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My Top Five P2P Lending Predictions for 2013

by Peter Renton on January 1, 2013

Happy New Year everyone. I hope 2013 is treating you well so far. On January 1st of 2012 I made five predictions for p2p lending in 2012, so now it is time to go back and review how I did. I will also make five new predictions for 2013.

Review of my 2012 predictions

  1. Lending Club will reach $1 billion in total loans – this was by no means a certainty as we started 2012 but I expected Lending Club would break this milestone in December. They did it a month earlier.
  2. Prosper will reach $500 million in total loans – Prosper ended the year at $443 million in total loans issued since inception, so I was a bit too optimistic on this one.
  3. Lending Club will post a profitable quarter – this one probably has come true but we will have to wait a while to know for sure. In the third quarter of 2012 Lending Club posted a quarter where they were cash flow positive and I expect they will carry that momentum over to the last quarter and show profitability for the first time.
  4. A third competitor will take on Prosper and Lending Club – I was completely wrong on this point as no real competitor emerged in 2012. Peerform are still around but they are only available to accredited investors and they were pretty quiet this year – they are not a direct competitor at this stage.
  5. More states will become available for investors – there was no movement here whatsoever as the number of states available to investors at both companies remained static.

My 2013 p2p lending predictions

So now we move to this year. I have a feeling that 2013 is going to be a great year for p2p lending investors. Returns will continue to be good and the industry will maintain the solid growth of the past couple of years. So, here are my top five predictions for this year. I will be sure to check back in 365 days to see how I did.

  1. Lending Club will issue $1.62 billion in loans in 2013
    I expect the incredible growth rate of Lending Club in 2012 (179% year over year growth) to slow down somewhat in 2013. Still, with investor money continuing to pour in and an IPO on the horizon I expect another stellar year. But I am predicting the growth rate to fall to around 120-125% in 2013.
  2. Prosper will issue $340 million in loans in 2013
    Despite a very rough fourth quarter of 2012 I expect Prosper to have a much better year in 2013 and their growth rate should increase over 2012. But they will remain a distant number two in the p2p lending race.
  3. The Prosper class action lawsuit is settled
    A class action lawsuit was filed against Prosper in November 2008 that has been dragging on now for over four years. I believe that in 2013 this lawsuit will be finally put behind us. If Prosper does not win the suit, I think it will be settled anyway. Either way, the matter should be put to bed in 2013.
  4. Peer to Business Lending Will Boom With at Least Five New Companies
    In the UK peer to business lending is booming, but in the U.S. there are still virtually no companies (aside from U-Haul) that allow individuals to lend money to companies on an easy to use platform like Lending Club or Prosper. I think that will change in 2013. While the JOBS Act will allow equity investing for the masses, I am only talking about debt – loaning money to businesses. I think this cousin of p2p lending will boom in 2013.
  5. Lending Club will release a bankruptcy remote vehicle for all investors
    With LC Advisors, Lending Club has had a bankruptcy remote vehicle for large investors for some time. But retail investors have enjoyed no such protection. I think with the recent approval of Prosper Funding LLC, Lending Club will provide something similar to all investors in 2013.

What do you think? Do you have any predictions of your own. As always I would like to hear your comments.

{ 23 comments… read them below or add one }

William January 2, 2013 at 12:20 am

I agree with almost all of your predictions. But I’m not sure #5 will happen. For #5 to happen there will need to be some pressure from investors and as priuspilot put it “99% of their retail investors have no idea about this issue”. So I don’t think LC will do it if there is no pressure from investors.

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Peter Renton January 2, 2013 at 10:16 am

William, I disagree. One of the first objections I hear from retail investors is about platform risk. Many people deem the idea of p2p lending risky because it is dependent on the continued success of the platform. Having a bankruptcy remote vehicle for all investors would bring in a lot more money and I would be shocked if something like this wasn’t in place before a Lending Club IPO. Prosper has proven it is possible to get approved by the SEC for this kind of thing so I expect LC will have already started this process.

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Dan B January 2, 2013 at 4:19 pm

William………….I have little doubt that you are correct in that the majority of retail investors aren’t aware of this issue.

Peter………….I have no doubt that a lot of the retail investors “you communicate with” bring up this concern. So both you & William can be correct on this issue.

What I think is the more important concern though is that those of us who are aware of this continue to highlight it as much as possible (in a calm manner) so that LC is encouraged to add this layer of protection for retail investors asap.

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Jburg January 2, 2013 at 1:42 pm

I believe Prosper will update their overall Platform and Pricing model. Not to mention the website in general. The Bankruptcy vehicle makes me wonder who it will ultimately benefit. Lending club, in my opinion, has better long term management and pricing. No urgency needed, to rush into a remote BKPT vehicle if platform has positive returns. I also believe LC will offer more data fields to investors. The lack of specific portfolio data, i.e. YTM, restricts investors from modeling portfolios with different interest rate environments.

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Dan B January 2, 2013 at 5:46 pm

I’m sorry but to the best of my understanding this particular bk remote vehicle has nothing whatsoever to do with whether the “platform has positive returns” or not. It does not in any way protect investors if the platform doesn’t have positive returns. It is designed to protect investors if the “platform” aka, the business fails. Two very different issues.

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Peerlend January 2, 2013 at 8:09 pm

Having the notes in a protected entity shields investors from (what you call) “platform” risk beyond just “going concern” risk. There are a variety of things that could put a platform at risk legally aside from “not being cashflow positive” and ALL – big and small – should have identical protection from having their investments subject to those risks. All else is unjust.

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Julie January 2, 2013 at 2:13 pm

Hi Peter,

Can you please elaborate here or provide a link to better explain “bankruptcy remote vehicle”? Thanks!

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Peter Renton January 2, 2013 at 8:20 pm

Julie, I first wrote about this development several months ago:
http://www.lendacademy.com/prosper-announces-the-creation-of-bankruptcy-remote-entity/

Basically, the way a bankruptcy remote vehicle works is that the notes are separated out from the company issuing the notes. In this case Prosper Funding LLC holds the investor notes and Prosper Marketplace Inc. (PMI) is the company that operates the platform. So, if PMI goes out of business the notes cannot be accessed by any creditors. In reality it is far more complicated than that but you get the idea.

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Roy S. January 2, 2013 at 3:03 pm

This is more of a (really rather small) hope (in the grand scheme of things) than a prediction. I hope that Prosper will allow people to finish off loans that have less than $25 to go to fully fund it. I am currently invested in a loan that I tried to finish off, but I get an error. Instead, I have to wait another 8 days (I tried to fully fund it 2 days ago) for the listing to expire–that’s over a week that my investment could be earning interest that Prosper could actually do something about. I think there are another half dozen or so loans in the same predicament. If they aren’t going to let people finish off the loans with less than $25 left to fully fund them, then they should allow someone to fund all but $15 of a loan. It’s a very, VERY small annoyance, but it just adds to everything else…

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Peerlend January 2, 2013 at 8:17 pm

Yes – I’ve made a similar suggestion in that I am slightly annoyed that I cannot add less than $25 to a loan which I’ve already invested at least $25 in, once. EG, on my first pass I invest $25, and, on my second filtration pass, I may wish to add $10 to increase my exposure w/in that particular loan. Currently I can’t do that. I was not aware that you cannot “finish” a loan with < the minimum bid increment, but, if that's indeed the case, more reason to rework the bidding logic…

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Roy S. January 3, 2013 at 12:12 pm

I didn’t even think of adding additional to any of my bids–I looked, and you’re right that I can’t add to my position. In the past, I’ve just invested a second time and Prosper consolidates both bids into one loan after the Note is issued. Maybe having an additional function in the pending offers to add to your original bid would resolve that issue. But again, while it is a little annoying to wait over a week for a loan to finish because it has less than $25 less is annoying as an investor (I’m not sure how the borrowers feel about it, though!), it is not a very big issue issue in the large scheme of things. I just noticed it a few days ago, and it doesn’t appear to affect that many loans. NOT a high priority by any means.

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Neal S. January 3, 2013 at 1:21 pm

@Roy,

If a loan has less than $25 remaining, you can place a bid for the remaining amount and it will be accepted. I have three of them in my portfolio.

Note that I wasn’t trying to add to a prior investment…it just happened that I was “Last one in” on these notes.

If you have $0.08 available and want to try it, you can finish off listing 690288 before it expires next wed.

Neal

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Roy S. January 3, 2013 at 2:49 pm
Peter Renton January 3, 2013 at 3:00 pm

Thanks Roy, I wasn’t aware of this issue. And I am also getting a “Prosper System Error” when I try to invest in any of the loans you listed above. Looks like a bug more than a system limitation – it makes no sense to not be able to finish off a loan when there is less than $25 available.

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Neal S. January 3, 2013 at 9:54 pm

@Roy,

You are correct, I’m getting the system error also. However, it used to work. Check out either of these listings which were finished off with investments < $25.

https://www.prosper.com/invest/listing.aspx?listingID=577394
https://www.prosper.com/invest/listing.aspx?listingID=567803

But those are from March/April 2012…

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Roy S. January 5, 2013 at 11:42 am

I think Peter might be correct that it is a bug in the system. I’m not sure whether Prosper even knows about it, since it doesn’t appear to affect every listing. Even if they were on Prosper’s radar, it affects so few I doubt that it is high on their priority list…it wouldn’t be on mine.

Mike Craig January 3, 2013 at 7:23 am

The explosion that is peer to peer investing and lending will continue to be the story in 2013. I am still telling my friends at IBO and at my own site about the power of P2P. Keep providing the best information in the industry from which to do due diligence.
As a person who lives in an orphan state, I’m looking forward to P2P truly going coast to coast into every state.

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Peter Renton January 3, 2013 at 3:01 pm

Thanks Mike. I appreciate your comments and your continued promotion of p2p lending. You should not have to wait too long before p2p lending goes nationwide – hopefully 2014 with Lending Club.

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Matthew Allen January 4, 2013 at 1:04 pm

It’s too bad that one of your predictions for 2013 isn’t that P2P will start to get more mainstream attention both from the borrowing and the lending side. It could be that big money (the banks) control the media outlets and don’t want this alternative way of lending money to become mainstream. Less profits for them. We may have to keep pushing forward grassroots style to get the word out about this transforming industry.

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Peter Renton January 4, 2013 at 2:51 pm

Matthew, I think p2p lending is getting more mainstream attention than ever before – just type “Lending Club” into Google News and you get 124 hits in the last month including some major publications. But p2p lending is not mainstream yet, it is just moving in that direction. When it becomes a part of most articles on investing it will be there but we are probably several years away from that. Although I certainly don’t think that the banks have anything to do with the lack of coverage of p2p lending. It is still a young industry and not big enough yet to garner the attention it deserves.

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Sandy January 4, 2013 at 7:50 pm

Peter,

I’ve been having problems with Prosper lately that has me jumping over to Lending Club. I’m bearish on Prosper’s growth probabilities and very bullish on LendingClub. There is a clear winner here between the two competitors.

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Peter Renton January 4, 2013 at 9:31 pm

Sandy, You are not alone in having problems with Prosper lately and I don’t blame you for jumping to Lending Club. They are the clear market leader. I will continue to invest with both companies but I concede Prosper needs to start showing some consistent growth soon if they are to win back investor confidence.

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Andrew N January 6, 2013 at 1:58 pm

I definitely agree with you Sandy. I recently sold all of my Prosper notes in order to move on to other investments.

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