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Lending Club Has Another Strong Month and the Turnaround Begins at Prosper

by Peter Renton on March 29, 2013

March was an interesting month in many ways. Lending Club jumped out of the gate fast and then glided to another record month. But the bigger story this month as far as numbers go was Prosper. They were up 68% over last month as it looks like the promised turnaround has begun. Before we dig into that, though, let’s take a look at Lending Club.

Lending Club Issues $127.6 Million in New Loans

We have come to expect this from Lending Club. In the first eight business days of the month they issue $76 million in new loans (almost $10 million a day) and then the hectic pace slows in the second half of the month. They ended the month just $7.5 million more than February, their smallest monthly gain in four months.

This was part of the plan according to CEO Renaud Laplanche. When I spoke with him earlier in the month he said that there would be more measured growth in March after the huge gains of the previous two months. No doubt they need to take a breather as they continue to rapidly add staff. They now occupy two full floors of their building in downtown San Francisco having just recently added the floor below. Despite doubling their space Laplanche said they would need more space by the middle of the summer as they continue their rapid growth.

Looking into the numbers Lending Club issued a record 8,273 loans in March with an average loan size of $15,428. This average was down slightly from February but is still the third highest on record as they continue to originate more of the high dollar loans. As I mentioned a couple of weeks ago Lending Club are having trouble keeping the loans on their platform very long. Despite this huge loan volume the number of loans available at any one time was under 500 for most of the month and many loans were being snapped up in minutes.

Below is the always impressive 18-month loan volume chart for Lending Club. The black line is the three month moving average.

Lending Club 18-month loan volume through March 2013

 

Prosper Has Their Best Month Since October Issuing $15.1 Million

Last month many were writing Prosper’s obituary. They had their worst month in over 12 months and their first ever (for Prosper 2.0) year over year volume decline for a month. It was a horrible month any way you slice it. But in March they have turned things around.

When I chatted with Ron Suber, their Head of Institutional Sales, in late February he predicted that Prosper would do $15 million in loan volume in March. At the time I thought that was a little optimistic given February’s $9 million number. But we can all see he was right. When I chatted with him again yesterday he said there has been strong institutional investor demand but increased volume from retail investors as well.

That last point was surprising to me. Given that there were problems with Automated Quick Invest last month and the fact that Prosper removed investor bid data I would have expected retail volume to be down substantially. But Suber pointed out that there was a great deal more loan inventory for investors to choose from than in previous months and that helped drive the increased volume. And because we no longer have bid data we have no idea how much Worth-blanket2, Index_Plus or any of the other big investors did in March. But we do know that overall investor interest was way up.

I had a great conversation with Aaron Vermut yesterday, who is starting in his new role as the President of Prosper on Monday. One of the things he stressed to me is that he wants Prosper to be more open and communicative to investors from now on and he will be leading that charge. He also talked about some upcoming changes that are about to be announced such as increasing maximum loan size to $35K, the launch of a whole loan program and improved collections.

With all these changes I expect Prosper will be able to keep the positive momentum going. I am pretty confident that April will be a record month. Below is their 18-month chart.

Prosper.com 18-month p2p loan volume chart

{ 21 comments… read them below or add one }

Dan B March 29, 2013 at 11:46 pm

I’m not that surprised that there was an increase in retail investor investing at Prosper this month. Sometimes it’s real easy ( & understandable) to overestimate the importance of online conversations, complaints etc. & forget that at the end of the day all of that added together doesn’t add up to as much as we think it does……………..since we here, collectively represent a pretty small percentage of all retail investors at Prosper.

On another matter,………….I haven’t looked at the numbers yet, but is it true that a substantial part of the Prosper increase this month was due to a sharp increase in the average loan size?

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Dan B March 29, 2013 at 11:49 pm

Peter…….Wow, thanks for adding the “edit” & “delete” buttons!

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Peter Renton March 30, 2013 at 5:53 am

You are welcome. I know many people, including yourself, have been asking for this for a long time. I have hired a new Wordpress guru who found a plugin that didn’t conflict with anything and seemed to work well.

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Peter Renton March 30, 2013 at 5:51 am

Good point Dan. As much as I like to think of my blog and forum as the center of the p2p lending universe only a small percentage of investors read it. I expect most investors don’t do a whole lot of research and invest manually. So, if they see more loans on the platform they will invest more.

You are correct in assuming the average loan size was high at Prosper – it was a record $9,982. But even with that high total Prosper issued more loans at 1,514 than any month since October and the number of loans was up 57% over February.

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Dan B March 30, 2013 at 6:21 am

Well that’s good. The increasing of average loan amount was one of two things that I had recommended they implement asap in order to increase volume. Of course I made those recommendations over a year ago. I’m glad they finally (& I suspect independently) reached the same obvious conclusions & acted on it.

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Dennis March 29, 2013 at 11:54 pm

The reversal in March with Prosper is impressive. Maybe this new management team has teeth (I hope). As a retail investor though I’m having great difficulty finding enough notes to invest in that meet my criteria. Unless you’re ready to execute at the exact minute notes hit the platform (you have to be really fast), you’re left with only poor ones to choose from. I’d grow a heck with of a lot faster with Prosper if there were better choices, hopefully this new management team will improve on that. Congratulations Prosper for a great month.

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Peter Renton March 30, 2013 at 5:58 am

Dennis, If you happen to be trying to invest in the same loans as Worth-blanket2 then you will be out of luck as they are now taking 100% of the loan. However, there is a whole loan program coming very soon at Prosper that will be implemented in a similar way to Lending Club.

Prosper will be taking a random portion of new loans and making them available to whole loan investors. Why is this good news for retail investors? The main reason being is that large investors will be limited to 75% of the loan amount for any loan on the regular platform. This should give average investors a chance at the loans they want. I will be covering this in more detail when this feature is released.

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Dan B March 30, 2013 at 6:22 am

Now that is very good news for retail investors.

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Dennis March 30, 2013 at 3:17 pm

That’s great news. I’m trying to be patient with Prosper but it is difficult at times. I have to keep reminding myself that P2P is still in its infancy.

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Dave S April 10, 2013 at 7:30 pm

I just found this blog. I’ve been investing in Prosper from the start and transitioned to Lending Club when they came out. I had a net loss on Prosper tho money is still tricking in. On LC I only have a few loans passing my screening each day. The nominal yield (their calculation) is 13.3% and the net yield recently rose to 8% after being as low as 7.7% or so. I am transitioning from $25 to $50 loans to keep the volume down. I’m concerned that both Prosper and LC do not do enough either in due diligence at the start or collections at the end. Too many borrowers initiate loans and then declare bankruptcy. That’s fraud to me. I’m also concerned about whales skimming the best and leaving the dregs for retail investors. Loans offered has dropped the last week or so. Any explanation? I do consider P2P a separate asset class. It should be a (small) part of a portfolio but not the whole. I believe all borrowers should verify income and/or have a co-signer. I put in a set amount each week. I DO NOT recommend anyone putting large sums in at one time.

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Peter Renton April 11, 2013 at 11:03 am

Dave, Many of the issues you bring up here are regularly discusses both on the blog as well as the forum. The trouble with doing more verification is that good borrowers can resist it, not bother with the verification requests and seek a loan elsewhere. Regarding collections and bankruptcies you should read my article about LC collections: http://www.lendacademy.com/the-collection-practices-at-lending-club/

As for the number of loans offered, this is a curious problem. Lending Club are actually adding about the same number of loans as they have been doing the last month or two, but they are just not staying on the platform long. There is huge demand from investors right now and many loans are being funded in less than a day.

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Dave S April 28, 2013 at 8:14 am

thanx Peter for your response. i also contacted LC. They are limiting the access by “institutional” investors. They suggest once loan portfolios exceed 800 or so start increasing average loan amounts. They also suggest not adding too many screening criteria – I’m taking a gradual approach on that one for now. At some time in the future when LC goes public those in excluded states will be able to participate.

Roy S. March 30, 2013 at 9:46 am

“One of the things [Aaron Vermut] stressed to me is that he wants Prosper to be more open and communicative to investors from now on and he will be leading that charge.” So, what is the time frame for Prosper to put the bid data back up?

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Peter Renton March 30, 2013 at 10:10 am

I think you will be waiting a long time as I am sure you realize. Due to demands from their largest investors the bid data is likely never coming back.

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Roy S. March 30, 2013 at 12:03 pm

I am fully aware that the bid data is not coming back. It would just be nice if they were to remove “the amounts and dates of all lender member bids;” from their prospectus as well as their 10-K they filed dated March 18th and accepted March 19th.

My question to Prosper is how are we to verify “large investors will be limited to 75%?” Or that Prosper will really “be taking a [RANDOM] portion of new loans and making them available to whole loan investors?” We are simply being asked to trust Prosper at this point.

As of now, I still don’t know the people behind WB2 or Index_Plus. Of course, I haven’t tried looking into it either. Who they are is of little relevance to me; however, what the larger lenders are investing in and how much/what percentage of the loan they are taking is important. And that is the information I believe Prosper is trying to hide.

Good for Prosper’s loan originations being up, though. I’m still waiting to see how things shake out between the two before I invest any more money. But I’m glad some people are still confident enough to continue investing.

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Peter Renton April 1, 2013 at 8:34 am

There are ways to confirm that 75% is indeed the largets amount. You just watch the new loans added to the platform and see if there are any that have more than 75% within a minute or so of being on the market. You can see this in play at Lending Club. You will often see a small portion of the loans at 75% as soon as they hit the platform.

With a whole loan program Prosper has little incentive to allow investors more than 75% of a loan. They still want retail investors to be bidding on loans.

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Roy S. April 3, 2013 at 1:50 pm

Not sure if any of this is accurate or how the information is come by: http://www.prosper-stats.com/LenderActivity.jsp?sn=worth-blanket2

Assuming this information is correct, it appears to me that Prosper has hidden the loan information to hide that WB2 is taking more than 75% (and sometimes 100% of loans). Again, assuming this information is correct, I no longer trust Prosper. Take a look at the loan links, too. While they don’t specify the time the loans were put on the platform (another way they are hiding information/being deceptive), it appears as though WB2 is funding them to 100% quite quickly.

Peter Renton April 3, 2013 at 3:41 pm

This is true and has been covered over on the forum:
http://www.lendacademy.com/forum/index.php?topic=799.0

However, with today’s new website update Prosper also launched a Whole Loan program of their own and with it there is now a 75% cap on any one investor in loans on the retail platform. But like Lending Club a portion of the loans are held back for institutional investors who want to invest in whole loans. When I wrote the post about it this morning I didn’t realize the Whole Loan program was part of this update. It is probably worth a separate blog post.

taiganaut April 27, 2013 at 10:07 pm

“They still want retail investors to be bidding on loans.”

At a disadvantage compared to the big boys, apparently, given the data hiding. “peer to peer” my lily-white behind. The loss of bid data sank a major part of the strategy behind software I was writing, and the fact that it was done to kiss butt to big-money investors (I’m a random middle class investor) adds insult to injury.

And the fact that LendingClub is not legal in my state adds outrage to insult.

Mia March 30, 2013 at 11:30 am

Worth reiterating, though, that on LC the number of loans available to fractional loan investors is actually flat to slightly lower since the implementation of the Whole Loan program.

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Neal S. April 1, 2013 at 10:49 am

Well, I hope they hurry with the whole loan program. I’m trying to be patient, but when you are new and you make a bad first impression (removing the 90% limit), you need to recover quickly or you lose customers (retail lenders).

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