

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Peter Renton September 29, 2012 at 7:34 am

Roy, We did talk about that. They are going to be putting on a big marketing push in October to try and get more loans for investors. We will have to wait and see. But like you, I am finding it more difficult to put as much money to work at Prosper as I would like.

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Roy S October 10, 2012 at 2:34 pm

Well, October is a third of the way through, and I have yet to see this “big marketing push.” Nor have I seen it in the listing numbers. Probably doesn’t matter anyway. They are still sucking at originating loans as measured from the time the listing is fully funded to when it originates. So even if there were a big marketing push, they probably wouldn’t even be able handle it.

I’m also beginning to see that there is virtually no difference between the different Prosper verification stages, too. Perhaps they should just get rid of the verification stages, and just start listing the loans that can/will be originated shortly after they are fully funded. Below are my thoughts on how they should change their process:

Prosper should institute a policy where the borrower is required to get a certain amount of information to Prosper prior to their loan being listed (thereby getting rid of stage 1 loans). There should just be two verification stages. The first verification stage should be where the borrower doesn’t have all their documents into Prosper. The second verification stage should be where the borrow does have all their documentation into Prosper, and the loan will originate as soon as the listing is fully funded. Then there should be a time-frame for those listings in the first verification stage to get all their documentation into Prosper from when the loan is first listed–maybe try 5 business days from when first listed or when the loan is fully funded, whichever is later. Finally, Prosper should make a notification for any loans going through secondary checks (from either stage) signifying that they are trying to gather more information beyond what they originally asked for from the borrower–this should also be limited to 5 business days–as opposed to the borrower not having all their documentation in.

The only thing more irritating than waiting a week or more for a loan to originate is waiting a week or more for the loan to not originate. I think a more straight forward approach would be better. And removing a lot of the borrowers in the early stages would be beneficial to the investors. I just find it a little annoying that the number of loans currently pending seems to keep getting more numerous.

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Peter Renton October 11, 2012 at 8:16 pm

I think there are signs of some marketing. We got over 200 loans on the platform today for the first time in several weeks – that is certainly an improvement from the 80-100 loans we saw for a lot of September.

The verification stage is there to motivate the borrowers to get moving but it is a little strange when you have most of the loans that expire are still at verification stage 1 and there are some loans that get added at verification stage 3. It is not clear how it is working. But as you say I would rather have them working on cutting the time from funding to origination – that really should be just a couple of days.

I am going to put in another loan request shortly myself so I can revisit the whole experience from a borrower’s perspective. I will share here what I find out.

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Danny S September 29, 2012 at 5:43 pm

The simple answer to generating more demand for borrowers would be to lower interest rates for any given credit grade.

Of course that would also probably lower demand by investors…

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Peter Renton September 29, 2012 at 5:45 pm

While that is one way Lending Club has shown that it is possible to do both – increase interest rates and increase borrower demand. There average interest rates have been rising steadily for the past year and borrower demand has never been higher.

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Jamie October 3, 2012 at 3:13 pm

Lending Club and Prosper are much bigger than I thought they were. If Lending Club keeps growing like that it will start rivaling some of the bigger consumer banks!

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Yvan De Munck October 3, 2012 at 4:41 pm

Jamie,

Big is very relative here – I would argue it’s still peanuts vs. the wider consumer finance sector as a whole. Just to give you a sense of perspective. US consumer debt is a $ 2.4 trillion (yes, with a T) market, with credit card debt over $ 600 billion. With the whole p2p market in the US just now breaking $ 1 billion, and this after 5 years, it is, for all intent and purposes, still marginal. Then again, it leaves the industry with a massive growth opportunity for years to come, before any bank is even going to get nervous or even bothered by it. The size is just not (yet) there, which continues to be to our advantage.

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