Prosper is Back in the Game, Lands First Private Equity Lender

imageA few weeks ago, I caught up with Chris Larsen, CEO & founder of Prosper. I’ve been a huge fan of his work for more than a decade. His ventures,
E-Loan and Prosper, have been pioneers in the lending space, both earning OBR Best of Web awards and Prosper also taking Best of Show in our first Finovate in Oct. 2007 (note 1).

But it’s been a rocky few years for Prosper (see Netbanker archives), as it’s been for most consumer lenders. The company even lost its lead in the U.S. P2P loan space to Lending Club, which is currently originating about three times as many loans.

But Prosper survived and appears to be back on a path to live up to its name. Some recent milestones:

  • Its first private equity lender (updated 16 June, 2011, per comment below) is coming on board, pledging $150 million to fund loans on the Prosper platform. This is an important development and fulfills a goal that the company sought since its 2006 launch. It will also help Prosper keep up with Lending Club which has had major institutional investors for a while. Prosper hopes to keep a healthy mix of retail and institutional investment (“50/50 would be fine”).
  • $17.2 million in new venture funding from Draper Fisher Jurvetson and Crosslink Capital (announced 7 June, link)
  • Achieving double-digit returns for investors, a far cry from the negative returns some lenders experienced in the “trial & error” era before (note 4
  • Achieving large year-over-year loan growth, although the company is still running less than half the pace of the pre-SEC days (note 3)

Prosper loan growth


Source: Eric’s Credit Community, 15 June 2011

Prosper’s homepage is a model of Web 2.0 simplicity
Note: New lenders are offered an iPad for investing $20,000 or more (15 June 2011)

Prosper's homepage is a model of Web 2.0 simplicity

Both Prosper and Lending Club are averaging about 200,000 monthly unique visitors


Source: Compete, 19 May 2011


1. E-Loan was named OBR Best of the Web in July 1997 for launching the first online mortgage brokerage.    
2. Prosper was named OBR Best of the Web in March 2006 for launching the first P2P loan service in the United States, and the first anywhere to use competitive bidding to set rates, a model they recently abandoned.  
3. Before the SEC forced the company to restructure its business as a securities issuer in Oct 2008.
4. The average total return for the 2006 to 2008 loans (most of which are now off the books) was a negative 5.4%

E-Loan to Stop Direct Mortgage Lending but Will Maintain Loan Portal/Referral Business

image In the early commercial Web era (1995 to 1998), five financial startups inspired me in terms of their innovative products and services: 

  • E-Loan for mortgage
  • E*Trade for stock brokerage
  • Netbank for deposit-taking
  • NextCard for credit cards
  • LendingTree for lead generation

These were my go to companies for ideas and inspiration when covering the space in the mid-to-late 1990s. In those days, traditional financial institutions were just getting started and were not as far along in features and functionality. 

Sadly, two of the five have failed, NextCard in 2002 (here) and NetBank in 2007 (here). And the other three are struggling through the credit crisis.

The latest downer: This week, E-Loan, owned by Banco Popular, announced its exit from the online mortgage origination business. Reading the headlines, I first thought they’d thrown in the towel altogether. But it turns out they are discontinuing only direct mortgage originations. The company will continue to use its popular website (see traffic below) to attract potential borrowers who are handed off to other lenders, something it already does today for student, auto, personal and business loans, along with credit cards. This is a potentially lucrative fee-based business with zero credit risk.

It’s a cautionary tale of how critical, and difficult, the execution piece is. These were industry darlings, always in the news and at the top of the search results. Yet, in financial services especially, you have to temper innovation with prudent underwriting and business practices. All three were brought down by credit-related problems. 

E-Loan traffic has stabilized at around 250,000 uniques per month:


E*Trade Bank and Flushing’s iGoBanking Join the 5% Online Savings Account Club

<Updated 12/1/06 with more details>

Two new entrants in the so-called high-yield savings market launched this week:

  • E*Trade Bank <>: Its new 5.05% Complete Savings Account was advertised in the Wall Street Journal today and took next-to-top honors in Google search results for "best savings accounts" (see end note 1, screenshot below).
  • iGoBanking <>: The new online brand from Flushing Financial launched Monday with a 5.3% rate on an online savings account (see end note 2, screenshot below).

iGoBanking (click to enlarge)

Flushing Financial's iGoBanking CLICK TO ENLARGE

As previously reported, Flushing Financial launched its entry into the online savings market. The 5.3% APY no-minimum account ranks as the fourth highest in the nation according to the Bank Deals blog (see list here). The rate leader continues to be E-Loan's at 5.5% (see our coverage here).

However, iGo can claim the highest no-minimum rate in the nation since E-Loan and the others require at least $5,000 to qualify for the higher rate.   

The bank will focus on deposits, CDs, and savings in 2007 and may expand to home equity and mortgage lending in the future.

The website is attractive and relatively well designed. The online application is hosted by CashEdge (see related post here). Unfortunately, the outsourced application fails to maintain the look and feel of the main website and may cause a few applicants to second guess their decision to sign up (click here for a more thorough analysis of its application design). 

E*Trade Bank (click to enlarge)

E*Trade Bank Complete Savings page CLICK TO ENLARGE

E*Trade's Complete Savings account builds on the direct bank's lineup of award-winning products (see previous coverage here). The bank flat-out understands the market and the medium.

The landing page for the new savings offering is brilliantly laid out with Google-like simplicity using just 25 words of copy (other than the table and the below-the-fold fine print). Notice how they show specific competitive prices, including high-yield market leader ING Direct. But what most consumers will remember from the chart is the "6X national average" rate.

Finally, the "Open an Account in Minutes" and "Free, one-click transfers to and from any institution" address user concerns on both those issues. And the small padlock with E*Trade's protection guarantee helps users understand security issues.

End notes:

  1. Search conducted at noon PST, Nov. 29 from Seattle IP address (see screenshot below).
  2. Source: American Banker, 29 Nov. 2006 (article here)

Google search results for "best savings account"

Google search results for "best savings rate" CLICK TO ENLARGE

E-Loan Launches High-Yield Deposit Line

Eloan_logoSix months after announcing its intention to enter the direct-banking deposit market (NB 29 March), Popular Inc. launched a 5.5% deposit account through its E-Loan subsidiary. The fee-free account requires a $5,000 minimum opening deposit. The rate drops a quarter-percent if the balance falls below $5,000. The news was covered this morning in American Banker and The Wall Street Journal.

Popular execs clarified the timetable of its $3 billion deposit goal, saying it hoped to bring in that amount within a year. With few U.S. deposits to cannibalize and no branch network, the company expects to be aggressive with its pricing. To prove the point, it launched today at 5.5%, a full half-percent higher than Citi's E-Savings (NB Jun 26), Wamu (NB Sep 21) and HSBC, and a quarter-percent above Countrywide (NB Sep 20).


The Delivery
The E-Loan homepage has been remodeled to include a Savings tab across the top and a deposit box in the middle of the page (click on inset for a closeup; click on continuation link below for a screenshot of the entire homepage). There is also a high-yield savings category in the drop-down menu in the upper right.

The main savings page is laid out in a modern style with clear rate and APY in the upper right and the beginning of the online application on the lower-left side (see screenshot below).


Since this had been expected for six months, there's nothing earth-shattering here. The decision to market deposits under the E-Loan brand makes sense given its awareness level online as demonstrated by the four million loan applications since its 1997 launch. It will take some advertising and promotional efforts to make consumers aware that the pure-play lender is now in the deposit business. But it will be less expensive than if Popular had tried to create an entirely new brand.

E-Loan has not yet begun marketing on savings terms at Google, but they'll likely have to join Citi, Wamu, HSBC, Emigrant, ING Direct and others if they are serious about making the $3 billion goal.

New E-Loan homepage with "Savings & CD" tab

Eloan_home_savings Re-launches Chris Larsen of e-Loan Fame

Prosper_homepage_chartChris Larsen, who helped invent financial e-commerce by creating E-Loan <> in 1997, is back on the scene mere months after selling the company to Popular Inc. last summer for $300 million. His new company,, is built around the idea of creating “communities” of people with similar interests who lend to and borrow from each other. The idea, he says, isn’t too far away from Jimmy Stewart’s savings and loan in Frank Capra’s film, It’s a Wonderful Life, where ordinary people lent to each other and made them all more prosperous.

Continue reading “ Re-launches Chris Larsen of e-Loan Fame”

E-Loan Extends “Employee Pricing” to Loans

Eloan_employee_pricing_emailIn a logical extension of the auto industry’s "employee pricing" gimmick, online lender, E-Loan launched a similar program for loans. This email arrived in our in-box yesterday morning. We are not customers, but have signed up for marketing messages (click on inset for closeup).

According to the email message, the discount on an auto loanEloan_employee_pricing_landing amounts to 0.25%. On a mortgage, the savings are 0.5% of the loan amount. The sale runs through Labor Day weekend only, ending Sept. 6, 9am Pacific Time (click on inset on right, for an archived copy of its landing page).

Eloan_employee_pricing_websiteIn addition to the email blast, the special is splashed across its website (click on inset for archived copy of E-Loan’s homepage, Sept. 2, 2005).

Note also, the prominent Red Cross link in the middle of the page for making donations to aid Hurricane Katrina victims.