I first reviewed Peerform back in March right after they had launched. If you have never heard of them, Peerform are a new p2p lender based in New York intending to compete directly with Lending Club and Prosper. They have been operating now for over four months so I thought it was time to check back in with them. I spoke with their founder and CEO Mikael Rapaport recently to get an update.
Verifying Every Borrower
Already Peerform has received over $12 million in loan requests but is very picky when it comes to approving borrowers, so they have rejected 90-95% of those requests. They are taking an innovative approach to underwriting by verifying incomes for every borrower on the platform.
Peerform will request a signed IRS form 4506T (a form that authorizes Peerform to obtain your tax information) and then they will request your W2 forms. This is quite an onerous burden on borrowers and Rapaport admitted that they do lose a good chunk of people when they demand this information. But they want investors to feel confident in the information being presented by borrowers. This will certainly be a differentiator for Peerform and should help then attract investors to the platform.
Open for Borrowers in 13 States
Peerform is currently open for borrowers in the following 13 states: Arizona, California, Connecticut, Florida, Georgia, Illinois, Louisiana, Maryland, Michigan, Missouri, Ohio, Virginia, Washington. The plan is to keep opening new states as they expand. Their interest rates range from 4.56% (the lowest of any p2p lender) up to 27.08%. All loans are for 36-month terms and are originated out of an outfit called Cross River Bank based in New Jersey.
Innovations Coming for P2P Investors
They are now open to accredited investors in all 50 states, but there is a catch. The minimum investment is $50,000. However, they expect to lower that minimum some time in the next couple of months.
One thing that Rapaport mentioned that many investors will find curious is their plan to introduce tranches to p2p lending. Rapaport has a lot of experience working with structured securities in investment banking and so wants to bring some of these concepts to p2p lending.
These tranches will be divided up into different risk profiles (like CDO tranches). People who are risk averse will be able to invest in a low risk tranche (called senior tranches) and will hardly ever see a loan default but will also get the lowest interest rate of around 6%. Then there will be the more risky tranche where lenders may get around 20% but be much more susceptible to defaults and there will be also tranches in between these extremes. This is certainly an innovation for p2p lending and I will explain it in more detail when they introduce this concept to investors.
Peerform are moving along steadily and growing according to plan said Rapaport. They are still not trying to obtain any outside funding, preferring to grow their platform slowly. Eventually if they are really going to compete with Lending Club and Prosper then they will need to scale dramatically and that, as we have seen, takes a great deal of cash.