How does Prosper.com Make Money?
Sunday, April 29, 2007 Permanent link to this post
Recently one of the readers of this blog - Akash, posed this question about Prosper.com:
Current Revenue and Cost Streams for Prosper
I agree that on the current scale of operation, Prosper is not making too much money. However - look at the other side - the business model is risk free - once the loan has originated, the future revenue stream (apart from defaults) is guaranteed. The cost elements of the business are very low - running the site costs only little, they do not have too many employees (double figures only), Prosper is not doing any paid marketing and once the platform is established, they can outsource most of the routine work. With sustained growth for a few years - they will have enough scale to make decent money with very little downside.
My sense is that their current cash burnout rate is quite low - so their $50 million venture funding should go a long way. Even if they need extra cash, they have a positive cash flow in future with all the loan repayments - so they shouldn't have problem raising either secureed debt or the next round of venture financing.
Future Revenue Streams
I imagine that once they have established their current business model, they will start cross-selling other financial products. Lender's insurance, database mining, prosper security backed credit cards, syncing your prosper account with your paypal account... secondary trading in Prosper loans... the possibilities are endless. Oh yes - Prosper Loan insurance - insurance than lenders can buy that will protect them against loan default - this can be a pretty good business - I will buy it, especially after suffering through the pain of a couple of defaults!!
Secondary Trading of Prosper Loans
As far as secondary trading in Prosper loans is concerned - I hope Prosper introduces something similar soon. Currently there is no "exit" for Prosper lenders - you got to wait 36 months for your payments to slowly trickle in. What if you need some cash out? Right now the only good way is for you to actually borrow in Prosper for a similar amount that you have lent out. I am not sure whether anybody has really tried it as an exit strategy - although there are several lenders which try to use it as an arbitrage strategy. Creating a secondary market is not difficult at all - in fact it will be remarkably similar to the current platform. A current lender can put a portfolio of loans up for auction and other lenders can bid for it. Once the auction clears - the documentation can get shifted to the new owners of the loan. Easy! This secondary market will bring liquidity to Prosper loans and encourage more lenders to participate as they will always have an opportunity to exit the market.
Great blog. I am trying to understand the p2p lending biz models out there, such as prosper and zopa. What I am struggling with how these guys make money:Here are my thoughts on the subject:
- looking at the public data, these sites take on average 1% origination fee from borrower, and 0.5% from lenders (on outstanding loan), then it would appear that they are not making a lot of money even on a loan volumes of $1 Billion ($15M in revenue)
- when will these companies make money? their expenses even running an internet outfit will be high
- they have raised over $20M in VC money;
Questions:
- what are investors seeing that I am not able to grasp? (assuming they will get traction)
- will they be able to monetize their loans in the secondary market somehow
Current Revenue and Cost Streams for Prosper
I agree that on the current scale of operation, Prosper is not making too much money. However - look at the other side - the business model is risk free - once the loan has originated, the future revenue stream (apart from defaults) is guaranteed. The cost elements of the business are very low - running the site costs only little, they do not have too many employees (double figures only), Prosper is not doing any paid marketing and once the platform is established, they can outsource most of the routine work. With sustained growth for a few years - they will have enough scale to make decent money with very little downside.
My sense is that their current cash burnout rate is quite low - so their $50 million venture funding should go a long way. Even if they need extra cash, they have a positive cash flow in future with all the loan repayments - so they shouldn't have problem raising either secureed debt or the next round of venture financing.
Future Revenue Streams
I imagine that once they have established their current business model, they will start cross-selling other financial products. Lender's insurance, database mining, prosper security backed credit cards, syncing your prosper account with your paypal account... secondary trading in Prosper loans... the possibilities are endless. Oh yes - Prosper Loan insurance - insurance than lenders can buy that will protect them against loan default - this can be a pretty good business - I will buy it, especially after suffering through the pain of a couple of defaults!!
Secondary Trading of Prosper Loans
As far as secondary trading in Prosper loans is concerned - I hope Prosper introduces something similar soon. Currently there is no "exit" for Prosper lenders - you got to wait 36 months for your payments to slowly trickle in. What if you need some cash out? Right now the only good way is for you to actually borrow in Prosper for a similar amount that you have lent out. I am not sure whether anybody has really tried it as an exit strategy - although there are several lenders which try to use it as an arbitrage strategy. Creating a secondary market is not difficult at all - in fact it will be remarkably similar to the current platform. A current lender can put a portfolio of loans up for auction and other lenders can bid for it. Once the auction clears - the documentation can get shifted to the new owners of the loan. Easy! This secondary market will bring liquidity to Prosper loans and encourage more lenders to participate as they will always have an opportunity to exit the market.
Labels: Prosper
Therer are 2 Comments. Post a Comment
the way that proper has adopted for the loans facility looks good to me as i deal with insurance sector.
Life Insurance
Life Insurance
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