Prosper Reaches Million Member Milestone

October 2, 2010

Prosper, the on-line P2P lending community, announced today that it now has more than 1 million members and a cumulative total exceeding $205 million in loans outstanding.

Founded in 2006, Prosper uses the online auction approach to lending that was perfected by eBay. Borrowers list loan requests for amounts between $1,000 and $25,000, along with the maximum interest rate they're willing to pay. Individuals and institutional investors can bid on listed loans in minimum increments of $25. Investors consider credit scores, ratings and histories, as well as borrowers' personal loan descriptions, endorsements from friends, and community affiliations. Prosper handles funding and loan servicing on behalf of matched borrowers and lenders.

In August, 18% of Prosper loans were to borrowers with the highest ratings (AA); those borrowers paid about 8.62% for money borrowed, and lenders yielded about 7.62%.

Recently, a colleague related how he had invested a small sum in Prosper loans, and while net results were negative, he said his loan portfolio still outperformed the S&P 500 over the space of nearly 3 years. His Kiva portfolio fared even better; it was down less than 3%, he said.

With returns like this it's difficult to understand why banks continue to shun the small loan market. Experiences such as these also beg the question: Why aren't even more investors making bets on P2P lending?

Chris Larsen, CEO and founder of Prosper, thinks banks are shutting themselves out of the consumer lending market. He may have a point.

"It's pretty incredible that one million people - a population greater than our headquarters city of San Francisco - have engaged with Prosper," Larsen said in announcing the company's latest milestone. P2P lending, he added, "has grown into more than an 'alternative way to get a loan' or an 'alternative investment class.' Peer-to-peer lending represents the future of consumer lending; the tipping point into the mainstream is within reach," Larsen predicted.

More than 8,200 federally-insured financial institutions were collecting deposits and/or making loans to the U.S. "banking public" as of March 31, 2009.

_-FDIC