Prosper's Peer-To-Peer Lending Promises An eBay For Money - InformationWeek
Business & Finance
08:05 PM
Connect Directly

Prosper's Peer-To-Peer Lending Promises An eBay For Money

Online borrowing platform Prosper lets people bid to provide loans at different rates.

Peer-to-peer finance sounds like a concept born to be ridiculed. It involves groups of people coming together online to lend up to $25,000 to someone they don't know, eliminating the bank middleman. Call it social finance or a utopian dream. Just don't call it

In February, Prosper opened what it describes as "America's first people-to-people lending marketplace." And a company called Zopa this summer will bring its British brand of peer-to-peer finance to California residents. Zopa began operating in the United Kingdom in March and has more than 60,000 members.

Both companies are flush with venture capital. Prosper has about $20 million from Accel Partners, Benchmark Capital, Fidelity Ventures, and Omidyar Network. Zopa has $23 million from Benchmark Capital, Bessemer Venture Partners, and Wellington Partners.

Prosper is like eBay for money--except that instead of auctioning products, it lists loans people want and lets lenders bid on them, alone or in groups. On Zopa, instead of bidding, lenders' money is spread across batches of 50 borrowers to lower risk.

The model goes back to the way things used to be when one neighbor supported the business of another, says Chris Larsen, Prosper's CEO and co-founder. "There was a really strong sense of obligation and accountability and reputation within a small community," he says, "which actually made repayment of debts more reliable and less risky."

Before anyone compares this to the neighborhood loan shark, though, Prosper limits how high interest rates can go. Lenders can pursue deadbeats through conventional channels.

Prosper's rates range from 7.32% (low risk, low amount) to 24.04% (high risk, high amount). Zopa claims an average gross return of 7%. The sites make money on fees and attract a mix of ardent capitalists and wild-eyed dreamers. "I'm fascinated by the concept and hate big corporate banks," writes one user on Zopa's online forum.

Most intriguing are both companies' plans to introduce APIs so programmers can integrate social finance with social networking. Members of Yahoo Groups and MySpace would be able to participate in peer-to-peer finance through groups already established at other services. Groups could even be set up to view financial data and perform administrative functions from sites other than Prosper or Zopa.

This social aspect could be the key to whether this model expands beyond a niche--though chatty MySpace relationships could be strained if collection letters start to arrive.

Illustration by Christoph Hitz

Comment  | 
Print  | 
More Insights
Newest First  |  Oldest First  |  Threaded View
How Enterprises Are Attacking the IT Security Enterprise
How Enterprises Are Attacking the IT Security Enterprise
To learn more about what organizations are doing to tackle attacks and threats we surveyed a group of 300 IT and infosec professionals to find out what their biggest IT security challenges are and what they're doing to defend against today's threats. Download the report to see what they're saying.
Register for InformationWeek Newsletters
White Papers
Current Issue
2017 State of IT Report
In today's technology-driven world, "innovation" has become a basic expectation. IT leaders are tasked with making technical magic, improving customer experience, and boosting the bottom line -- yet often without any increase to the IT budget. How are organizations striking the balance between new initiatives and cost control? Download our report to learn about the biggest challenges and how savvy IT executives are overcoming them.
Twitter Feed
Sponsored Live Streaming Video
Everything You've Been Told About Mobility Is Wrong
Attend this video symposium with Sean Wisdom, Global Director of Mobility Solutions, and learn about how you can harness powerful new products to mobilize your business potential.
Flash Poll