I started reading rumors about this earlier this week but it looks like it is now official. Prosper.com is ending their auction process for peer to peer loans this weekend. The first p2p lender, that started the entire concept in the U.S., is completely changing the way they manage the loans on their site.
For those that don’t know the process at Prosper, it is like a reverse auction. A borrower states the maximum interest rate that they are willing to pay for a loan and then lenders bid that rate down. There is an explanation of the auction process here on Prosper’s How it Works page (keep in mind this page will likely change after Dec 19th). It appears that they are now moving to a very similar model to Lending Club where they set the interest rate a borrower will be charged and there is no auction process.
The Lending Club Fixed Rate Model
If you try and submit a new loan now you receive this message when you get to the end of the online process:
To improve the experience for our customers, we will be eliminating the auction process on December 19th. You may post a listing prior to that date, however you must use the starting interest rate shown below. Once you do so, the auction will remain in effect for your listing and lenders will be able to bid down your rate until December 19th. If your listing is 100% funded on that date, your listing period will end and your loan can fund. If your listing is not 100% funded on December 19th, it will remain active until it is fully funded or the 7 day listing period expires, whichever comes first, but lenders will no longer be able to bid down your rate.
The management of Prosper must have realized that the Lending Club model is more appealing because they will have essentially the same fixed interest rate model as Lending Club now. I have been wondering why Prosper has been running at around 20 – 25% of Lending Club’s loan volume for most of this year, so maybe the management gathered that Lending Club had the superior model.
What is most telling to me is their web site traffic. Based on analysis of the traffic to their respective sites (from compete.com), Lending Club only has a slight increase in traffic compared to Prosper and that has only happened recently. So with a similar number of visitors Lending Club has managed several times the loan volume. No wonder Prosper’s management decided to change direction.
It will be very interesting to see if Prosper now can really start to move their lending volume upwards. The next few months will be crucial I believe. It will be great for the entire industry if Prosper can start to match Lending Club’s loan numbers – two strong companies will give both borrowers and investors more choice and confidence in the p2p lending concept.
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.