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Observers say the U.S. peer-to-peer lending market could have killed its momentum if two of the major providers had overlapping quiet periods — as nearly happened last week.
Prosper Marketplace Inc., the leading player in the U.S. market, stopped accepting loan applications Oct. 15 as it entered a voluntary quiet period, which it said was necessary as part of its effort to develop a secondary market.
A day earlier Lending Club Corp. emerged from the same kind of hibernation and launched its own secondary market. Lending Club had been quiet for about six months, and Prosper has not said when it expects to start taking applications again.
Renaud Laplanche, Lending Club's chief executive, said in an interview last week that even though the two companies did not coordinate the timing, he was glad there was no period when they were both down. "It's probably better to have at least one site operating at full speed at any point in time," he said.
Analysts said that if both their Web sites, which facilitate loans between individuals, were unavailable, consumers might have lost interest in the concept of peer-to-peer lending.
"These are momentum-oriented offerings," and an overlapping blackout would have caused user interest to deteriorate quickly, said Edward Woods, a senior analyst for Celent, the Boston financial research arm of Marsh & McLennan Cos. "You can't have both bigs disappear. … You definitely needed to have one of these guys running."
Prosper and Lending Club are not the only peer-to-peer lending firms, but they are generally seen as the most significant ones in the U.S. market. They facilitate unsecured loans for any purpose
Other companies offer niche services; Fynanz Inc. and GreenNote Inc. offer student loans, while Loanio Inc. targets subprime borrowers. All of them enable people to post loan requests on their sites; other individuals can fund a portion of the loan.
During its quiet period, Lending Club continued to service loans that had already been made, but new loans were not originated. Prosper said it would do the same during its quiet period.
Though the idea of peer-to-peer lending has been catching on since Prosper introduced the first U.S. site in 2006, it has yet to become a mainstream financial business. The market's vulnerability was revealed this month when Zopa Ltd. shut down its U.S. unit, citing poor market conditions. The London company, one of the pioneers in peer-to-peer lending, still operates sites in the United Kingdom, Italy, and Japan.
Bobbie Britting, a research director with the consumer lending practice at TowerGroup Inc., an independent research firm owned by MasterCard Inc., said it is critical for the peer-to-peer space for at least one of the top companies to be up at any given time.
"It could have been detrimental to the category" if the quiet periods at Prosper and Lending Club had overlapped, she said. "If they're gone too long, and they're not talking, it would make the market think that there's something wrong with the business model."
Mr. Laplanche said Lending Club would not have been affected if both sites had been down for a brief period, since most of its users see its service as an investment and typically fund only about one loan a month.
"It's not like it's really active trading," he said. "If it had been a few weeks or a month or two overlap, I don't know if it would be that bad."
Mr. Laplanche said he was "surprised" that Prosper went into a quiet period last week.
Prosper executives could not comment, because of its quiet period.
