Thursday, May 11, 2006 The New Trend in Lending, Customer Service Getting Better

Lending Revolution: The Individual Investor

I was reading a news article about Prosper, the newest auction-style marketplace...but you're not buying shoes or books, you're lending or borrowing money!

If you have extra cash, you can lend it to people. Prosper will show you their credit rating, their debt to income ratio, the reasons they need the money, and what return you are going to get back. If the borrower doesn't pay, they'll incur penalties and if they default, they will get a flag in their credit report and a collection agency starts calling. You can calculate your risk by understanding the default rates based on the person's credit rating. You'll take more risk from someone that has bad credit, but the interests are usually higher -- meaning greater reward.

How can this web site make me money? Consider this layman's example. A bank gives you 4-5% interest on your savings account, while they take that money and lend it to other people at 10-14%. They profit the difference.

You now have the ability to lend to people and cut out the bank. You will be the one earning the 10-14% interest. I took a quick glance at one Prosper auction: a homeowner needs $15,000 to fix up a house and re-sell it. He has AA credit and he is offering 10% interest. 136 people funded his $15,000 request and they'll be getting interest on their money for the next 3 years -- more than a normal savings account would get. The fact that the consumer has AA credit reduces your risk as well.

Lending Revolution: The Borrower

If you're on the opposite end of the spectrum, Prosper makes it easy too! You don't have to go to the bank and fill out dozens of forms. With Prosper, you sign-up, and get verified through a credit report and you're done. A profile will be built based on your credit report results. Lenders will start bidding on your request. The better your credit is, the better.

If you have bad credit, you'll probably want to raise the interest rates higher to attract more lenders. Additionally, Prosper submits payment history to the credit agencies; hence, getting a loan (no matter what size) from Prosper actually helps in rebuilding your credit! Bad Customer Service

There is one missing thing about In a brick and mortar lending institution, if I need something done quickly, I can go to their office; however, with, you can't do this.

Their call center operators in the Philippines (they number around 12 agents), do not have authority to manually verify your credit report. If there is a problem verifying your identity, U.S. operators need to verify you. However, you cannot reach a U.S. operator directly -- a phone rep needs to send a message to Prosper's California headquarters for a callback. I got somewhat irritated when I didn't get a callback for almost 72 hours.

I talked to Karen Appleton, Vice President of Development for Prosper to see if she could help to improve the manual verification process. She said that they are "...working diligently with our customer service team to prevent situations like yours from occurring." Within 24 hours, Karen and her team started changing the process to make it more user friendly. As of May 12th, 2006 -- the manual verification process has been changed to where the customer can manually fax the needed documentation without having to wait for a callback.

Awesome! I give an A+ for process improvement and they have one new lender on their boat (me)!

Prosper's Karen Appleton

1 comment:

Anonymous said...

I find that the customer service is god awful!! The left hand cant even figure out what the left hand is doing let alone the right hand!!!!!!!!!!