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Prosper is Experiencing Spectacular Growth This Month

by Peter Renton on October 28, 2013

Regular readers have heard me wax lyrically many times about the fantastic growth being experienced by both Lending Club and Prosper. But this month we are experiencing something truly extraordinary. I didn’t want to wait until my end of month report before sharing this with you.

According to their statistics page, as of this morning Prosper’s loan volume is at $43.4 million so far in October. This is already up 31% over last month and we still have three days left in the month.

I have been following this fast growing industry closely now for over three years and I have never seen growth numbers like this before from any company. So, I reached out to Prosper’s president Aaron Vermut to find out what is behind this extraordinary growth.

Lend Academy: You have been growing rapidly since March but never at the incredible pace experienced this month. How are you managing to grow so fast right now?

Aaron Vermut: There are a couple of different factors. We have better and more accurate pricing for borrowers that we implemented as part of our switch to FICO in September. But the main reason is that we made some major improvements to the borrower funnel on our site. More people are getting through the online application now and finding a loan they like.

Lend Academy: Is this growth rate sustainable?

Aaron Vermut: Before I talk about the sustainability of this growth let me say this. Our goal is to list and originate loans as they fund on the platform and not to manage each month to a specific origination or growth number.  We feel that this approach will best serve both borrowers and lenders by reducing the lag between the creation of a listing and the time the borrower gets his/her money.

As to the growth rate, it is important to remember that  each month has a different number of business days, we call them origination days. This month there are 23 origination days, versus 20 in September and just 19 in November. When we think about growth at Prosper, we are focused on the average daily origination amounts rather than just topline originations. As a result you may see uneven growth when looking at monthly originations based on the number of origination days in a month and some seasonal factors. In answer to your question, though, yes, this growth is sustainable. We are on a fast growth curve right now. We expect to do close to $50 million this month, and that number should increase considerably starting in January. Our goal is to do more than $1 billion in new loan originations in 2014.

Lend Academy: Are borrowers still receiving the same level of service that they did in September?

Aaron Vermut: Yes. We ramped up our verification team in advance of this month and we now have 30 people in our Texas office focused purely on borrower customer service. Loans are being issued at a similar speed to last month. So, doing $50 million this month was not a scramble.

Lend Academy: Do you have enough investors to meet the borrower demand?

Aaron Vermut: Most definitely. As many people know investor demand at Prosper is heaviest for grades B and below. We are working on bringing in more AA and A investors on to the platform in order to create a more balanced marketplace. In fact, we just recently signed some community banks as investors.

The other point Vermut wanted to make is that borrowers today are being obtained far more profitably than before. So, this is not growth for growth’s sake, this is growth that puts Prosper well down the path towards profitability. You will start to see the impact on Prosper’s bottom line this quarter.

So, there you have it. Prosper is taking their loan volume to a new level. On Thursday, as I do at the end of every month, I will be doing my monthly breakdown for both Lending Club and Prosper. We are going to see a very large spike in Prosper’s chart this month. The new management team there continues to execute at a very high level, which I think is great for the industry.

{ 16 comments… read them below or add one }

Dan B October 28, 2013 at 4:55 pm

The most important part was the claim that the cost of obtaining borrowers was declining significantly. Assuming that is accurate & continues along with the accelerating growth then there may be something significant to really cheer about in late 2014, early 2015………….profits at last!

I also liked the subtle swipe at LC for their “managed monthly origination numbers”. :)

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Peter Renton October 28, 2013 at 9:45 pm

Agreed. Though I think you will find your timetable for profitability is pessimistic.

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Dan B October 29, 2013 at 12:14 am

Pessimistic? Perhaps. But the question should really be whether it’ll be reasonably accurate, shouldn’t it?
The score is 2-0 in my favor. The unspoken rules of sportsmanship require that I now offer you the opportunity to narrow that deficit. I’m saying late 2014 to early 2015. What is your prediction, Peter?

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Peter Renton October 29, 2013 at 5:41 am

I would have agreed with that assessment a couple of months ago and in fact I think I said as much here. But given these new developments I am going to say Q2 or Q3 of 2014.

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writing2reality October 29, 2013 at 7:42 am

First off, thank you Dan and Peter for providing a little extra entertainment with the ongoing wagers. Having seen you two joust over the past few years has been a wonderful side story to the ongoing development and growth in the peer-to-peer lending world.

On the note of the incredible growth Prosper is experiencing, I think they have set themselves up by fixing up the backend of the operation before really pushing the marketing and growth efforts. I am absolutely looking forward to seeing how the next 14 months shape up.

Dan B October 29, 2013 at 3:34 pm

BTW, we are talking about actual official profits on a 10-Q……………not that “operating profit” nonsense.

Peter Renton October 29, 2013 at 3:51 pm

Yes, I am talking actual 10-Q results.

Danny S October 28, 2013 at 5:33 pm

Concur 100% with DanB (OMG) about the cost of borrowers declining being a major point. Profitability/viability of Prosper has been a major concern of mine, and why I’ve been hesitant to put more funds to work there vs other options.

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Peter Renton October 28, 2013 at 9:47 pm

Many investors have had concerns about Prosper’s slow path towards profitability. While these concerns have not been completely put to rest, I am confident they are making great strides in this area.

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RawRaw October 29, 2013 at 8:13 am

Rapid growth in financial institutions centered in debt is often a very risky proposition. I’m not sure certain if this would put me any more at ease with Prosper’s situation (until these loans have seasoned that they are accumulating at record rates).

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Peter Renton October 29, 2013 at 12:59 pm

Good point RawRaw. The proof is in the pudding and the rapid growth will not count for much unless the returns stay strong. This is obviously something many of us here will be watching closely.

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Martin October 29, 2013 at 11:27 am

This growth is really impressive. And not just the Prosper one, but the whole industry. I am curious to see it 5-10 or 15 years from now (and mainly results of my account).
Although I understand the demand for investors I am a bit worried about big banks signing up as investors which may in the future have an impact on the game and they may be changing it unfavorably towards small investors.

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Peter Renton October 29, 2013 at 1:20 pm

Martin, For the last 12 months or more I feel that the game has been changing unfavorably for small investors. It is far more difficult to find the loans we want than it was last year and that is primarily because of the large institutional investors coming in. Not impossible mind you, just more difficult.

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Charlie October 30, 2013 at 7:45 pm

It has gotten increasingly difficult to find good notes that’s for sure.

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Bryce M. October 29, 2013 at 3:39 pm

Great news for Prosper. Their borrower experience improvement in those few web pages must have made a huge impact. Love to see a strong competitor. Can’t wait to get my modeling on with their new data download.

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Peter Renton October 29, 2013 at 3:52 pm

I am looking forward to seeing the Prosper P2P-Picks model, too.

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