In an email sent out to investors earlier today Prosper announced they will be closing down their secondary market on October 27. They have been running a secondary market via FOLIOfn since 2009 but it has never gained much traction.
I have to admit I have not used the Prosper secondary market for a couple of years but I always liked knowing it was there. I am sure many other investors feel the same way. But going forward all investors will be forced to hold their loans to maturity.
There were a small number of power users but the vast majority of retail investors never used this trading market. One of these power users was Brett Byers, who I interviewed on the Lend Academy Podcast back in 2014. In an email exchange earlier this week he indicated that even he had vastly reduced his use of the Prosper secondary market.
I reached out to Prosper and received the following official comment from Aaron Vermut:
As we have rebuilt and enhanced our retail investor experience, we have found that we must focus on those areas that will provide the broadest set of users with maximum value, and this includes a focus on our primary market. Over time we’ve found that very few investors are using the secondary market. While we’ve decided to wind down this service, the decision in no way changes our commitment to the retail investor, and we continue to explore alternative secondary market for our Notes.
The official word is that while they are closing down the Folio secondary market they are still open to an alternative in the future. At the American Banker conference this week in New York Matt Burton of Orchard discussed their plans for a secondary market for the sector. While this will be a market focused on institutional investors Burton said that eventually he would like to have a secondary market to serve all investors. But it is probably years before we will see this flow down to retail investors. My point is, though, that others are working on this challenge.
My Take
While this is a disappointing move from Prosper I understand where they are coming from. Their secondary market has never been used as much as Lending Club’s so I am sure it is a cost center for them. Given their slow down this year they are no doubt looking for ways they can cut costs and this was a cut they could make without major consequences.
I have always maintained that an investment in Prosper or Lending Club should not be viewed as liquid. So my approach is unaffected by this move. Of course, there are also those people who used the secondary market as part of their investment strategy. But sources tell me that these people numbered in the single digits so I see the business sense in closing this down.
Here is the full text of the email that went out today.
We are writing to let you know that as of October 27, 2016, Prosper will no longer offer the Folio Investing Note Trader platform, the secondary market for Prosper Notes. Prosper has found over time that very few investors are using the secondary market and, as such, has made the decision to no longer offer this service. We apologize for any inconvenience that this causes. Prosper remains committed to its retail investor clients and to providing them a great experience.
Here’s what this means for you: The secondary market trading service will be available as normal until end of day (5:30 pm PST) October 19, 2016. After that time, any new orders to list Notes for sale will not have sufficient time to be completed and processed before the site becomes unavailable to users at the end of day (5:30 pm PST) on October 27, 2016.
Once the secondary market trading service is terminated, you will not be able to sell Notes that you own, and you will need to hold them to maturity.
If you have questions about your Notes or the wind-down of the Folio Investing Note Trader platform, please contact Prosper customer service at 877-611-8797.
Thank you.
Prosper and Folio Investing
This is bs, what if someone needed to try to liquidate before next month.
Investors will be free to liquidate their portfolios until October 19. After that this is a buy and hold investment keeping in mind that principal and interest payments will be coming in every month.
Nobody used it because it worked for…poorly. You can sabotage anything and then claim it didn’t work right. I liquidated from Prosper early this year for another investment with the plan of returning. Now, that is never going to happen. I had high hopes for Prosper when they got bought but nothing constructive has come out of it for retail investors after all the made promises.
I agree it worked poorly and Prosper had basically not updated it since they launched it back in 2009. I understand your perspective but I am still a retail investor in Prosper and buy notes every day. I like having two platforms to invest on.
The excuse of cutting costs is ridiculous. I know you are assuming but they charge a fee for selling investments on the secondary market. As far as no one using it. I had to try three times to get an account setup. After the “NEW and Worse” investor home page, they removed all the links to Folio. I back door into it through message links in prosper.
I feel as though you should not be taking the financial hit for a decision by a company that offered that service when you signed up.
I am not at all happy with this decision. I exclusively used the secondary market to purchase notes, especially high yielding notes because the background checks done by Prosper aren’t as valuable to a year of payment history.
I would really love to dump my entire portfolio over this fiasco, but unlike you, I’m unwilling to take the 5% fee to sell it.
Concur wholeheartedly, tried to make it work for quite some time before beginning trading on the Lending Club platform which is far superior! prosper is now losing ALL of my reinvesting!
I have listed over 1000 loans at 5% discount on the folio platform. Good deals for those that want to look.
You are not alone. It is a buyers market right now. I am going to be picking up a few of these discounted notes over the coming weeks.
Over the last 18 months, I’ve sold over $100k on folioFN, all between 2-8% premium.
Luckily I only have around $7k, which I guess I’ll be holding them till maturity. Definitely a buyer’s market. Might go bargain basement shopping as well.
I’m very disappointed by this decision. Like Keith, I now use the secondary market for all of my purchases. Knowing a borrower’s payment history – including whether payments are automatic v manual – gives me much higher degree of confidence in a particular loan (the higher returns are also nice). Income verification for 60% of loan applications is too low. The verification rate for “safer” loans is even lower because the algorithm skews towards checking the higher-risk loans. I can get better returns on safer investments then the “safe” investments at prosper, and the high-risk investments are – frankly – riskier than my tolerance. The great leveler was the secondary market.
I’m going to pick-up as many discounted loans as possible before the market shuts down, and then I’ll be done with Prosper. Would like to sell-off a few investments, but don’t want to discount them as much as I would need to.
And my biggest complaint? A one month notification is way too short. Especially for a feature which many considered to be a big draw (even if they aren’t using it).
Last day to sell on Prosper was yesterday, the 19th. Is that a full month notice?
Also, looks like they only notified lenders with existing folio accounts. I didn’t have a folio account but had on my todo list to do so.
Seems like the first step before the whole company shuts down. Just to be sure they screw over their investors good & make such a mess that they hope to take Lending Club down with them.
I’m a little more than bothered about this.
I read just two months ago that Prosper had just 2 months of burn left. How the hell can they burn through that much money so fast?
Now they are burning our money too. They just don’t care.
Hi Matt, Well those are some strong words. Prosper has significantly more than 2 months of cash left and I expect they will complete a new fundraising round soon that will see them through to profitability.
I know the executive team at Prosper quite well and I can promise you they do care. They are working hard to try to do the right thing for all the stakeholders.
The shutdown of Folio at Prosper has been unfortunate to say the least and I know it has left many investors angry and disappointed. But I certainly don’t think they are making these decisions to try to screw anybody. They are doing what they think is best for the company as a whole.
Glad to hear it. I really hope they don’t melt down. I really like the concept of P2P lending.