How’s this for a little déjà vu? Close on the heels of rival LendingClub launching the same capability, peer-to-peer lender Prosper is suspending some of its lending operations as it goes into an SEC-mandated quiet period related to its plan to create a secondary market for its P2P loans.
Discard for a minute our recent experience with the creation of a robust secondary market for somewhat questionable loans, LendingClub’s launch of a secondary market earlier this week essentially allows investors an exit strategy other than waiting for the end of the standard three-year loan period. Prosper’s acknowledgement of the necessity of this strategy came shortly after CEO Chris Larsen downplayed the idea as unnecessary, citing differences with Lending Club’s practice of setting interest rates (whereas Prosper allows lenders’ bids to set rates). On a company blog posting on Thursday, Prosper announced that it had decided to enter a secondary market after all, and “This is something many of you have been asking for, and we believe the liquidity of a secondary market will make Prosper even more vibrant.”
Prosper’s loan activity has been declining since the spring, likely due to private lenders’ own shakes about ongoing economic woes. In addition, last week, UK-based Zopa pull up stakes entirely on its alternative lending business from the North American market. NetBanker’s Jim Bruene estimate the entire P2P market is only $100 million; one investor recently told BTN that his Prosper loans boasted a 15 percent default rate.
These red flags, though, haven’t stopped new competitors from entering the turf. Start-up Loanio opened business this past month with a strategy to target subprime borrowers who have diminished bank-borrowing opportunities. Pertuity Direct plans a November launch.