It is no secret that I love peer to peer lending. I invest in it, I write about it and earn income from it. But I also realize that it has a lot of room for improvement. As I am investing money, talking with other investors and just thinking about p2p lending I am often coming up with things I would like to see improved. So here is my top 10 wish list for Lending Club and Prosper. I hope we see action on some of these items soon.
1. Better statistics
This is the area where I would like to see the biggest improvements. Statistical analysis of previous loans is almost non-existent on both Lending Club and Prosper. I would like to be able to drill down into the loan history and see for myself exactly which loans provided the best returns. Right now, p2p investors are forced to use third party services such as lendstats.com to do this analysis or download the loan history files and crunch the numbers ourselves in Excel.
2. Better loan filters
When you have decided on the filters for your investing criteria, you need to be able to find loans that satisfy those filters. Prosper does a decent job of this, allowing users to enter actual values for each loan filter but Lending Club makes it much more difficult. For example if you want to filter borrowers on their revolving credit balance, on Lending Club you have four choices: less than $100,000, less than $50,000, less than $15,000 or any. Too bad if you want to filter borrowers outside of these values. This is why when investing in Lending Club I always download the curent loans spreadsheet and do my filtering in Excel. Prosper does a much better job here, they allow you to enter any value you choose for any of your selection criteria.
3. Better investment performance information
On Prosper there is nowhere on their site where you can find out your annual percentage return on your investment. They do provide an email once a month with this information but you can’t find this anywhere on their website. Lending Club takes the opposite approach. When you login you are greeted with a screen that prominently displays your NAR (Net Annualized Return). But what neither company provides is a real world return. They tell you what your return is on the notes you have invested in, but they don’t share your actual real world annualized return (which takes into account the money you have in cash). I have to use Excel to figure that number out manually.
4. More verified information on borrowers
Lending Club and Prosper will both verify income and employment on a limited number of their loans. Third party services like ReadyForZero are now providing verified information on credit card balances and payments. But as an investor, I would like to see more of this. I realize it is capital intensive to personally verify information on each new borrower which is why I would like to see an opt-in system where people can provide verified information on employment, salary (from direct deposit information), payment history, mortgage payment/rent, etc. A partnership with a company like Mint or an expansion of ReadyForZero’s services could yield all this information, in a verifiable way. It won’t guarantee lower defaults but it will guarantee that borrower information is completely accurate.
5. Better portfolio analysis
How is your portfolio of loans performing by grade? By loan term, by amount, by loan purpose? Where are your defaults coming from? You know both Lending Club and Prosper are acutely aware of all this information but they don’t allow individual investors to know. Now, they do share some performance information on their total loan database, but when it comes to individual investor portfolios you need to work this out for yourself.
6. More robust trading platform
The trading platform on FOLIOfn is functional but could really use some improvements. Selling notes is ok but for buying notes it is very unwieldy. I mentioned the lack of loan filtering in point 2, well on the trading platform filtering is almost non-existent. Investors who regularly buy notes on this platform must have either worked out some automated process or have a great deal of patience. There is no way to filter the available notes with your own investment criteria.
7. More transparency
Both Prosper and Lending Club provide some transparency in their operations. We know their financials and we can download the entire loan database from both companies to do our own analysis. But they both only selectively share information. Part of this is understandable because they want to paint themselves in a positive light for marketing purposes but peer to peer lending is such a great concept that I believe they are missing out by not providing better transparency. I would like to see actual investor returns on loans older than a year or 18 months. I would also like to see some kind of graph of expected investor returns. An investor may start out with a 14% return and then drop to 10% after a few defaults which may well come as a disappointment to that investor.
8. Nationwide coverage
Investing with Lending Club and Prosper is not available in all states. Currently Prosper is available for investors in 29 states, for borrowers in 47 states. Lending Club is available for investors in 28 states and for borrowers in 42 states. Neither company has added a new state for borrowers or investors in many months. Now, I know there are state and federal regulatory hurdles here but I would like to see more activity in this area.
9. Secured loans
In the last few months we have seen the first foray into peer to peer secured loans from companies such as Money360 and Loanora. But every loan ever processed through Lending Club and Prosper has been an unsecured loan. If they can ever do a secured loan product for cars or even real estate then p2p lending will really take off. Right now, if a borrower defaults lenders typically just lose their money they invested in that loan. If there was an underlying asset securing the loan then I expect lenders would be far more willing to invest. I know this won’t happen any time soon, but I hope it is in the long range plans.
10. Become profitable
This one may be the most difficult to achieve on the wish list, at least in the short term. Both Prosper and Lending Club lost a great deal of money in 2010 and this will likely continue into 2011. I know there are plenty of successful companies that took a long time to break even (Amazon for example), but I hope we see some real progress on this front in the near future.
I could certainly go on, there are many things I haven’t included such as a decent iPhone app from both companies or investor alerts when a borrower’s credit score drops. But there is my top 10. What about other investors? What have I missed that you think is really necessary? Please share in the comments.
I totally agree with you and should also include a Droid 2 app! One question I have is I have tried the excel spreadsheet to find my real world return but I keep getting errors. Perhaps you could do a walk-through for us less savvy excel people!
I would add:
#4 A verified link with Zillow. I’d like to know if they really do have equity. I use MINT and it pulls in my home value from Zillow and my mortgage data from the bank.
#6 FolioFN is a joke. There’s so much crap on there that it has very little utility. I’d love to list my house for $4 mil (and this is America, I’m free to do it), but if my neighbor’s houses are $400k and zillow says my house is $400k, I’m not getting $4 million…
#7 there’s a graph like that in the “Earning better returns” webinar on LC’s website showing the drop investors can expect.
#9 & # 10 Amen
Sincerely,
-LL
This is a really excellent list. I whole hardily agree.
#6…….FolioFN is a joke……..but it does provide some profit opportunities & does in fact provide adequate liquidity for “current” notes. Without this liquidity I would no longer be a p2p investor, period.
Thanks for all your comments gentlemen.
@Phillip, You need to use the XIRR() function in excel. I wrote this blog post about it. Have a read of this and if you are still having problems let me know.
@Lou, While Zillow might be useful, I also have that come up in Mint and my home is overvalued by about 25% I would guess. Thanks for the heads up on the graph. I hadn’t seen that webinar. For others here is the link to the webinar Lou is referring to: http://lendingclub.na5.acrobat.com/p48189135/
@Aaron, Thanks.
@Dan, You are not alone here. I only started using FOLIOfn last month and I was surprised how quickly some of my notes sold. Even past due notes (discounted by 25%) sold within a week. There are obviously a lot of investors using the platform.
Nice article Peter! Many of your points are spot on.
Thanks Glenn. Good to hear my list made it to the management team at Prosper.
We’ve heard from Prosper. Anybody at Lending Club care to chime in?
I doubt anyone from LC will show up………….since I verbally eviscerated the last one that came around. Nevertheless I encourage them to return & assure them that I will be on my best behavior. It’s part of my new “kinder & gentler” approach that has been brought on by the recent revelation that the success of p2p in general & of this blog specifically will be the determining factor as to if & when Peter will buy be my dream car. So consider me semi co-opted.
@Mike, I pinged Rob @ Lending Club just to let him know we are hoping for some kind of response from them.
Come on @Dan, I will miss your old curmudgeonly ways…..but keep promoting. Every dollar will bring you 0.00001% closer to your goal.
Hi Peter, excellent summary.
Regarding point #3, @ lendstats you can check your Prosper anualized return and also the return of any other lender. But lender trading info is still non-existent at Prosper and I’ve heard nothing recently about whether that info will ever be released. So all lender returns are calculated at lendstats as if no trades were ever made. This absence is however very useful if you what you want to know is the returns on a lender’s bids on the Prosper platform.
Regarding point #5, @ lendstats you can also slice and dice anyones Prosper portfolio. You can see for example how my post-relaunch HR notes are doing (pretty good! zero lates zero defaults on 100 notes). http://www.lendstats.com/loansearch/loanfilter.php?pr1=HR&pr2=HR&lender=lendstats_com&type=lender
I’m also pining for improvements at folio. But I’m sure the response that LC and Prosper will give is that it is out of there power to improve the searchability there because it is run by folio and not them.
One possibility though is they could create there own searchable platform with the links to folio. I don’t know why that wouldn’t work. One of these days I hope to create such a service. If it’s possible for me or anyone else to do it, why not them.
@Ken, Thanks for this. One of the nice things about Prosper is that it stores the loans for every lender so you can see find out how you and other people are really doing.
I think you are right about FOLIOfn. But I do know of one computer geek for has automated his trading on FOLIOfn. Not sure how he does it but he says it is all automated, he never even has to login. So what you are suggesting is definitely possible.
Peter,
All good points.
I can only speak for Lending Club, but make the secondary market usable! Make searching in FilioFN at least as good for new notes.
Thanks IJ. I honestly don’t know how investors who use FOLIOfn do it. I know there are many investors from states who don’t accept LC or Prosper that can trade on FOLIOfn and do so regularly. But after using the front end filtering on new notes on LC and Prosper, going to FOLIOfn is like going from a Ferrari back to the horse and buggy.
I’d like Android and iOS apps for both platforms. I’d also like to see 1 year notes on Lending Club.
Oh, add Mint integration for Lending Club. Prosper already has this.
@Carl, I think we will see mobile apps from LC some time in the next year. I didn’t make my list but I see it mentioned a lot on Twitter. I believe the Mint integration has been implemented. I know they had some problems for a while but I thought they had all been fixed. Is it still not working properly?
Secured loans would be awesome, but man how would that work? The site (or some other party) would have to sell the asset, split it up, and distribute the cash… awkward!