P2P Lending

IOU Central Launches First P2P Lending Exchange in Canada

By Jim Bruene Posted on
Categories: Loans & Credit, P2P Lending, YouTube

image

We were surprised to learn today that someone beat Community Lend to market, becoming Canada's first person-to-person lending exchange (previous coverage here). The Montreal-based startup, IOU Central, says they've been working on the company for a year.

The company merged with an established Danish person-to-person lender FairRates <fairrates.dk>, whose co-founders, Robert Bialek and Arkadiusz Hajduk, are now on the IOU Central team.

Much like its U.S. counterparts, Prosper and LendingClub, IOU Central facilitates installment loans of up to $25,000 CDN, with terms of up to 3 years.

The company's homepage includes a YouTube video of its President, Phil Marleau, giving an 80-second overview of the company. Even more important, they have a testimonial from a former TD Bank EVP to the right of the video (see screenshot below).

The company issued a news release today (here) that was picked up by several blogs (here and here). For more info on the market for P2P loan, and what financial institutions should do about it, see our recent Online Banking Report (here).

IOU Central homepage on launch day 12 Feb 2007

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New Person-to-Person Lender GlobeFunder Now Accepting Consumer Loan Applications

By Jim Bruene Posted on
Categories: GlobeFunder, Loans & Credit, P2P Lending

Three new P2P lenders are known to be preparing to go to market in 2008: image

  • GlobeFunder: Opened for loan applications earlier this month, but is still not accepting individual lenders at this point. I tried testing the loan application, but it would not accept requests from Washington state.
  • imageFynanz is the latest P2P lender to surface. According to the Prosper Lending Review blog, the company is gearing up to enter the U.S. market specializing in student loans, a space that Virgin Money USA has said it will enter later this year. Fynanz founder is Chirag Chaman, although he is not listed on the company's website.
  • imageLoanio: Has been saying "coming in January" for the past several months.

In addition, I know of three others in formation and I'm sure there are dozens of others circulating business plans. With 100+ million potential customers in the United States, there is probably room for dozens to co-exist, although only a few will ever become household names.

For a complete analysis of the market see our most recent Online Banking Report (here).  

image

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Ask the CEO: Asheesh Advani of Virgin Money

By Jim Bruene Posted on
Categories: Conferences, Net.Finance Conference, P2P Lending, Virgin Money

image Next week, I'll be interviewing Virgin Money USA CEO and Founder Asheesh Advani on stage at the Online Innovations in Financial Service Marketing Conference hosted by the Net.Finance (World Business Research) folks in New York City. Our main topic will be "Why consumers aren't buying mortgages online, yet," but I'm sure we'll cover the entire person-to-person lending spectrum in our 35-minute session Thursday morning (24 Jan).

If anyone has any questions for Mr. Advani, leave them in the comments here, or email me. I'll post the response here next week.

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Prosper Increases its Loan Fee by 100%

By Jim Bruene Posted on
Categories: Loans & Credit, P2P Lending, Pricing, Prosper

As noted in our recent research report on the P2P lending market (here), the exchanges need to boost revenues to remain viable. Even with scale, a 1% borrower fee and 1% servicing fee just don't provide enough revenue with the relatively small loan sizes currently being funded.

For example, using Prosper's previous pricing on a typical $7,000 loan, about $130 would be earned in the first year, then another $50 for the remaining two years of the loan (see note 1), for a maximum of $230 in lifetime revenues per loan.

So until loan sizes increase dramatically as secured notes become more common, Prosper has raised its prices for the core portion of its loan demand, the alt-prime and subprime portion. The company left its superprime, class AA price alone because it competes with banks and credit unions for this type of borrower.  

As you can see from the table below, most loan-origination fees increased by 1 point, although C and D loans were increased 2 points. Looking at the company's mix of business during the first half of 2007, the new pricing would have doubled its loan-origination revenue from about $500,000 to just over $1 million. The weighted average fee under the prior pricing was 1.2%, compared to 2.4% under the new formula.

Here's the new price plan effective Jan 4, 2008, as announced in the Prosper blog (here):

Type   New Price   Previous  Change  Avg Loan*  Avg Loan Fee* 
Prime  
  AA           1%               1%             none             $9,000            $90
  A             2%               1%            +1 point         $10,300         $210
Near Prime
  B             2%                1%           +1 point         $9,800          $200
  C             3%                1%           +2 points       $8,400           $250
  D             3%                1%           +2 points       $6,500           $195
Sub-prime
  E             3%                2%            +1 point        $4,500          $135
  HR           3%                2%            +1 point        $3,000           $90

Weighted
  Average*** 2.4%          1.2%

*Average loan size during the first half of 2007 per company
**Loan-origination fee deducted from proceeds of loan; there is no fee if the loan does not get funded
***Using the loan mix from the first half of 2007

Note:
1. It depends how the servicing fee is calculated. At Prosper, it's calculated on the outstanding loan balance which for a $7,000 loan averages approximately $6,000 in year 1, $3,750 in year 2 and $1,250 in year 3.

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Zopa Credit Union Partners Give it Top Billing

By Jim Bruene Posted on
Categories: Credit Unions, Loans & Credit, P2P Lending, Zopa

In researching our latest report on P2P lending, we visited the websites of Zopa's six credit union partners to see how they were promoting, and explaining, the relatively complicated new product. Overall, they gave Zopa surprising prominence. Five of the six mention it on their homepages, with three of those running large banners, usually in rotation with other offers (see list below as observed on Dec. 6). USA Federal Credit Union is the lone holdout, with no mention of Zopa on its website so far.

  • Addison Avenue FCU ==> Square ad on right side of hompage
  • Affinity Plus FCU ==> Banner on homepage 
  • First Tech CU ===> Two places on homepage, banner in the middle rotating with
        four offers and square box on right (see screenshot below)
  • FORUM CU ===> Small graphic and link on bottom of homepage
  • Provident CU ==> Banner on homepage rotating with four offers 
  • USA Federal CU ==> Not mentioned on website

    • Analysis
    I understand why the credit unions are featuring their Zopa relationship. It's new, it's different, it's exciting and the helping-others message fits right in with the holiday spirit. However, for the most part, the program is woefully under-explained when clicking through the banners. I have to believe the most common member reaction to seeing the Zopa product info is, "Huh?"

    It must lead to some interesting conversations on the phone and in the branch. Some of which may result in sales, so it's not all bad. But I don't think the ultimate purpose of partnering with Zopa is to confuse members to the extent that they call. There are easier ways to do that.

    Examples
    First Tech CU has two images on its homepage, both emphasizing Zopa's core message of helping. And the educational aspect is helpful (see screenshot below).

    Addison Avenue CU takes a light-hearted approach on its homepage ad, saying:

    Introducing Zopa (And no, it isn't a new energy drink)

    And Addison Avenue does the best job explaining the service, although I still think it raises more questions than it answers.  

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    New Online Banking Report Published: Person-to-Person Lending 2.0

    By Jim Bruene Posted on
    Categories: Lending Club, Loans & Credit, Online Banking Report, P2P Lending, Prosper, Virgin Money, Zopa

    For much of the past four or five weeks I've been researching and testing person-to-person lending sites. I've become a lender and have gone through the borrowing process at all three major U.S. P2P lending exchanges: Prosper, Zopa, and Lending Club. Plus I set up friends and family with loans at Virgin Money USA and LoanBack.

    It was all part of the research process for the latest Online Banking Report entitled, Person-to-Person Lending 2.0: Disruptive service or market niche? That report is now available at our main website (here).*  

    I had originally intended on publishing it in early December. But as I was trying to wrap things up, Zopa launched its new U.S unit. So I stopped the presses and added an analysis of its unique model. Then as I was finishing that, Lending Club made a significant change last week, becoming a national lender instead of state-sanctioned one. That too is now in the report. 

    Here's a summary of the major fourth quarter activity in the person-to-person lending sector:

    • Oct. 2: Prosper overhauled a number of its lending tools, which were announced at our FINOVATE conference Oct. 2 (video here) 
    • Oct. 6: Virgin Money (formerly CircleLending) launched its revamped friends-and-family service with a splashy debut in Boston with Virgin founder Richard Branson leading the parade (coverage here)
    • Dec. 3: Zopa launched its U.S. version, an entirely new way of looking at the P2P space (coverage here)
    • Dec. 13: Lending Club went national in a unique partnership with WebBank

    ________________________________________________

    *Subscribers may download the report free of charge.
    Others may purchase it as an individual report.

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    Giving the Gift of Microfinance

    By Jim Bruene Posted on
    Categories: P2P Lending, Public Relations

    Instead of giving yet another gift card, how about making a difference for someone 5,000 miles away?  The biggest online microfinance lender, Kiva, with $12 million loaned to date, offers gift certificates (here) as does Danish microfinance startup, MyC4, that just launched its public beta in September and offers microloan gift certificates (here).

    The recipient of the gift certificate logs in and chooses an entrepreneur to assist. For example, the inset is from a listing for a Cambodian village looking to Kiva for $600 to purchase a second cow and a motorbike trailer.

    For your kids, it's a great lesson in business, demonstrating how a small amount of capital can make a huge difference in someone's life. And it's a gift that keeps on giving. As the loan is repaid, it can be lent back out to someone else.


    Kiva Gift Certificate

    MyC4 Gift Certificate

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    How Zopa Operates Nationwide Through Just Six Credit Union Partners

    By Jim Bruene Posted on
    Categories: Credit Unions, P2P Lending, Zopa

    One of the first questions that arose when Zopa began facilitating loans and deposits for six U.S. credit unions earlier this week was, "What about (CU) field of membership requirements?" (see coverage here). It turns out that four of the six credit unions working with Zopa offer membership to anyone in the United States as long as the prospective member joins one of the supported organizations. And Zopa handles that hurdle during the signup process for its marketplace.

    For example, when I purchased a Zopa CD earlier this week, I was given the choice of joining either First Tech Credit Union, which offers membership to anyone in my state (Washington) or Addison Avenue Credit Union, which anyone can join provided they pay $5/yr to join the Financial Fitness Association. And to make the process simpler, Zopa covers the first year of association dues (see screenshot below).

    Bank Deals blog dug out the membership requirements of the six Zopa partner credit unions (here). Here are the four that offer membership through one or more organizations: 

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    Zopa Launches U.S. Loan Marketplace Monday Night

    By Jim Bruene Posted on
    Categories: Loans & Credit, P2P Lending, Zopa

    Just two days after its semi-public beta, Zopa US opened for business late yesterday. The announcement was in the Zopa US blog (here) and emailed to its house list this morning. See Sunday's NetBanker post (here) for our initial impression of the service.

    Below is a screenshot from Day 1, forever memorializing Zopa employee Scott, as the first (and so far, only) Zopa borrower. And since all Zopa lenders are required to help at least one borrower, Scott's payments on his $1,000 9.9% loan have been covered for the first year by the company's first 13 CD depositors.

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    First Look: Zopa Opens in the United States with Depository Model

    By Jim Bruene Posted on
    Categories: Credit Unions, Deposits, Checking, Savings, CDs, Loans & Credit, P2P Lending, Zopa

    Zopa US opened a private beta Saturday morning, emailing selected customers that had previously signed onto its mailing list. Both of our listed email addresses received invites.

    We'll look closer at the new service in our upcoming Online Banking Report on P2P lending, but what stands out is the business model: part P2P lender, part deposit-taking financial institutions, part charitable organization, part broker, and part lead-generation site. I'm not positive you can be all of those things at once, but it will be fascinating to see if Zopa and its partner credit unions can pull it off.

    How it works
    To understand how the Zopa US system works, you must first realize that all loans and all deposits are held at the six partner credit unions (see list below). So in that way, Zopa is a pure lead-generation play.

    Zopa "investors" put their money in fixed-rate, 1-year certificates of deposits held by a credit union partner. Borrowers take out 5-year fixed-rate personal loans, again from a credit union partner. This part is pure depository financial institution, with Zopa as a broker. 

    Finally, the P2P/social finance aspect comes into play with the requirement that all depositors must choose to "help" at least one borrower by reducing the borrower's loan payment. The depositor has the choice of accepting the highest rate of interest, currently 5.1%, and making a token donation, or sharply reducing the APY on the Zopa CD in order to provide more financial assistance to Zopa borrowers. Depositors select who they want to help from the listed loans. An obvious scenario would be a grandparent investing a substantial sum into low-interest Zopa CDs, so that a child/grandchild could take out a 5-year loan to help with a down payment on a house. But depositors may also help a stranger whose story they find appealing. 

    Our preliminary take
    Zopa has removed much of the uncertainty from the P2P lending process. But by eliminating the risk, they've also reduced available returns. Marketing Director Wade Lagrone, with whom I spoke Saturday afternoon (as Zopa engineers hammered away on the final tests), believes that U.S. investors overwhelmingly prefer low-risk, fixed-income investments and will prefer this P2P model.

    I'm not convinced yet. It seems like a somewhat convoluted path to buy a simple CD. First, you must set your deposit rate, choose one or more borrowers to help, and finally join one of the six credit unions. The website makes the process relatively straightforward, but it's not the same as simply dropping a few grand into an online bank. 

    On the other hand, the ability to donate all or part of your deposit's interest-yield could appeal to certain investors, especially the well-heeled looking to help family members obtain below-market-rate loans for defined purposes (home purchase, education, business expansion, etc). And eliminating lender risk removes the huge chore of keeping lenders happy and informed about their book of loans. 

    Another potential problem is lack of transparency for borrowers. To obtain a Zopa loan, prospective borrowers fill out a nonbinding "loan quote." Not until after this application is made, and a credit inquiry logged, do borrowers find out if they will receive the lowest rate of 8.75% or the highest of 16.99%. And borrowers have no idea whether they will receive "help" from investors to lower their payment, and effectively reduce the APR of the loan.

    Screenshot: Zopa CD setup (1 Dec 2007)
    Zopa investors (aka lenders) select the rate of return for their 1-year CD and then choose a borrower to help by offsetting a portion of their Zopa loan payment.

     
    Appendix: Credit Union Partners
    The six U.S. credit union partners of Zopa US:

    • Addison Avenue Federal Credit Union
    • Affinity Plus Federal Credit Union
    • FirstTech Credit Union
    • FORUM Credit Union
    • Provident Credit Union
    • USA Federal Credit Union

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    Congestion at the Starting Gate? Three New U.S. P2P Lenders Set to Launch: Zopa, GlobeFunder, and Loanio

    By Jim Bruene Posted on
    Categories: GlobeFunder, Loanio, Loans & Credit, P2P Lending, Zopa

    Less that two years after the first P2P launched in the U.S., it looks like we'll soon have at least five companies chasing this new market, six if you include Virgin Money.

    The most well known is Zopa, the person-to-person lending pioneer which opened in the UK in 2005 and now has nearly 200,000 members. Its long-awaited U.S. launch is scheduled for next week. I'll be speaking with marketing director Wade Lagrone tomorrow, but Jane Kim broke the news in today's Wall Street Journal (here). The market forecast in the article, predicting as much as $9 billion in P2P originations by 2017, is from our upcoming Online Banking Report on P2P lending (note 1). 

    Zopa is working with six credit unions, including FORUM Credit Union, to match lenders with borrowers. And unlike other P2P lenders, Zopa's is guaranteeing the lender's principal. That will reduce potential returns, but make participation more like buying a CD from a bank. So, it will be interesting to see how the company differentiates its offering from traditional bank/credit union fare. We'll have more when the site opens to the public next week.

            

    We also hear that GlobeFunder and Loanio are about to launch, possibly yet this year. Loanio has not revealed its strategy, but GlobeFunder is positioning itself as a microlender in the same vein as the Nobel prize-winning approach of Grameen Bank. For more info, read the GlobeFunder blog.  

    All three will be included in our upcoming Online Banking Report (note 1). We'll also look at Prosper, Lending Club, LoanBack, and Virgin Money (formerly Circle Lending).

    Note:

    1. Online Banking Report subscribers will have access to the report as soon as it is published on Dec. 8. Nonsubscribers can put their name on the announcement list here and receive a prepublication discount code to save 10%. Please mention "P2P report" in the subject line.

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    "Prosper Days" User Conference Videos Repurposed to Educate Customers

    By Jim Bruene Posted on
    Categories: P2P Lending, Prosper, Public Relations

    Prosper is one of the few (only???) national retail financial services companies that holds a users conference. The second annual Prosper Days is scheduled for Feb. 25/26 in San Francisco (more info here) and costs $55 in advance or $75 after Jan. 31. This year, they've added a famous keynoter, Freakonomics co-author Stephen Dubner. I will also be on stage later as part of a panel discussion of bloggers covering the space.

    The conference is an excellent idea, creating a buzz around the company and providing a platform for its most loyal customers to share success stories and network. It's a model eBay has used successfully for years. The addition of Dubner should increase press coverage and attendance.  

    I'm also impressed at how Prosper reuses the content created for the conference. The sessions are recorded and posted to its website to help educate borrowers and lenders. A total of ten videos are available here (see screenshot below).

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