Prosper Stops Updating Their Loan Data on a Daily Basis

In a move that was not unexpected Prosper announced today that it will no longer update its loan data on a daily basis. Data will now be available 45 days after the close of each quarter.

Now, when you go to their data download page there are no files to choose – you just receive this message:

Prosper Data Downloads no longer available

As I said, this move is not very surprising. Lending Club made a similar move in April last year. What is a little different is the explanation that Prosper has given for this change. On their blog post and in an email to investors today Prosper clearly stated the reason for this change:

We are making these changes in order to protect our intellectual property and proprietary data, not to inhibit our clients who are using the data for their credit models and to make investment decisions. We understand that our investors need our data to analyze investment performance, but we also need to ensure that people can’t reverse engineer our underwriting model. One of Prosper’s main competitive advantages is our data asset, and we have spent a considerable amount of time and effort building it. These changes strike a balance between maintaining appropriate levels of transparency and protecting our intellectual property.

So, this is about protecting their data. And I certainly believe there is truth to that concern. I have heard from several entrepreneurs over the last few months who have boasted about having run their credit risk algorithm through Prosper’s underwriting and supposedly improved upon it.

The good news from an investor perspective there is very little that will impact us. What they are really doing is removing the connection between loan listings and approved loans. There is no reduction in credit data and the API will work as before. We will just have to get used to slightly less transparency from Prosper. It means no more loan volume charts at the end of each month and we won’t really know how Prosper is doing now until well after the end of each quarter.

When I spoke with Ron Suber, Prosper’s president about this today, he made it clear that this was a decision they thought about very carefully. They talked to many of their large investors as well as the folks at Orchard before making this change. There were very few concerns and everyone gave them the green light.

While I can’t say I like the reduced transparency I understand this move. As the industry matures and the companies involved become much bigger and more valuable, intellectual property gets more and more important. While we can speculate as to whether or not this is related to an IPO in Prosper’s future Suber would not comment about that other than to say, “they have made no decisions around a possible IPO”.

Regardless, Prosper is clearly setting themselves up for a quarterly update cycle of all of their data, financial and otherwise. This will make the transition to a public company that much easier if and when that happens.

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Sarfaraz Sadruddin
Jan. 26, 2015 8:08 pm

Not surprising…

Jones
Jones
Jan. 27, 2015 2:58 pm

As a retail investor the best days of P2P are in the rear view mirror. The trend towards lower returns, less information and overall institutionalization of the product is in full swing.

Apollo
Apollo
Jan. 31, 2015 1:41 pm
Reply to  Peter Renton

“It is very hard to scale a business profitably with retail investors only.”

I thought that for both Lending Club and Prosper, the current issue was too much money chasing too few borrowers? If the balance swings long-term I can see this being a concern, but don’t they really need to originate more loans?

RawRaw
RawRaw
Jan. 28, 2015 1:47 pm

I disagree that the risk profile is decreasing due to improved underwriting. It is decreasing as these platforms become viable entities. All these models are untested in recessionary periods, as far as I know. Having a full business cycle to develop is pretty important to ensure they rank order and price risk appropriately. Maybe we’ll get some data in North Dakota or West Texas if oil stays low

Bryce Mason
Jan. 29, 2015 12:00 pm

Nothing much changed with this announcement. I can’t use the HistoricalListings API routine to get prior day’s notes. I must wait until 45 days after the quarter to get the prior quarter’s information. Unlike LC, they aren’t masking any fields (including date) or taking fields away. It’s a super minor change. Are we really modeling things more frequently than every quarter? I’m not.

Thomas Brandenburger
Thomas Brandenburger
Feb. 6, 2015 5:10 am

It’s really about the death of the industry. The transparency of historical performance data tied to credit bureau and application data of listings was effectively the new thing. Not only is P2P lending dead in both of these companies, but they are now severely inefficient compared to more direct approaches. They effectively are just eLoan which is old news. The ‘improving risk modeling’ that they in principle now offer is really actually reflective of the low level of risk modeling expertise they already employed. It was directional but sloppy and frankly displayed an inherent conflict of interest between improving risk estimations vs attracting customers. Either their original models were purposely inaccurate in this regard or they were demonstrative of very unskilled scorecard development. The inefficiency in these models then could be modeled out by investors themselves in the same way that historical stock quotes allow different investors to decision on stock purchasing through analytical techniques. By removing this key feature, they now are just another low margin loan origination and servicing agency. When the stock market realizes this eventually, market caps of the likes of LendingClub will fall like a rock. If in fact they are intent on going the route of institutional only investing (or very close to that), then ironically a return to the original business model would be much better. i.e. right now when loans are placed on the market, the investor has a yes/no decision as to whether to invest in that loan. The pricing is fixed and Prosper/LendingClub’s problem is ultimately that people with more analytical skill do not want to purchase the loans that have been inaccurately priced and so that leaves unspoken for inventory which needs to be forced on investors. The original model effectively had the investors setting the rates through an open bidding process. The problem with that original model that was shut down by the government, is that the investors were individuals without any demonstrable skill or controls in place to ensure they had sufficient resources to take on the risk. Additionally that model had severe inefficiencies because of a lack of large institutional investors that could immediately fund a whole loan. This left severe cash drag issues with unfunded loans and unapproved loans.. Additionally there were fair lending risks due to no discernible way in which the interest rates were established from a regulatory perspective. Ironically by implementing scorecards to price the loans and taking away the original features due to compliance issues all of which have attracted institutional investors, they have become their own death sentence as a company by trying to operate a non-innovative low margin service business out of a high cost San Francisco cost structure. For an $8 billion market cap, at Lending Club’s current margins, how long before they make $800 million in profit which would justify a P/E of 10 when their market share tops out in 3 or 4 years and they have little to no growth? Or is it structurally unprofitable because they have ceased innovating and actually reverted to a business model that was already old a decade ago in eLoan? The huge irony is that to save these companies, they had to change the business model to high compliance, large investor, low innovation which ultimately makes them a low margin service company that has a special purpose vehicle investment structure for securitizing receivables.

David Michael
David Michael
Mar. 3, 2015 11:52 am

Peter,
Thank you for your input here. It’s been frustrating dealing with the data changes of Prosper since January. Here it is March 3 as I write this, and it seems that my account is totally inaccurate in the reporting. Daily figures for overall value and interest basically have not moved since Jan 1st. That takes into account several defaults.

I finally talked with a key member of the corporate team today in the SF office and they are checking into the problems, admitting that things are still in transition with the new data policies.

Maybe Prosper is prospering, but I no longer see it in my account and now I am thinking of just dropping P2P as a safe way to make a decent financial return. Stock Dividend investing with good companies is so much easier! There needs to be a forum on the Prosper page for investors to air their concerns and frustrations. Right now I feel the whole system is in limbo.

David Michael
David Michael
Mar. 9, 2015 11:38 am

Thanks for your suggestions.

I talked with staff at Prosper and worked the problems out. You’re right…be patient and wait for the monthly statement. Seems all is well with the updates. I’m back to buying once again!