Prosper, The Importance of Data & Customer Satisfaction in P2P Lending
Originally published on the Wharton FinTech blog on December 12, 2014.
The following is an interview between Wharton FinTech VP of Education, Sasha Dobrolioubov, and Aaron Vermut (CEO), Ron Suber (President), and Karl Hu (Business Operations Manager) of Prosper. This interview took place December 4, 2014.
Prosper is America’s first peer-to-peer lending (P2P) marketplace, with more than 2 million members and over $2 billion in funded loans.
Can you tell us about Prosper, your mission and how you differentiate from other P2P lenders?
Prosper is an online credit marketplace that serves both borrowers and investors. On the borrower side, we serve three main types of individuals: people with credit card debt who would like to refinance and/or consolidate their debt, people who are seeking a loan in order to make a major purchase or investment, and entrepreneurs who want to borrow on their personal credit for business purposes.
On the other side of the equation are the investors, both individuals and institutions. We connect our investors with our borrowers and help investors generate steady, solid returns. Our long term mission is to continue to serve both sides of this equation — to create financial products that will help investors and borrowers improve their financial well-being.
We believe that our focus on the customer helps differentiate Prosper from other P2P lenders. Customer satisfaction as measured by NPS (net promoter score) is very high and we’re seeing a lot of repeat borrowers and investors. We also offer the most comprehensive automated investing program on the market in order to streamline the investing process for our customers. Additionally, we want to remain a pure play business — we’re not looking to enter the wealth or investment advisory space, for example. We believe this focus will help us continue to offer the best P2P loan products in the market.
What do you see as your main competitive advantage vs traditional lenders, such as big banks and credit unions?
One of Prosper’s key advantages is our operational structure — unlike banks, we don’t have to pay for branches and tellers. This allows us to be much more operationally efficient, leading to cost savings that we can then pass on to borrowers in the form of better rates and to investors in the form of solid returns. Our simple borrower application, coupled with a streamlined and automated underwriting process, allows us to make quicker loan decisions. And our customers are highly satisfied — check out our Facebook page to see what borrowers and investors are saying.
Let’s talk about data. Big banks have a wealth of data on their customers, and we’re seeing alternative lenders such as Kabbage start to use non-traditional data such as a small business’s Amazon reviews to help evaluate creditworthiness. How does Prosper plan to innovate and compete on data used for underwriting decisions?
We have a proprietary data asset that we’ve refined over the past eight years and that’s really the core of our business. This data “scorecard” specializes in underwriting and pricing loans of $2,000 to $35,000. It’s our competitive advantage and will continue to be our core asset going forward, as we incorporate new technology and improve our risk models.
As far as using social data to make credit decisions — it’s an innovative concept but there’s not enough substance there to make a pricing or underwriting decision on its own. Social data has to be backed up by traditional risk data, such as FICO score and annual income. If you don’t have these fundamentals, you’re going to be in trouble.
One of your competitors, Lending Club, recently announced plans for an IPO, looking to raise up to $800M from investors. How do you think Lending Club’s IPO will impact the P2P lending sector, and specifically Prosper, going forward?
We’re very excited about Lending Club’s IPO! It will be a branding moment for everyone and will help legitimize the whole industry. It’s truly a watershed moment for P2P lending. We view our competition not as Lending Club or banks but rather as the lack of understanding and awareness around online marketplaces for credit.
Prosper will see ripple effects as well — the IPO and associated coverage will help educate consumers and raise awareness for what we do. P2P lending is still in a nascent stage — outside of major cities there’s not much awareness of the industry. We want people out there to know that there’s a better way to borrow and a better way to invest, and Lending Club’s IPO will serve as an announcement for all of us that P2P lending is exciting, it’s real, and it’s here to stay.
For a company like Prosper, how do you think MBAs can add the most value as potential full-time or intern employees?
At Prosper, we’re focused on building a team of the smartest people we can find. We’ve had a ton of success with MBA graduates and have a number of people on our team from Wharton undergrad and MBA. We have a data-driven culture and we’ve found that MBAs with a quantitative background and sharp analytical skills fit well at Prosper. We also look for out-of-the-box thinking and creative problem solving — skills that are typically in the arsenal of most MBAs. Business school grads with an entrepreneurial spirit and a proactive, scrappy attitude will thrive here.
We consider Prosper to be a unique intersection of banking, finance and Silicon Valley, and we have roles where MBAs can make a significant impact, such as product strategy, business operations, corporate development and investor services. For those candidates with technical backgrounds, product management is an area of opportunity as well.
Consumer credit is just one piece of the US credit industry as a whole. Looking ahead, do you see any intriguing opportunities on the horizon for Prosper?
Our goal is to make our financial product more accessible to more customers. We’re exploring different levers that we can pull within our core loan product that will enable us to penetrate new consumer verticals such as life event loans, elective medical loans or home improvement loans. Tactically, we’re going to be more aggressive in mobile in 2015, and we’re revamping our marketing efforts with a focus on the branding and look and feel of our website. As we’ve discussed, we’re going to continue to focus on serving individual consumers. Lending directly to businesses is not a priority at this time but we will continue to support borrowers who take out personal loans for the business purposes.
At the start of 2013 Prosper was about 10% of the U.S. P2P lending market (in terms of loan origination); we’re closing 2014 at over 40% market share and growing. In Q3 2014, $495M of loans were originated through Prosper and $1.2B through Lending Club. This is a fantastic time for the P2P lending industry and we’re super excited about the future!
