I was just logging into to Prosper to check on the status of my transfer (it made it)… and I was struck by how little money Prosper is making from my perspective. In my 8 months of lending they have collected from me $2.38 in fees. I have had $283.53 in payments. I have loaned $3,450 in principle, so they have collected $34.50 from borrowers. That doesn’t seem like much.
Do they have some other source of revenue? The float. They have to be making money of the float of the lenders prior to investing in loans. Event the float isn’t that much… If I overestimate and say that they could earn 7% on my spare $50 at any one time they are only making $0.29 per month. If you take into account that money not in loans might be higher than $50 and use my entire account value ($3,611.85 at the moment) it is only ~$21 month.
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5 comments ↓
I think that I read somewhere recently that they’ve lent a total of around $20m so far (last 8 months). Any idea if this is the correct figure (I may have misread it)?
Compared to banks etc. this is a trivial sum. I just wonder how much revenue they’re getting and how fast they are burning thru their start up capital. The amount of profit they’d make from a $20m loan book wouldn’t even pay for 1 staff.
I know you previously answered my question about whether your loans are actually to prosper.com or to the lenders, and you answered that you had individual doco for each loan. But I wonder if you’d have any legal recourse to the “borrower” if prosper.com went out of business? As prosper.com reserves the right to chase up bad debtors and, ultimately, sell off bad debt accounts, I can’t see that all the individual lenders could directly chase up their individual loan amounts in the worst case scenario. For example, if someone has borrowed $5K with each lender putting $50 into that loan, you’d have 100 lenders each trying to contact the one borrower if prosper.com was out of the picture!
Your thoughts?
Using the publicly available data and this sql: select sum(amountborrowed) from loan
I get that they have lent $31,201,301 all time.
If they go out of businesses I think I can go after my $50 from each of my borrowers. However, I agree this is somewhat impractical. It is an interesting point. I will ask around at the conference and see if someone has an answer.
You can go after the borrowers. You can view the promissory note for each loan.
That said, Prosper is well-funded (from my research a long time ago) and their business costs next to nothing to run. As a market maker, keeping the servers running is the most important thing and that can probably be done by a few people. I would imagine that most of their costs go into marketting, maybe R&D, but they can easily trim those down if they ever got close to going out of business.
I don’t think they make any money on the float. I read that the bank that helps them gets that money in exchange for cheaper funding or something like that. I don’t remember the exact details.
I thought a big chunk of their income was from the loan origination fee, which is a minimum of $75 I think.
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