Peer to Peer Lending - Examining the Industry and Borrower Experience

7/27/2019 Peer to Peer Lending - Examining the Industry and Borrower Experience

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COPYRIGHT 2013 CORPORATE INSIGHT, INC.

PEER-TO-PEER LENDING

EXAMINING THE INDUSTRY AND THE BORROWER EXPERIENCEAUTHOR: JOHN GREENOUGH

PUBLISHED: OCTOBER 2013


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TABLE OF CONTENTS

2

Introduction to P2P Lending

P2P Lender Profiles

o Prosper

o Lending Club

Prosper vs. Lending Club

Five Key Takeaways

Corporate Insight Thought Leadership

About Corporate Insight

About the Author


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INTRODUCTION TO P2P LENDING

3

INT

RODUCTION


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4

INTRODUCTION

P2P LENDING INDUSTRY OVERVIEW

Online peer-to-peer (P2P) lending websites, often

referred to as Shadow Lenders, have gained

significant traction since the credit crunch resultingfrom the 2008 financial crisis. The purpose of these

rapidly-growing websites is to facilitate loans of

under $35,000 between borrowers and investors.

The result is a transparent loan platform where

individual investors can determine a borrowers

credit worthiness and partially or fully fund a loan atan attractive interest rate.

Investors and borrowers alike have found significant

value in these online platforms, as they allow them

to bypass banks when conducting business. Top P2P

lending platforms have been valued at over $1

billion and continue to grow.* Collectively, the top

two firms originated $871 million in loans last year.

Lets take a closer look at the borrower experience,

by examining the enrollment and loan processes.

Source: Dugan, Ianthe. "Consumers Find Investors Eager to Make 'Peer-to-Peer' Loans - WSJ.com." The Wall Street Journal - Breaking

News, Business, Financial and Economic News, World News & Video - Wall Street Journal - Wsj.com. N.p., n.d. Web. 6 Aug. 2013.


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BORROWER ENROLLMENT PROCESS

Borrower signs up for the service by providing basicinformation

P2P lending platform runs credit check to ensure borrowermeets basic borrowing requirements

Borrower is granted access to create a loan profile on P2Pwebsite

Website verifies borrowers identity by requesting theborrower to mail copies of Social Security card, W-2 form,

and other forms of identification

5

INTRODUCTION

The borrower enrollment experience on a P2P lending site is

straightforward but firms perform their due diligence:


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BORROWER LOAN PROCESS

6

INTRODUCTION

Borrowers loan profile is published on the website forinvestors to crowdfund, often in small increments

Once fully funded, a third party bank issues the loanto the borrower and creates sliced securities for each

investor to collect returns from the borrower

Borrower makes payments back to P2P lending

platform, which re-issues funds to security holders

Once enrolled, borrowers may publish a loan to the firms online platforms:


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P2P LENDER PROFILES

7

Prosper

Lending Club


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PROSPER COMPANY PROFILE AND KEY STATISTICS

Prosper:

Founded in 2006 as First P2P Lending Platform

$ Amount Funded to Date $500,000,000*

# of Members 1.9 million*

APR** 6.73%-35.36%

Average ROI 9.09%

Loan Amount Minimum $2,000

Loan Amount Maximum $35,000

Loan Term 3-5 Years

Average Default Rate 5.8%

8

PROSPER

*As of September 2013

**APR is determined by Prosper based on credit worthiness. Please see a full list of APRs based Prosper

Rating and average default rates of each rating on next slide.

Prosper Default Rates Based on

Prosper Rating**


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RATES AND FEES

9

PROSPER

Borrower Rate and APR Based on Prosper Rating

Prosper assignsapplicants an APR

based on credit

worthiness and

informs them of their

Prosper Rating.

A closing fee for the

loan is determined by

the individuals

Prosper Rating.

The firm chargeslenders a 1% annual

loan servicing fee.


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ENROLLMENT

Prospers enrollment process is similar to applying for a credit card online:

o Applicant initially enters: amount of the loan, how they will use the loan and theircurrent credit quality.

o Application requires basic personal information: name, date of birth, mailing

address, employment information, etc.

o Prosper runs a credit check and instantly approves or rejects applicants.

10

PR

OSPER

Step 1 of Loan Application Step 2 of Loan Application


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LOAN PROFILES

11PROS

PER

Provides detailed

information about

borrowers credit

history and current

employment

Description of loan

shows personal

statement of what the

loan will be used for

and why borrower

considers themselves

to be a good

candidateLoan Profile as Posted on Prosper Loan Board

If loan is 70% funded,

borrower can choose

to partially fund the

loan at the end of the

listing period

The borrower fills out a loan profile which is posted to a loan board for investors to

examine and potentially fund:

Highlights of the main

features and terms of

the loan

States primary

borrower information;

Purpose of Loan, Rate,Monthly Payment


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ONLINE TOOLS

The Prosper Borrowing page allows users to view/edit their current loan listing,

make a payment, complete the Prosper verification process to receive the loan,

and create a new loan listing.

12

PR

OSPER

Borrower Rate and APR Based on Prosper Rating


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LENDING CLUB COMPANY PROFILE

13

LENDINGCLUB

Lending Club

Founded in 2007

$ Amount Funded to Date $2,595,182,275

APR* 6.03%-28.69%

Average ROI 5.57%-9.16%

Loan Amount Minimum $1,000

Loan Amount Maximum $35,000

Loan Term 3-5 Years

Average Default Rate 4%

Most Common Reasons for Loan**

*As of August 2013**Credit Card Refinance/Debt Consolidation accounts for 80.67% as reason for loan


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RATES AND FEES

Total loans issued by Lending

Club has skyrocketed since 2011and continues to grow.

1%-5% origination fee is charged

based on borrowers loan

grade/term.

1% servicing fee is charged tothe investor.

14

LENDINGCLUB

Loans Issued by Lending Club since Foundation

Lending Club Ratings and Associated APRs


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ENROLLMENT

Enrollment is fast and easy:o Borrowers required to

provide basic personal

information

o Credit check is run on all

applicants.

o If approved, Lending Club

instantly shows the rate the

borrower qualifies for

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LENDINGCLUB

Lending Club Application Approval Page


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Lending Club Borrower Profile as Listed on Loan Board (Truncated)

LOAN PROFILE

16

P2

PLENDERPROFILES:THELENDINGCLUB

Credit profile

provides detailed

credit information,

almost identical to

Prosper

Q&A adds a unique

feature, which Prosper

lacks, for investors to

ask borrowers about

the purpose of the

loan and their

financial history

Although aesthetically less pleasing than Prosper, the Lending Club profile provides

more digestible information, as well as an added Q&A section for investors to ask

borrowers questions.

Income is broken

down by month and is

specific, giving the

investor a

comprehensible view

of if borrower will be

able to pay off loanmonthly

Current funding is

broken down into a

dollar amount and

lists the number ofinvestors so far


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VS.

17


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RATES AND FEES

Prosper and Lending Club offer nearly identical APRs and servicing fees.

Prospers closing fee is advertised as being slightly higher than The Lending

Clubs origination fee.

Advantage: The Lending Club

18

PR

OSPERVS.LENDINGCLU

B

Rates/Fees The Lending Club Prosper

APR 6.03%-28.69% 6.73%-35.36%

Origination/Closing Fee 1%-5% 2%-5%

Investor Fee 1% 1%


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ONLINE USER EXPERIENCE

Lending Club provides more transparent information to both the borrower

and lender about the loan process, borrower requirements and associatedfees on its public site.

While Prospers site is more aesthetically pleasing, Lending Club provides a

more detailed and digestible loan profile which may attract more investors,

resulting in potentially better rates for borrowers.

Advantage: Lending Club

19

PR

OSPERVS.LENDINGCLU

B

Feature Lending Club Prosper

Profile Set Up

Profile Management

Loan Profile

Public Site Information

Navigation


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CORPORATE STRUCTURE

Lending Club is currently valued at $1.55 billion.

Prosper recently raised $25 million in a new round of investment with backers

that included BlackRock.

Lending Clubs backers and Board of Directors include well-known individuals,

such as Larry Summers, John Mack, and Google, which may entice users based

on their leaderships prior success in the financial markets.

Advantage: Lending Club

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PR

OSPERVS.LENDINGCLU

B


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FINAL VERDICT

Lending Club provides a slightly better user experience and lower rates/fees

than Prosper. What really tips the scales in Lending Clubs favor is the firmsstrong corporate structure and growth prospects as they are expected to go

public in the next year.

Leader: Lending Club

21

PR

OSPERVS.LENDINGCLU

B


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KEY TAKEAWAYS

22


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FIVE KEY TAKEAWAYS

23

KE

YTAKEAWAYS

1. Lending Club and Prosper offer a viable option for qualified borrowers toreceive a personal loan away from the traditional brick-and-mortar

institutions.2. Shadow lending websites provide a one-stop-shop for borrowers to receive

their loan, while providing the tools necessary to manage that loan.

3. From a borrowers perspective, its very difficult to be approved to joineither website. Lending Club, for example, only accepts roughly 10% of allapplicants. While this is beneficial for investors and those who qualify for

these loans, by no means will these websites replace pay-day loanboutiques.

4. It seems unlikely for shadow lenders to move beyond loans over $35,000without becoming heavily regulated. With an influx of investors joiningbecause of the high ROI, P2P Lenders must ensure that borrowerrequirements do not dip to meet the demand.

5. As many critics cite, the growth of these websites will help to alleviate anypredatory loan practices by offering fair rates and not imposing substantialfees.


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CORPORATE INSIGHT THOUGHT LEADERSHIP

24

Tablet-Friendly Web Design: Best Practices for Financial Services

The study examines the tablet-friendly website features provided by four leading firms across

financial services and provides recommendations for financial services firms building tablet-optimized websites.

Next-Generation Investing: Financial Startups and the Future of Financial Advice

CI tracks over 100 startups that covers a wide range of new ideas across financial advice and

investing. This study will focus on each idea, analyze compares them to what established financial

institutions offer and examine the potential impact on the industry. Download the study preview!

Alternative Investments: How Asset Management Firms Frame Their FundsThis whitepaper examines the online content leading firms are using to educate investors and

financial advisors about alternative investments and takes a look ahead to what's next for these

products.

Facebook Marketing Campaigns - Social Media Initiatives in the Insurance Industry

This slide deck highlights some of the engaging Facebook marketing campaigns initiated by P&C

Insurance Monitor firms this year and offers a few Facebook marketing tips for insurers.

2013 Mobile Finance Trends and Innovations

This slide deck includes commentary on mobile developments, key takeaways for financial services

firms and thoughts on whats next for mobile finance.
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ABOUT CORPORATE INSIGHT

Connect With Us

Corporate Insight provides competitive intelligence and user experience research to the nations leading

financial institutions. For over 20 years, the firm has tracked technological developments in the financial

services industry, identifying best practices in online banking and investing, online insurance, mobile

finance, active trading platforms, social media and other emerging areas. There are no assumptions in

Corporate Insights work we use live accounts at all of the firms we research, providing our clients with

unparalleled, unbiased intelligence on the competition.

Corporate Insight welcomes the opportunity to speak with the media. If you are interested in citing our

research or would like to schedule an interview with one of our analysts, please contact Intermarket

Communications at 212-888-6115 or [email protected].

Media Inquiries

25

JOHN GREENOUGH

Research Associate

Bank Monitor & Credit Card Monitor

212-832-2002 x-113

[email protected]

BEN POUSTY

Marketing Manager

212-832-2002 x-134

[email protected]
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ABOUT THE AUTHOR

AB

OUTTHEAUTHOR

JOHN GREENOUGH

RESEARCH ASSOCIATE

BANK MONITOR AND CREDIT CARD MONITOR

John Greenough is a Research Associate for

Corporate Insights Bank Monitorand Credit Card

Monitorresearch services. John focuses on tracking

the online user experience, tools and productsoffered by leading banks and credit card issuers. This

slide deck is the result of extensive research he

performed into the P2P lending industry and the

borrower experience leading firms in the space are

offering online.

CONTACT JOHN:

T: 212-832-2002 x-113

E:[email protected]

Bank Monitor & Credit Card Monitor are service marks of Corporate Insight, Inc.; all rights reserved. 26
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Peer to Peer Lending - Examining the Industry and Borrower Experience

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