This week we talked to Ron Suber, President at Prosper Marketplace, about the rapid rise of alternative lending and what financial institutions should be doing about it. Suber recounted Prosper's fast growth and gets into details about how banks and fintech companies can better work together to help consumers.
What was the impulse behind Prosper Marketplace and what’s the state of the company now?
Prosper Marketplace was started 10 years ago by Chris Larsen and a team of people who were committed to democratizing capital. They believed that individuals like all of us could lend money and get a return.
We’ve grown quickly. We now have 650 employees, and $3.7 billion in loans were originated through the platform in 2015 — up from $1.6 billion in 2014. So it's a very focused growth company with excellent credit, marketing, and capital markets teams.
That's terrific growth. What gap in the industry does Prosper fill?
Over half of Prosper’s business is from borrowers who are consolidating debt and getting a fixed-rate, fixed-term loan based on the credit they deserve rather than some astronomical credit card rate. You can go on Facebook and can see the stories our customers tell about how Prosper has helped them.
The other portion of the borrower population are those who want to do a large or considered purchase — an elective medical procedure, an adoption, a home improvement, for example. These are people who want to avoid credit cards and borrow in a smarter way.
How would you say that the information age has changed the financial industry?
We've seen a collision of Silicon Valley and Wall Street that has created a level of innovation we haven't previously seen in scale or quality. In addition, newer generations — Gen X and Gen Y — are very comfortable doing financial business with technology companies like Prosper.
How would you say that fintech companies and financial companies can better work together?
We're seeing an unprecedented interest in banks wanting to work with us, embrace us, partner with us, invest in us, and buy loans from us. Because of this, I think you'll see some big announcements about financial institutions partnering with marketplace lenders.
When Prosper Marketplace raised $165 million at a $1.7 billion pre-money valuation early last year, there were five banks who invested in the equity of Prosper. We also have banks that are interested in buying our loans. We're working very closely with these banks and their regulators to make sure this will work very well for everyone.
What do you think banks should be doing that they're not currently doing?
I literally just got off an airplane from a banking conference where I answered that question for hundreds of banks who are trying to understand what we do at Prosper. They're amazed at how we can validate and verify identity, income, and employment — as well as how we do servicing and collections in an automated, professional fashion.
In short, banks need to expand their education, awareness, and understanding of what is possible by partnering with fintech companies.
What do you hope to see as a result of innovation in fintech? What are you looking forward to?
I think you'll see something we call ubiquity. The dream is that you'll go to your Schwab or Fidelity account or your roboadvisor, and there will be this opportunity for all of us to own short duration consumer credit in distribution methods we’ve never had before.
People will have lower interest rates and no prepayment penalties with a great customer experience in a more rapid fashion than they've done before.
In addition, people are realizing that credit cards are a good way to buy things but a terrible way to borrow money. We're looking to educate people on a better way to borrow and achieve financial well being in their lives.
That’s a great mission. You mentioned that you just got back from a conference where you talked about banking. Anything that stood out to you from that conference?
I think that the banks are trying to figure out how to own assets other than cash and treasuries. How do they actually increase the yield and return on the bank's balance sheet?
The other thing they're trying to figure out is how to say yes to their customer more and have a better, more engaging customer experience. When they see what we do and when they see the BillGuard app, which engages with the client and makes for a better experience, they're really in awe and try to find ways to work with us. We're finding ways to work with them as well. It's a very time exciting time in the online marketplace for credit industry.
Anything else you’d like to add about Prosper or the lending marketplace?
If you compare a range of assets, whether it be corporate bonds or high yield bonds or high dividend stocks, you will see that Prosper offers a solid performing short duration fixed income asset class. Our investors enjoy those rates. These investors are also starting to realize that we can iterate throughout economic changes, interest rate changes, and unemployment. In a sentence: Prosper represents an opportunity to get short duration fixed income exposure with a great yield that pays investors monthly.