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[Tokyo Joe]

Prosper.com appears assured of originating fewer loans in Dec. 2007 than last month.  It will be the fewest originations since Sept. 2007 (before the second loans were permitted), and the second fewest since Feb. 2007.

http://www.lendingstats.com/loansFunded

While Dec. 2007 is 25% more robust than Dec. 2006, Dec. 2007 is very close to Jan. 2007's total...

Momentum for the last 3 months has been as flat as can be, despite the second loans.  In fact, loan origination growth has been remarkably flat since June 2007, with Sept. 2007 lower than the other months, all of which are in the 6.2-6.5M range.

I'd hate to be Chris Larsen at Prosper Days 08 with his Powerpoint and slides.  In '07, he made his presentation following Prosper's biggest month ever, after a series of sizable increases each month.  Looked great on a screen at the front of an auditorium.

Now, his charts will show stagnant growth at best, or genuine decline (depends what happens in January 2008).  How's he gonna spin that one?

It is very tempting to try to figure out why this happened...  Surely it is not because people don't want loans; we're in the midst of a credit crisis, and plenty of people need loans.  Is it because of Prosper's famously lousy advertising?  Is it because the company is no longer newsworthy?  Is it because of growing competition?

Or might it all stem from the decision to abandon their most faithful lenders, and humiliate them on top?

It's a little depressing to see this happen; I spent last Christmas day spending hours typing up a lengthy post analyzing the ins and outs of HR lending-- that's how devoted to Prosper I was at the time.  That also probably marked my high-water mark for enthusiasm.  I haven't done a statistical analysis in many a moon.  Or lent, obviously.

Whatta shame.

[Urbi_et_Orbi]

They've been adding thousands of new lenders every month, but the number of active lenders is flat - and the volume of funded loans is on the decline.

You don't have to be a genius to see where this is headed.

[Tokyo Joe]

The more I think about it, the more I honestly believe that killing the community is killing the bottom line.

As long as there was a sense of community; active groups and group leaders, a lender community, borrowers who wanted to stay active, cooperation with Prosper, people stuck around, and bid on loans.  Even after it was becoming obvious that the ROI would be poor...

Prosper's reaction to groups, in retrospect, was overkill.  While I was as vocal as anyone about removing the tools of corruption from the hands of GL's, and as withering in my attacks of shamelessly corrupt GL's as anyone, I never wanted the group concept extinguished.  I just wanted it reformed in such a manner that all group members would stand to benefit from a group's success (i.e. real shared rewards), and corruption would not be rewarded (match rewards and the actual shared rewards).  My reasoning was that it would give everybody, borrowers included a stake in sticking around and contributing to both the community and Prosper itself.

Running off the lenders was the next obvious blunder.  Things never had to spiral as far out of control as they did.  I blame Shira for much of that; I also blame Witchel.  Near the end, when the forums had pretty much run amok with criticism, they really did have to do something.  But had the community liason really been a liason, people would never have gotten so angry.

So: now a borrower comes to Prosper, and it's like going to E*Loan, except a lot more complicated.  Not much fun, only for the desperate, and there is no personal connection made with the lenders, which is the most important aspect of p2p lending.

The incentive that once made me study the loan performance data for hours upon hours while crafting "Market Performance Weekly" threads is gone completely.  The incentive for any lender to take Prosper seriously is gone.

Rather than becoming the eBay of loans, which I really thought it might, Prosper has become a convoluted E*loans for the subprime and shaky.  They've taken out all reasons for anyone to spend time there, but have not replaced it with better performance.

And thats why you have thousands of new lenders every month and flat-to-falling growth...

Incidentally, the loan volume chart's slope very closely resembles the Alexa traffic graph AmexFan posted a couple of weeks ago.

[leporello]

Or might it all stem from the decision to abandon their most faithful lenders, and humiliate them on top?

I'd like to think that the impending train wreck is due to a combination of
(1) Lousy returns because of out-of-control defaults (what presumably drove away Pensioner and L5),
(2) Pissing off (indeed pissing on) too many big lenders (Annapolis82, me), and
(3) Destroying the community, in particular getting rid of the old fora.

But what do I know?

[traveler505]

A few more possibilities, from the borrower side:

(1)  Unsecured installment loans are a sub-prime product, but Prosper has never had a workable sub-prime strategy.  (IMO, I did develop a working sub-prime strategy within my group, and, if Prosper had been willing to adopt it company-wide, rather than just throwing out the group system, I would have been happy to develop a training program based on it for a reasonable consulting fee.)

(2)  There is an extremely limited market for unsecured installment loans among prime borrowers.  Look at the poll on desired ROI.  A plurality of lenders are looking for returns in the 10% - 14% range.  Most of Prosper's cherrypicked portfolios featured in advertising don't generate 10% returns, and most prime borrowers have access to credit at rates well below 10% through home equity loans or credit card balance transfer offers. 

(3)  Borrowers who both want unsecured installment loans and are likely to repay them are difficult to target for marketing purposes.  It's very much a niche market, and I honestly don't know how to reach it in a cost effective manner, other than by free media coverage.  (Free media has been Prosper's only successful strategy thus far, but it cannot be counted on as a regular source of borrowers.)

(4)  Prosper's decision to go with state-by-state licensing probably reduces the number of funded loans by at least 50%.

[ducks]

It's too early to tell whether there is any sort of trend. December's lending is still far higher than lending in December 2006. Lending is very seasonal. December is usually a weak month for installment loans. When seasonally adjusted, maintaining volume into winter could translate to continued growth.

It also may have to do with the effectiveness of Prosper's marketing. Prosper is still not a household name; there is plenty more untapped potential. A revised marketing plan could turn this around very quickly.

I wouldn't say Prosper is in decline or flat until I see a month that does not show significant increase over the same month in the previous year.

[bamalucky]

Ducks,did you even view the links.? The last 8 months are flat

[Mtnchick]

What's going to be more interesting is the rate of defaults. People aren't paying their mortgage or credit card bills - P------r loans are going to be at the bottom of the "To be paid" pile.

[Tokyo Joe]

I wouldn't say Prosper is in decline or flat until I see a month that does not show significant increase over the same month in the previous year.

Tune in next month, is my prediction.

Unless there is a media blitz leading up to Prosper Days 2008 that dwarfs the run-up to PD2007.

[lenderguy]

(1)  Unsecured installment loans are a sub-prime product, but Prosper has never had a workable sub-prime strategy.  (IMO, I did develop a working sub-prime strategy within my group, and, if Prosper had been willing to adopt it company-wide, rather than just throwing out the group system, I would have been happy to develop a training program based on it for a reasonable consulting fee.)

Frankly, the blame for that goes to both Klapper and Muriel, as well as whoever preceded them.  As CMO, it's their JOB to identify their customer market market, and penetrate it accordingly.  They both failed.  Part of me wonders if both Karen and Rob left because they felt JW prevented them from doing their jobs.

(2)  There is an extremely limited market for unsecured installment loans among prime borrowers.  Look at the poll on desired ROI.  A plurality of lenders are looking for returns in the 10% - 14% range.  Most of Prosper's cherrypicked portfolios featured in advertising don't generate 10% returns, and most prime borrowers have access to credit at rates well below 10% through home equity loans or credit card balance transfer offers. 

I'd like to see a breakdown of prime homeowners vs prime non-homeowners.  I would like to see empirical evidence analyzing the demographics that they were attempting to reach.  I mean, starting up a business venture without having a rational basis for your business assumptions is just dumb.  And the more time passes, the more I realize Prosper never had much of a viable business plan.

(3)  Borrowers who both want unsecured installment loans and are likely to repay them are difficult to target for marketing purposes.  It's very much a niche market, and I honestly don't know how to reach it in a cost effective manner, other than by free media coverage.  (Free media has been Prosper's only successful strategy thus far, but it cannot be counted on as a regular source of borrowers.)

I have long thought that that is why Prosper had marketing people... to bring both sides to this platform.  I have to wonder why Prosper always felt that lenders were expendable, and that borrowers were its bread and butter.  Let's face it -- borrowers here don't have other choices for loans.  They will always be coming back for more.  Lenders, OTOH, have plenty of investment options.  If the returns aren't there, lenders won't lend.  Do they think wealthy people don't talk to each other?  Do they think L5 and Pensioner don't have friends who may have invested if they were doing well?  Do they not understand that word of mouth advertising is the most effective advertising out there?

(4)  Prosper's decision to go with state-by-state licensing probably reduces the number of funded loans by at least 50%.

Well, I think the biggest problem is the amortization period.  You touched on it a bit with your prime borrower analysis, but I think you missed something.  For smaller amounts, yeah, I would go to my credit card with a BT offer.  However, I won't do that for larger sizes... $25k is a big bag to be caught holding if something happened, by accident.  Remember, if 0% BT offers were not profitable, banks wouldn't do them.  People screw up and they know it.  I really would be uncomfortable borrowing $25k on a credit card.  $5k? Sure.  $25k?  No.  I would love to get a personal loan on Prosper at < 9% if I needed to, because if that's what I am looking for, I am absolutely certain it would be difficult to beat that rate elsewhere.  But, I never will.  Why?  $25k over three years is an $800/mo payment.  I simply can't afford that, and I doubt most Americans can either.  I do believe that is one of the root causes of their problems.

Further, their customer service is just completely incompetent.  They should make the process easier for self employed borrowers, et al.  I firmly believe that their practices scared off quality borrowers.  They should have a "no doc" option and make it clear to the lenders.  That garbage about $1 income is BS.  I bid only by standing orders (when I bid) and I want to be able to differentiate between borrowers with W2 income and borrowers that don't.  And if borrowers lie about their income, well, it is a material part of a loan application.  It's not like Prosper verifies all W2 income anyway.

[bamalucky]

If prosper had worked,pensioner wouldn't have been in the top 100 lender list.

[ira01]

It's too early to tell whether there is any sort of trend. December's lending is still far higher than lending in December 2006. Lending is very seasonal. December is usually a weak month for installment loans. When seasonally adjusted, maintaining volume into winter could translate to continued growth.

It also may have to do with the effectiveness of Prosper's marketing. Prosper is still not a household name; there is plenty more untapped potential. A revised marketing plan could turn this around very quickly.

I wouldn't say Prosper is in decline or flat until I see a month that does not show significant increase over the same month in the previous year.

Are you kidding?  Originations have been declining since April, and flat since July.  It is quite possible that Jan. '08 will be less than Jan. '07, but even if it (barely) avoids that fate, March '08 will surely be less than March '07, given that March '07 was over $8.2M (compared to around $6.3M a month since July).  The year over year decline in April '08 will be even worse.

[traveler505]

It's too early to tell whether there is any sort of trend. December's lending is still far higher than lending in December 2006. Lending is very seasonal. December is usually a weak month for installment loans. When seasonally adjusted, maintaining volume into winter could translate to continued growth.

It also may have to do with the effectiveness of Prosper's marketing. Prosper is still not a household name; there is plenty more untapped potential. A revised marketing plan could turn this around very quickly.

I wouldn't say Prosper is in decline or flat until I see a month that does not show significant increase over the same month in the previous year.

Are you kidding?  Originations have been declining since April, and flat since July.  It is quite possible that Jan. '08 will be less than Jan. '07, but even if it (barely) avoids that fate, March '08 will surely be less than March '07, given that March '07 was over $8.2M (compared to around $6.3M a month since July).  The year over year decline in April '08 will be even worse.

The only marketing that has worked for Prosper has been free media, and one can expect another burst as a result of PD'08.  So it is entirely possible, IMO, that March '08 might meet or beat the results of March '07 (which were the result of PD'07 publicity), folllowed by a repeat of the post-April decline that characterized the rest of 2007.  (I think the decline will be even steeper in 2008, because the forums are no longer there to maintain interest levels.)

December was an interesting month.  A burst of free media resulting from the $100 million milestone resulted in heavy activity early in the month, with number of listings going from about 2400 to about 4000.  At points in early to mid-December, LendingStats new projected monthly funding feature estimated that December would hit $7.5 million.  Then, as the effects of the publicity wore off (and perhaps due to the holidays), the number of listings plummeted to below 2000.  As a result, the monthly funding figure ended up barely over $6 million.

While it's hard to now how much of the late December drop-off was due to the holidays, it does appear that the effects of publicity were much more short-lived in December than they were in March, which would mean that Prosper will be even less able to convert free media into sustained growth next year.

[bamalucky]

We will see a 3 million loan month pretty soon..Followed by a 2 million

[traveler505]

We will see a 3 million loan month pretty soon..Followed by a 2 million

I doubt it.  I suspect that Prosper can maintain at least a $5 million monthly level fairly effortlessly, just based on Internet links and such.  Any boost above that level is likely to be brief and related to free publicity, absent some major strategic changes. 

Unfortunately for Prosper, $5 million is not enough to sustain the business, by anyone's estimate (including that of the CEO at the Aloha M&G), so eventually the plug will be pulled, and loan originations will go from $5 million to zero overnight.