Prosper.com, a company which allows members of its website to make loans to one another, has significantly changed its lending model.
Previously, borrowers would place loan listings on Prosper.com and investors would bid to fund a certain amount of the loan at an interest rate of their choice. The investors that offered the borrower the best deal would be the ones that filled the loan. This model can best be described as a reverse Dutch auction.
Back in June, we interviewed Prosper.com CEO Chris Larsen about the company’s decision to make use of an auction lending model over fixed interest rates. He stated, “In terms of the user experience, we strive to capture the best of eBay and Amazon. The Amazon component is really about simplicity. For example, continuing to make it easier for lenders to put money to work in custom or template portfolio plans and providing starting rate guidance to borrowers based on current marketplace dynamics. The best of eBay naturally encompasses the power of an auction for fair price discovery, which we’re firmly committed to. At the same time, we are considering an eBay-like “Buy It Now” experience to complement our auction model and ensure we have appealing offerings for all borrower and investor segments.”
“While many lenders enjoyed the auction system conceptually, we heard consistent feedback that in practice, auctions made the deployment of funds more time consuming with little gain in lender returns,” according to Chris Larsen, Prosper CEO. “We’re excited about the many improvements and hope they make your investment and borrowing experience with us even more prosperous.”
Prosper.com says that the change will allow investors to deploy their funds quicker and allow borrowers to get their money sooner.
