The Bankwatch

Tracking the consumer evolution of financial services

Prosper trends towards average borrowers, and sets itself up for stepped up growth

The trends within Prosper are interesting since the sub-prime crisis hit.  Two things stand out that show promise to bear out earlier predictions:

  1. trend of regular borrowers towards using Prosper, who would otherwise have used traditional lenders, and these lenders are Prime or Near Prime [Prosper designations]
  2. borrowers seeking to pay off credit card debt;  typical retrenchment behaviour,  during rough times, but these borrowers are using Prosper, not Banks.

Media Room – Prosper

Of great interest is the anecdotal evidence of prime and near prime borrowers turning to Prosper for loans that would have historically been steered toward mortgage, auto, and home equity lenders. It will be very interesting to watch whether the wake of the liquidity crisis in the broader credit markets results in a definitive trend toward Prosper becoming an alternative source for financing down-payments on homes and cars, funding home remodeling projects, and finding relief from high-interest adjustable rate mortgages (ARM’s). Equally of interest is whether Prosper lenders will desire to help their fellow Americans by funding these types of loans.

While Prosper lenders are shying away from subprime, there is ongoing strong demand for the ever increasing number of prime and near prime borrowers coming to Prosper to consolidate their credit card debt at lower rates and to fund or expand their small business endeavors. For example, in October 37% of loans funded on Prosper went to prime borrowers, compared to 30% in September 2007 and 22% in October 2006.

Finally, Prosper have achieved 200% growth year over year, since they eliminated Sub sub prime borrowers.  $100 Million in loans, is not going to worry the Banks terribly yet, but the indications and trends suggest that a shift is occurring.

Somthing to watch relative to volumes is the filing last week by Prosper of a prospectus for $500 Million in a lending secondary market.  In essence this means that lenders in Prosper can bulk sell their loans to third parties … even Banks?

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Written by Colin Henderson

November 13, 2007 at 10:29

Posted in Social Lending

One Response

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  1. Prosper’s filing last week represents a brilliant regulatory innovation if approved by the SEC. Prosper is facilitating the sale of registered debt by individuals. This is completely new and potentially very powerful. See this post for more details: http://finantech.wordpress.com/2007/11/05/prospers-regulatory-innovation-considerations-and-implications/

    crunchazoom

    November 14, 2007 at 00:23


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