Another Tweak on Prosper to Help Small Investors

Prosper is still working on a response to concerns that were raised last month in the comments of my post on Prosper 1.0. To recap many investors were concerned that they were being crowded out by the large investors – in particular Prosper’s largest institutional investor: worth-blanket2.

What was happening is that worth-blanket2 was gobbling up entire loans within seconds of them hitting the platform leaving just their unwanted loans for other investors. Worth-blanket2 was investing via the API, so Prosper made some tweaks to try and level the playing field somewhat.

Then earlier this week I received this email from Prosper:

Just wanted to give you a heads up that we are further tweaking the API speeds tomorrow for our 9am postings. In addition to shortening the API delay from 90 seconds to 30 seconds, we will also be asking some of our largest API investors to limit their bids to no more than 90% of the loan on their initial bid. We’ll keep watching the results of this latest change while we work on our longer term process.

Worth-Blanket2 Now Investing in Just 90% of Each Loan

I have been watching worth-blanket2 since yesterday morning and sure enough they have reduced the amount they are investing to exactly 90% of each loan. This leaves at least some chance for the smaller investors although with the small $4,000 loans these are still closing out very quickly. But as far as I could tell since this change was made there have been no loans that have been 100% funded by worth-blanket2. Index_Plus, the other large institutional investor is also adhering to this limit it seems. Now, every loan will be available at least in part to retail investors.

Prosper Has To Balance Retail and Institutional Investor Needs

As I reported in my monthly p2p loan volume report last week, Prosper now has more than 50% of their volume coming from institutional investors. So, they don’t want to do much to annoy this important group. And worth-blanket2 still has $130 million to invest and no doubt they would like to put it work as quickly as possible. I would have preferred they make the limit 75% to really give retail investors more of a shot but I can live with 90% for now.

I still think that the Automated Quick Invest should take precedence over the API but I am hardly objective in this – that would benefit me directly. The good news is that the number of loans available on Prosper seems to be slowly increasing.

This is probably not a viable long term solution for them because it appears they have just “asked” worth-blanket2 to stop investing 100% and they have agreed. So that is not a solid basis for going forward. I hope and expect to see a viable long term solution that is equitable for all parties without the need for any special requests. I will let you know when that happens.

Peter Renton is the chairman and co-founder of LendIt Fintech, the world’s first and largest digital media and events company focused on fintech.

LendIt Fintech conducts three conferences a year for the leading fintech markets of the USA, Europe, and Latin America. LendIt also provides cutting-edge content all year long via audio, video, and written channels.

Peter has been writing about fintech since 2010 and he is the author and creator of the Fintech One-on-One Podcast, the first and longest-running fintech interview series.

Peter has been interviewed by the Wall Street Journal, Bloomberg, The New York Times, CNBC, CNN, Fortune, NPR, Fox Business News, the Financial Times, and dozens of other publications.

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Dan B
Dan B
Mar. 7, 2012 11:58 pm

It’s clear that Prosper is making a concerted effort to be more responsive to the concerns of its retail &/or smaller investors. This can only be a good thing going forward for all of us on the retail side. It’s no secret that I’ve been one of Prospers biggest critics these past few years. Nevertheless, these small but significant positive moves on Prosper’s part have not gone unnoticed & I’m not above giving them deserved praise when it’s earned. I think this is one of those moments.

Bilgefisher
Mar. 8, 2012 8:27 am

I’m glad to see some movement here. I finally had a few automatic investments hit. Its been a long dry spell. This works its way into a positive trend.

Jason

Charlie H
Charlie H
Mar. 8, 2012 11:37 am

The no more then 90% change is way more important then the 90 sec or 30 sec limit on the API.

Roy S
Roy S
Mar. 8, 2012 10:41 pm

Over the past week, I’ve been seeing more of my orders fill 20 minutes or more after the new loans have hit the platform. Only 1 Note for my order tonight, and it was placed at 5:37PM. Manually investing is still by far the quickest approach on Prosper at the moment.

Peter, I’m wondering…does this mean that WB2 can invest in 90% of the loan and Index_Plus can invest in the other 10%, or vice versa? I would think that the new rule, while well intentioned, doesn’t really solve the problem. Delaying their investments to once every 90 seconds was by far the best resolution to this issue. Reducing it to 30 seconds puts retail investors back at a disadvantage, especially if our orders aren’t going through for a half hour or longer. Really, though, only higher volume will really solve the issue until WB2 and Index_plus are fully invested.

Dan B
Dan B
Mar. 10, 2012 1:59 am

The other factor that I’ve mentioned previously is “average loan amount”. As 5 year loans becoming more prevalent on Prosper, the loan amount will gradually rise from the $7k range to, I’m estimating, the $10k range. A byproduct of this size increase should be to enable retail investors a better chance at taking a bite out of loans before they’re fully funded.

The other thing to keep in mind is that lately, Prosper seems to be putting a good deal of thought & attention into the needs/concerns of individual investors. That is clearly a good thing. Realistically, the more individual investors sign up & the more existing individual investors invest going forward can only be positive factors in insuring that this attentiveness continues into the future.

I understand that some of you reading this may chafe & say that you’re having enough trouble finding enough loans to invest in as it is but perhaps part of that issue is that you’re all using approximately the same filters, the same criteria?? Perhaps I’m way off base but I can only say that I’m not a “repeat” borrower junkie 🙂 & haven’t had as much trouble as most of the anecdotal stories I’ve read here in finding Prosper notes to invest in. Just something to think about.

DT
DT
Mar. 10, 2012 9:04 am

I am very happy to see the improvements for retail investors versus institutional investors. I was concerned enough about this issue to send a lengthy e-mail to three executives at Prosper with my observations about worth-blanket2 back on 12/22/11. I received a well written response back promptly but with no changes to help resolve the problem. One of the recommendations I make was to limit the percentage of a loan that worth-blanket2 could invest in. Thank you to Peter Renton and others writing about the issue on sociallending.net for providing some “power through numbers” and getting some positive changes at Prosper for retail investors. After 4 years investing at Prosper and currently 3000 active loans, I felt I was getting pushed out of Prosper, but now the situation has improved some. 🙂

Roy S
Roy S
Mar. 14, 2012 6:55 pm

@Dan, It looks like once again I will be turning off the AQI. I have become quite disappointed with it. I had three searches turned on for it, and it appears to continually be investing in the search that I have set as the lowest priority when investing even though there are Notes in the other two. Further, it is investing in Notes that are 5, 6 or 7 days old (sometimes more) and have only been funded 10%. So my money is continually tied up in Notes that won’t be fully funded. My thoughts keep going back to, “Is the AQI programmed to invest in Notes with little funding and will be expiring in under a week in order to try to get them fully funded?” Maybe if I were receiving $500/day in principal and interest or I were making frequent deposits it would be a nice alternative, but not at this point. I’ll just have to try to be on the platform at 9AM and 5PM sharp!

As a side note, just looking through a few of WB2’s pending bids for the 13th, some of the listings ended after 8 minutes, 6 minutes, 16 minutes, 10 minutes, 26 minutes, 35 minutes, 6 minutes, 33 minutes, 8 minutes…So, when I see that my AQI goes through 30 minutes or more after the new Notes hit the platform, it looks like most of the new Notes have already closed. So their new tweak actually…SUCKS!!! I know they are trying to balance the institutional investors with the retail investors, and it can be very tricky to strike a good balance without pissing off either. But that doesn’t mean I won’t express my opinion when their “solution” doesn’t fix the problem. Sorry, Prosper: Try again!

DT
DT
Mar. 15, 2012 5:46 am

Even though I use AQI, my results have been only OK. Like Roy S, my best investing is when I log on at 12 or 8, when the new loans are released. Yesterday at noon, I was able to review quickly all the C, D, E, and HR loans before they were fully funded, except for two. About 1/4 of the requested loans were 90% funded by WB2 when I opened the loan request. I read and decided on loans very fast. I would prefer to move slower, but WB2 competition precludes that option if I want to fund what I consider the best loans.

Sun
Sun
Mar. 18, 2012 1:44 am

I have no issue with 100% funding by specific users. Take the Netflix approach and throttle after you exceed a dynamically set limit. The daily limit can be based on a scalable metric like daily loan count.

Sun
Sun
Mar. 18, 2012 7:53 pm

I don’t agree on the 90% scheme but I can live with it.

DT
DT
Mar. 19, 2012 5:38 am

I agree with the 90% “rule” and support more measures by Prosper to ensure that retail investors are not muscled out of the market by the deep pocket institutional investors with many IT specialists at their disposal to provide an advantage over the average retail investor.

April
April
Dec. 4, 2012 4:04 pm

Given the default rate WB2 is experiencing, I imagine they won’t be able to sustain the investing volume too much longer.