Has a New Look and a New Business Model

The changes at that I mentioned last week came to pass yesterday. They now have a new look, not radically different but an improvement nonetheless. More importantly they have moved away from the auction process to a new fixed rate model for borrowers where Prosper decides the borrower’s interest rate.

These changes come at an important time for Prosper. They are lagging behind Lending Club dramatically in loan originations but they are showing some positive momentum. In their press release today, Prosper announced their November loan numbers and they looked good. With loans of over $2.5million for the month, it was their best month since they emerged from their quiet period in 2009. Although it is still dwarfed by Lending Club with $11.6million in new loans for November, so Prosper still has plenty of work to do.

Prosper Needed to Make a Change

Here is my take on all this. Prosper needed to do something. If you look at Prosper’s monthly loan chart from Eric’s Credit Community you can see that loan volume has been somewhat stagnant this year, whereas Lending Club has increased their monthly loan numbers steadily throughout the year. Prosper may have concluded that one of the things holding them back was the auction model. From my perspective, as an investor with both Prosper and Lending Club, I found Lending Club’s system easier to use and navigate. With the new fixed rate model I think Lending Club will lose some of that advantage.

I am sure Prosper did not make this change lightly. In an email sent to lenders this morning, CEO Chris Larsen explains their reasoning behind the change:

While many lenders enjoyed the auction system conceptually, we heard consistent feedback that in practice, auctions made the deployment of funds more time consuming with little gain in lender returns. The change to pre-set pricing means that listings will close faster and that you can’t be outbid – so your investments will start earning great returns more quickly!

No doubt, many old time investors and borrowers will be disappointed with the move away from the auction p2p lending model, but the focus now is on speed and ease of use. The bottom line is really the bottom line. As long as investors remain happy with their returns few people will complain.

The Big Risk

There is no doubt that it was a big risk for Prosper to make these changes now. So the next quarter will be critical. They will need to show that this has all been worth it and new loan numbers need to show steady improvements. The risk is that the numbers remain stagnant and borrowers go elsewhere for their money. Only time will tell how this all pans out but I hope there is a steady PR and social media campaign going forward to get the word out. I, for one, will be watching very closely to see if the new Prosper does in fact prosper.

  • Peter Renton

    Peter Renton is the chairman and co-founder of Fintech Nexus, the world’s largest digital media 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.