Portfolios: Prosper vs Lending Club

*edited 3/26/08
I recently joined Lending Club and added $500 to my account. I received an incentive deposit of $50 - I think because I joined through someone else's link. (You too can get an incentive when you join - click on the link to the right.)

Today I created a portfolio on Lending Club. I have six portfolios on Prosper. Here is a quick comparison of the two:

Lending Club:

There are actually two types of portfolios on Lending Club. The notes below apply to the automatic portfolio, known as LendingMatch. The other type is formed when you choose individual loans.

• $500 minimum for each portfolio
• Choice of "risk levels" from low to high but no other options
• $25 bids on each loan are automatically set - that is, the portfolio automatically bids $25 on each loan that fits the criteria. You can change the amount of each bid when you "review" the portfolio.
  

Prosper:

• No minimum for each portfolio
• Wide range of options in addition to risk levels. Can choose to exclude "auto funding", can set no. of delinquencies that are acceptable, can choose to include only those loans that friends of the borrower have bid on, for example.
• You choose the minimum bid ($50 or more).
  

What then?

On Prosper, it takes several minutes before a portfolio chooses loans that meet the criteria. On Lendingclub a list of loans is chosen immediately and you can select some from the list to delete if you like. (On Prosper you can't withdraw from a bid that is placed automatically by your portfolio.)

It takes less time, then, to set up a Lending Club portfolio and you get immediate results. On Prosper, though, you can add more criteria to tailor the loans you make. What works best for you obviously depends on your goals and preferences.

Term of the Days: Social Capital

If there was a theme to the Prosper Days conference, it was "social capital".

The opening page of the prosper website currently says "Get great rates and help fellow Americans". Prosper CEO Chris Larsen described different types of investors in his keynote address as "George Baileys" (from A Wonderful Life) and "Gordon Geckos" (from Wall Street). Bailey is the bleeding heart who wants to lend to deserving people while Gecko looks to line his pockets with the hard-earned money of those same deserving people ("Greed, for lack of a better word, is good"). Larsen, co-founder of Prosper, said Prosper tries to serve both types. When it comes down to it, it doesn't matter to Prosper what people's reasons are for investing. Nevertheless, the company has from the beginning promoted community involvement; people helping people. And some of the recent changes to Prosper have again brought "social capital" to the forefront.


Prosper CEO Chris Larsen

Portfolio plans. Lenders can create portfolio plans that target specific types of loans - conservative or aggressive, with interest rates over a certain number, for example. Once the plan is created, the plan will automatically seek out loans that meet the lender's criteria, and bid on them. The lender doesn't even have to be there.

Larsen highlighted changes in the portfolio plan options. Lenders can now choose from several "social criteria" as well: whether the borrower has endorsements from friends; whether those friends are "verified" (proven to be separate people from the borrower), whether any of those endorsers have bid on the loan. Statistically, borrowers who obtain endorsements from verified Prosper members who then actually bid on the borrower's loan do stand a better chance of being funded - and those borrowers are more likely to honor their commitment to repay the loan than those in similar circumstances who do not have endorsements by bidders.


Group leader Marilyn Paguirigan

And then there was Marilyn. Marilyn Paguirigan spoke at at least four Prosper sessions. She is the leader of Malana Ohana, a Prosper borrower-and-lender group, based in Hawaii, that has unique characteristics. Primarily of interest is that its leader knows all of the members personally. It is essentially family-and-friends who support each other. Marilyn's group exemplifies the community aspect of Prosper and she spoke highly and often of the benefits of social capital. Her group has a high rating (four out of five stars), indicating its borrowers rarely default. The success of the group indicates that community support and associated social pressure has value.

The "people helping people" aspect of Prosper is attractive to a great many people. Many of us feel good when we can actually see (and sometimes even know) who is getting the money we lend, and we feel even better that we are keeping the loans out of the hands of the greedy lender industry. Prosper funds, however, are housed in Wells Fargo Bank, which tells us that the industry is still getting its cut.