It has been a busy six months for the risk management people at Prosper. In December they moved away from their auction-based model – a move that has proven to be successful based on their recent growth.
They launched in December with a set of interest rates that were slightly higher than Lending Club’s rates. But in the dark days of January when they were having difficulty attracting borrowers to the platform they decided to lower rates for borrowers. They have tweaked the rates a couple of times since then, but yesterday Prosper announced they were raising rates pretty much across the board, by an average of 1.29%.
Below is a table with the breakdown. The reason there are so many rows is that Prosper offers 1, 3 and 5 years loans which all carry different interest rates and also previous borrowers pay a lower rate than new borrowers.
| Prosper Rating | Term (yrs) | # Previous Prosper Loans | Old Rates | New Rates | Difference |
|---|---|---|---|---|---|
| AA | 1 | 1+ | 4.99% | 5.99% | 1.00% |
| AA | 3 | 1+ | 5.99% | 7.99% | 2.00% |
| AA | 5 | 1+ | 8.99% | 10.99% | 2.00% |
| AA | 1 | 0 | 6.49% | 6.49% | 0.00% |
| AA | 3 | 0 | 7.99% | 8.99% | 1.00% |
| AA | 5 | 0 | 11.10% | 11.99% | 0.89% |
| A | 1 | 1+ | 7.29% | 9.29% | 2.00% |
| A | 3 | 1+ | 8.29% | 10.29% | 2.00% |
| A | 5 | 1+ | 11.29% | 13.29% | 2.00% |
| A | 1 | 0 | 9.70% | 10.70% | 1.00% |
| A | 3 | 0 | 10.40% | 11.40% | 1.00% |
| A | 5 | 0 | 13.40% | 14.90% | 1.50% |
| B | 1 | 1+ | 11.00% | 13.00% | 2.00% |
| B | 3 | 1+ | 11.99% | 13.99% | 2.00% |
| B | 5 | 1+ | 14.99% | 16.99% | 2.00% |
| B | 1 | 0 | 13.99% | 14.99% | 1.00% |
| B | 3 | 0 | 14.99% | 15.99% | 1.00% |
| B | 5 | 0 | 17.99% | 18.99% | 1.00% |
| C | 1 | 1+ | 15.49% | 17.49% | 2.00% |
| C | 3 | 1+ | 16.99% | 18.99% | 2.00% |
| C | 5 | 1+ | 19.99% | 21.99% | 2.00% |
| C | 1 | 0 | 18.49% | 19.49% | 1.00% |
| C | 3 | 0 | 19.49% | 20.49% | 1.00% |
| C | 5 | 0 | 22.49% | 23.99% | 1.50% |
| D | 1 | 1+ | 19.99% | 21.99% | 2.00% |
| D | 3 | 1+ | 21.99% | 23.99% | 2.00% |
| D | 5 | 1+ | 24.99% | 26.99% | 2.00% |
| D | 1 | 0 | 23.99% | 24.99% | 1.00% |
| D | 3 | 0 | 25.99% | 26.99% | 1.00% |
| D | 5 | 0 | 28.99% | 30.49% | 1.50% |
| E | 1 | 1+ | 26.69% | 26.69% | 0.00% |
| E | 3 | 1+ | 28.99% | 30.99% | 2.00% |
| E | 1 | 0 | 26.69% | 26.69% | 0.00% |
| E | 3 | 0 | 31.99% | 31.99% | 0.00% |
| HR | 3 | 1+ | 31.25% | 31.25% | 0.00% |
| HR | 3 | 0 | 31.99% | 31.99% | 0.00% |
| Average | 1.29% |
The number of loans on their platform has skyrocketed from less than 50 in early January (just after they made the change away from the auction model) to consistently over 600 loans today. As of this writing there were 602 loans available for investors.
It seems that Prosper is not having trouble attracting borrowers, so this change makes sense from that perspective. It is likely that new investor money is what is limiting their growth these days. For the last couple of months Prosper has consistently been offering special investor promotions including their $104 giveaway for new investors last month. Today they just announced that investors get 4% cash back on investments in their featured listings (through May 27th).
Will this new change bring on more investors? It is hard to say. It should help increase overall returns; in fact Prosper published the expected increases in investor returns on their blog post and in emails announcing the change. I am somewhat ambivalent about the change. While I am happy that my returns as a p2p investor may rise I worry about the impact on the borrowers and in particular on borrower defaults.
What do others think? Is this a good move by Prosper?
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. 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.