We’ve seen claims of P2P lending in the past, usually in the form of human capital investment (which never panned out - Iempower and MyRichUncle’s short-lived ventures, for example), but a new company has broadened its target customer base to pretty much anyone looking for money for anything.
Prosper, one of the latest 2.0 start-ups, looks to be one of the biggest competitors to the mainstream brick-and-mortar bank-controlled lending system. Borrowers create profiles, post photos, and “tell their story” to encourage lenders to lend them money. Prosper’s role is akin to PayPal’s in the transaction - the lender’s money goes to them, they charge the lender 0.5-1%, then they send the money directly to the borrower’s US bank account and charge him or her a 1-2% loan origination fee. The borrower then pays the money back to Prosper via automatic electronic banking transactions each month. These are unsecured 3-year loans, and Prosper hires outside firms to do the harassment of non-paying borrowers. This keeps the lender from being involved in that process.
The only problem, of course, is that the system is still credit-based. You won’t be turned down for bad credit, but you must have a credit score of at least 520 in order to create a loan listing. Your listings then get a rating from AA to HR, based on your credit score. The interest rate on the loan still largely corresponds to this rating.
Analysis: This is the best thing to happen to the US loan system since the New Deal. The question is whether or not the company can remain afloat and not scare away lenders too early on. Wired offers tips for lenders considering this new “microlending” market. The company’s success will be directly tied to the number of lenders it can pull in. But remember that in this case, lenders are ordinary people like you and me. The smallest amount you can lend is currently $50 (as a part of a group of lenders since the minimum loan amount is $1000), so Prosper is certainly trying to protect the lenders from losses.
Prosper offers an API to developers who wish to create mash-ups. You can view the third-party sites here. They range from statistics and analytics to Vets Helping Vets (VHV), a blog that connects US veterans looking to lend or borrow.