Online lender Prosper Marketplace has put its relationships with the loan referral websites LendingTree and Credit Karma on hold, according to The Wall Street Journal, signifying the platform’s own lending slowdown as it tries to shore up new deals with investors to buy loans.
Earlier this week, LendingClub raised interest rates again, as it sought to encourage investors.
LendingTree and Credit Karma serve as platforms where millions of consumers shop for personal loans and other financing, while comparing pricing and other terms between lenders. Prosper and other lenders use such sites to help grow volume.
“We use a variety of online and offline marketing channels and we are able to quickly and efficiently adjust those channels to best match borrower and investor demand,” noted Prosper CEO Aaron Vermut in a statement. “This ensures we maintain equilibrium, which is the No. 1 priority when running a marketplace business.”
LendingTree and Credit Karma are among the largest websites used for comparison shopping, drawing consumers who shop for personal loans as well as auto loans and credit cards, according to the WSJ; consumers select a lender they find through the sites and begin an application with that company. Lenders generally pay the websites a certain percentage of the loan volume they receive. “Our business moves in tandem with the collective demand of all of our lenders instead of any individual ones,” LendingTree CEO Doug Lebda told the WSJ.
Countering to the news on its blog, Prosper’s CRO Brad Pennington reassured readers about the platform’s core values:
“At Prosper, we value transparency and believe it benefits both borrowers and investors on our platform, as well as the marketplace lending industry overall. We are committed to providing our investors with the information and tools they need to invest through the Prosper platform, and over the past several years, we’ve shown this commitment in various ways. We were the first marketplace lending platform to offer expansive credit data via API to its investor community and we continue to publish loan-level performance for investors.
“In order to help investors further understand performance trends and the Prosper portfolio, we will be regularly sharing information through the Prosper Performance Updates. These updates are developed by our Risk and Capital Markets teams and will provide succinct commentary regarding: (1) portfolio composition (2) gross loss curves (3) delinquency curves (4) pre-payment curves and (5) total payment curves.”
Pennington highlighted Prosper’s May update to indicate the platform’s core product remains “very attractive,” showing origination data that demonstrates a consistent credit profile in the Prosper portfolio.
Below are additional portfolio highlights from May that Pennington included:
- Expected return in forward production is above 7% as a result of a recent price increase that further enhanced the expected risk-return profit of the product.
- Portfolio gross loss estimates relative to FICO (conservatism) remain at or above 2013 levels.Coupon relative to FICO (price to risk) is now between the 2013 and 2014 levels and significantly above 2015 levels.
- Cumulative gross charge-offs increased on a vintage by vintage basis as a result of Q3/Q4 2015 delinquency. Prosper believes the delinquency was a result of environmental changes and created a more pronounced uptick on younger vintages, based on a higher proportion of principal outstanding during the 2015H2 period. Vintages originated in 2015 have shown a steeper slope than those in 2013 and 2014 but remain well below the 2009-2012 experience.
In sum, according to Crowdfund Insider‘s own JD Alois,
“Demand for credit is not going to go away. It may go up. It may go down. But consumers and businesses need credit to purchase and invest. That is how the economy works. While naysayers point to singular points of failure or systemic challenges, much of what the online lenders are doing today is quite similar to their bricks and motar ancestors. It is just far more efficient and consumer/SME friendly than stodgy old banks.”