In a sign of the growing demand for online peer-to-peer lending, Lending Club Corp. of Sunnyvale, Calif., is branching out beyond its initial focus on users of Facebook Inc.'s social networking Web site.
Last week the company began letting people lend and borrow money through its site, LendingClub.com. Previously the loans were offered only through Facebook.com, which lets people connect to one another according to common background traits such as where they attended college.
"There's 40 million people inside Facebook, but there are people who aren't in Facebook," John Donovan, Lending Club's chief operating officer, said in an interview last week. "We'll certainly see much faster growth from this point."
Over 15,000 Facebook members have used Lending Club for over $1 million of loans since the lending network was launched in May.
Prosper Marketplace Inc., a San Francisco peer-to-peer lending network operator that began more than a year ahead of Lending Club, released more substantial numbers last week. Since February 2006, its 408,633 users have used the site for $85 million of loans. Unlike Lending Club, anyone with an Internet connection has been able to access Prosper's site since its launch.
Both companies mitigate risk to lenders by letting them fund just part of a loan — a $1,000 loan may be funded in $50 chunks by 20 different people, for example.
A key difference is that Prosper lets its users interview each applicant one-on-one online, whereas Lending Club automatically builds its lenders a portfolio based on information such as shared interests in users' Facebook profiles.
Mr. Donovan said that even though Lending Club is expanding, he does not expect it to abandon its model of focusing on connecting borrowers and lenders within affinity groups.
"We will be opening up other partnerships" online, he said, much like a bank would open a branch in a high-traffic area of a city.
He compared Lending Club's strategy to that of a card issuer with many affinity relationships. In the next six weeks Lending Club expects to announce its first affinity relationships, with universities and military groups. Depending on their preferences, groups could link to Lending Club's site or ask the company to build a fully functional, cobranded lending site that the group might host.
Chris Larsen, the co-founder and chief executive of Prosper, said that the social connections people have through universities and other types of shared background elements are important, but "most people are still approaching it saying … I want to look at each person."
Even so, Prosper has a tool called Standing Order that lets them make loans automatically according to certain criteria, such as credit scores or membership in an affinity group. For example, Mr. Larsen said he has an order set up to lend money to any members of the Chicago Fashion Designers group, one of the many affinity groups on his company's site.
The groups are generally set up by members. For example, most alumni groups on Prosper are established by individuals, rather than universities or their alumni associations, Mr. Larsen said.
Social connections are important, but an official endorsement from something like a university would not boost a lender's confidence, he said. "That's a separate kind of corporate building effort. I don't think it adds anything to the lender that you wouldn't get from the credit report."
Both companies say that the upheaval in the mortgage market has affected their business.
Mr. Donovan said that Lending Club, which allows loans only to people who have a FICO score of at least 640 and meet other criteria, said that borrowers with high scores are coming to his company seeking alternatives.
Prosper allows loans to people with Experian Scorex Plus scores of at least 520, but Mr. Larsen said most loans made through his company are made to borrowers with scores of at least 600.
Lenders are becoming more cautious, he said. "We've seen a trend toward 'Is the borrower current on all their other debts?' This is a very important indicator."
Christine Barry, a research director at Aite Group LLC of Boston, said that peer-to-peer lending "certainly isn't the norm, but … it is becoming more difficult for people to borrow" through traditional means. Because of the mortgage meltdown, even borrowers with stronger credit "are finding it a little more difficult."
At the same time, lenders are more interested in alternatives because of the high returns they can get on peer-to-peer loans, Ms. Barry said.
Edward Woods, a senior analyst for the Boston market research firm Celent LLC, said that the growing activity in the peer-to-peer lending market is building trust.
"There is a notion of safety in numbers," he said. "If there were just one player in this perceptively new market, it's one thing. Having several, well, you've created a place where consumers feel safer, and where there is safety, there is activity."
Still, the peer-to-peer sites are not all that different from traditional lenders, Mr. Woods said.
With Prosper, "their economy looks very similar to the broad U.S. loan market," he said. "The volume has moved to prime/near-prime. Consumers themselves don't want to bear the risk, just as the big providers don't."
