Lending Club Versus Prosper

As of April 2010
Founded 2007 2006
Capital Raised $52.7 million $57.7 million
Number of Loans 10,971 32,505
Total Funded Loans $105 million $194 million
Loan Amounts $1,000 – $25,000 $1,000 – $25,000
Average Loan Size $9,607 $5,989
Loan Term 3 Year Amortizing Term Loan 3 Year Amortizing Term Loan
Minimum Investment
$25 $25
Default Rate 2.34% 6.61%
Secondary Market via FOLIOfn via FOLIOfn
Complete Performance
Lending Club Statistics Prosper.com Statistics

The battle is on!

After a tumultuous start to the social lending industry in the United States, two successful rivals have emerged from the rubble to slug it out for the leadership position in this suddenly burgeoning marketplace.

Lending Club and Prosper — located just a short drive apart from each other in the San Francisco Bay Area — both now have deep pockets to help them grow their peer-to-peer lending platforms and claim market-share from each other.  In April 2010, Lending Club announced that it secured a major third round of financing, raising $25 million from Foundation Capital and other investors to bring its total capital to $53 million.  Just two days after this announcement, Prosper stole the spotlight by announcing a $14.5 million round of its own ($58 million in total capital), including an investment by a fund controlled by Google CEO Eric Schmidt.

Both of these companies roared out of the gate, perhaps a bit too quickly.  They initially suffered from poor loan quality and caught the ire of the SEC, which felt that they were marketing securities and thus required proper regulatory clearance to do so.  Lending Club took a proactive approach, suspending its operations for six months while it went through the lengthy registration process.  The company was eventually registered as a securities issuer and resumed lending operations in October 2008.

Meanwhile, Prosper pursued a wait-and-see approach that proved costly.  Weeks after Lending Club received SEC approval to resume lending operations, the Agency sent Prosper a cease and desist notice, requiring the company to seek registration as well.  Experiencing some problems and setbacks during the registration process, Prosper took nine months to emerge and restart loan originations in July 2009.  (Of course, other early competitors like Loanio and Pertuity Direct were unable to weather the storm and shut down.)  Though Prosper had initially built up a substantial market share lead, Lending Club took advantage of the nine month period where it practically had the peer-to-peer loan market to itself.  In March 2010, Lending Club originated $8.6 million in new loans, nearly quadruple the $2.2 million loans created in Prosper’s marketplace.

With deep pockets, regulatory approval and little direct competition, both Lending Club and Prosper are making large strides towards living up to the initial excitement for peer to peer lending in the United States.  Ironically, the ongoing credit crunch has proven to be a boon to these companies, as they step in to try to fill the gaps in sharply curtailed consumer and small business lending.

Going forward, the keys to success for both companies will be to continue to build awareness and carefully manage loan quality.  Loan performance has improved at both companies after a rocky start, and they now both offer a secondary market for loans via separate partnerships with FOLIOfn.  There is an increased focus on credit quality, with moderate to poor quality borrowers unable to gain approval for their loan requests.  (To date, Lending Club has declined approximately 90% of its applicants who were seeking over $1 billion in loans.)  Maintaining the balance between investors and borrowers is a challenging task for both marketplaces and an exodus of unsatisfied lenders could likely prove to be a fatal blow.

We’re only in the second round of what looks to be a marquee heavyweight battle.  It will be exciting to see which company comes out on top.

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