P2P Lending and market leader advantage

Twit/blogger friend Mike Templeton, online manager of the Iowa CU League’s The Members Group, a payment processing CUSO, tweeted this morning that another twit/blogger friend, Ron “The Shevlinator” Shevlin was just quoted in an Aite Group report about large banks starting to have success with marketing online. This report reminded me that Ron recently commented on Open Source CU that he was secretly skeptical of the future of P2P Lending sites, (like Prosper), because someday banks will wake up and smell the coffee, and simply do it themselves.

Woah, Ron, hold on there. You may be right, but I think you are wrong on this point, and here’s why: Why haven’t banks and credit unions gone running to develop their own P2P Lending solution as of yet? For most FIs, there are many reasons: 1.) They haven’t heard of P2P Lending. 2.) They don’t see why lots of people would jump on this. 3.) They aren’t legally able to do it. 4.) They don’t see it as significantly different than what they are currently doing. 5.) It would canibalize their own lending business 6.) Their field of membership/geographic reach is too small to make the investment in technology infrastructure worthwhile 7.) Most FI’s don’t have the resources in time, expertise and dollars to invest in such an effort.

But say you ARE a huge bank, and do have the time, expertise, and resources to roll your own P2P Lending solution. You still have a number of strikes against you.

1.) Prosper has a multi-year headstart on you. This headstart is significant in customers, transactions, reputation, and expertise, both technological and tactical.
2.) Why would people choose you over Prosper? This is where reputation is all-important. If you’ve been fee’ing your customers to death, they’re not going to come running to you just because you announce you have P2P Lending.

I can hear the counter-argument now: “Prosper is a niche presence that most Americans have never heard of.”

Indeed, while the current membership of 725,000 is a small percentage of all Americans, it is nevertheless big enough to make it the fourth largest credit union in the nation if it were a credit union. And Prosper is growing fast, and is now starting to advertise. Also, while this membership is still relatively small, it is composed of the early adopters. While the mega-banks have advertising budgets that may exceed Propser’s entire operating budget, for the most part, the people who would go online and use P2P lending are not the ones that would be influenced by television and other mass-media. The people who utilize P2P Lending are the people who are involved in social media, such as blogging, Facebook, Twitter, LinkedIn, Brightkite, etc.

Prosper has what I call the eBay advantage. eBay is not the best auction technology that exists. I’m sure Christie’s and Sotheby’s have superior auction sites. But eBay is where everyone is, which is an upward cycle. All the buyers are there, which means that all the sellers go there, which means that all the buyers go there, etc. And the other thing which continues to make eBay the place to go for your online auctions is the issue of reputation. Hundreds of thousands of people have carefully managed their reputation in online buying and selling on eBay, and this reputation is not transferable. All these folks are not going to leave behind their reputation on which they’ve expended huge effort. And now that Prosper has community reputation features in P2P lending and borrowing, all the more reason why Prosper will remain the place to go in P2P Lending.

Okay, that’s my two cents, tell me why I’m wrong! 🙂

Prosper turns two; P2P Lending accelerating

I’m a little bit late in blogging a happy second birthday to Prosper, but hey, better late than never. It’s interesting to me that there are many (perhaps even a majority of) people in the financial world who talk about Prosper as an interesting “experiment” that may or may not work. Let me attempt to blog yet again, that Prosper IS working, and growing at a rather stunning rate, right at this very moment. (Sadly, many financial professionals are probably still not familiar with P2P Lending, two years after its U.S. launch, and three years after its British launch.)

There are many who are skeptical, and rightly so, about making unsecured loans to strangers via Prosper. But let’s look at the facts. At Prosper’s current growth rate, they will probably surpass 1,000,000 members before the end of the year, which, if it were a credit union, would make it the third largest in the United States. When Prosper celebrated its second birthday on Feb 13, this year, it had 580,000 registered members, and has done $117 million in loans. (At that membership, Prosper would already chart in at sixth on the list of largest credit unions, behind Navy FCU at 3 million members, SECU of NC at 1.4 million members, Pentagon FCU at 770,000 members, and The Golden One CU at 680,000 members, and Security Service FCU at 630,000 members, and ahead of Boeing Employees CU with 530,000 members).

Clearly, there ARE people who are embracing online P2P lending, whether it’s Prosper, Zopa, or Virgin Money.

Last month, Jim Bruene of NetBanker blogged a new development at Prosper, which aims to cut default rates through social capital, namely personal recommendations. This looks to have proven successful so far, and is a clear example of direct monetary value associated with social capital.

The idea that national credit unions could exist with a defined target market is one that Jesse Robbins indirectly voiced with his Building the Black Rock Credit Union blog, and later Tim McAlpine at Currency Marketing articulated, and Ron Shevlin and the CUSkeptic satirized. Well, in a certain sense, Propser has already brought this concept to life via its borrowing groups. Just a cursory glance at the community reveals groups for entrepreneurs, Harvard alumni, Vietnamese Americans, musicians, military veterans, artists, teachers, restaurateurs, personal financial advisors, health care professionals, and even Apple fans. (Here’s one for folks who are LGBT). In other words, just about every type of group that credit unions were created to serve, but with a much deeper and richer variety, and with a national horizon.

As a side note, in researching this post, I discovered that Javelin Research says that online P2P lending may reach $159 billion by 2012.

Props to Doug True for working with Zopa to offer NCUA-backed P2P Lending.

P2P Lending launches in Canada

P2P Lending has been in Great Britain since 2005 in the form of Zopa. Prosper launched a year later in the U.S., followed by Lending Club, Circle Lending/Virgin Money, and Zopa in the US. I’ve checked in with Prosper from time to time, and as I’ve reported before, it’s growing at an astonishing rate.

Now, William Azaroff of Vancity CU and Jim Bruene of NetBanker report that today IOU Central has launched, giving Canada its first forum for P2P Lending.

Rock and Roll, Baby!

Ron Shevlin, Ben Rogers, and Tim McAlpine are writing about P2P lending. For those new to the P2P lending concept, know that it is already well-established, and growing rapidly. I will repeat: If Prosper keeps on its current pace of membership growth, by the fourth quarter of this year, it will have a membership north of one million people. That would make it the third largest credit union in the United States, if it were a credit union. This is happening NOW. I will write more about why P2P lending is so powerful, and what Zopa needs to do to have a chance against the Prosper juggernaut in a future post. But now I turn to rock and roll.

It’s time for credit unions to stop playing copycat and come up with completely new avenues of awareness and revenue generation. As Tim mentioned in his post, in the music world disrupted by sharing technology available to the millions of people, innovation came in the form of iTunes, Rhapsody, etc. Did you know that iTunes has sold 4 BILLION songs? At 99 cents per song, you do the math on total sales. I don’t know how much money the record studios ever made, but I’m guessing Apple would have a seat at the table at the least.

However, we don’t need another iTunes. Wal-Mart tried to copy with a lower price competition, and that effort has failed to put a dent in the Apple behemoth. What credit unions need to do is invent the financial equivalent of the video game Rock Band. Did you know that 2.5 million add-on songs were sold in the first 8 weeks of the games release? That’s double platinum, baby! This is a classic example of a razor and blade business model. And in this case, the razor isn’t even being given away for free, it’s at a reasonable price. (Side note – I recently learned that Guitar Hero and Rock Band come out of research into better learning methods at MIT’s Media Lab.)

Because of the runaway success of Rock Band, real bands are now clamoring to get their songs included. Not only for the notoriety, but I would wager that sales of included songs are significantly increasing. I just bought a great song (I’m So Sick by Flyleaf) from iTunes last night that I was not aware of until playing it in Rock Band.

Let’s find the financial services equivalent of this new phenomenon. We have all the ingredients. We just need a new recipe. Srsly.

And I thought Prosper was a threat

Wow. Wesabe is pretty amazing. And has all the earmarkings to become even more amazing. Thanks to Brent at Trabian for making me aware of the latest from Wesabe. I looked at Wesabe briefly before, and thought it was interesting. But now that I realize it can make your online banking interface obsolete… wow. And I thought Prosper was a competitive threat to credit unions.

So let’s see… ING Direct offers a better savings account, Prosper offers better unsecured borrowing (and investing), Wesabe offers a better online banking interface, and CapitalOne gives me a debit card that I can attach to any account. What exactly did I need a credit union for? What is my credit union the best at doing? What’s keeping me at my credit union? Inertia?

Prosper adds community page

Since its launch in February of 2006, Prosper has been about people-to-people lending. No middleman. Prosper is the eBay of lending. Prosper empowers individuals by letting them tell their personal stories.

Lately, Prosper has been growing at a rapid rate. Prosper has grown from $57 million in loans, and 270,000 members in May to $66 million in loans and 310,000 members as of June. That’s $9 million in loans and 40,000 new members in one month. That’s about 15% growth per month. If this pace keeps up, in one year, they will have more than $330 million in loans and 1,400,000 members.

Prosper has added yet another powerful feature: a Community page, where people can share their Prosper success stories, and why they use and like Prosper. Here’s one person’s story.

Prosper is a juggernaut that is picking up steam. Rapidly.