After appearing in 2006, person-to-person lending has grown by leaps and bounds. There are now several companies competing in different areas of the industry, each continually refining their business model in hopes of maximizing the rates of returns their investors receive and the number of borrowers that participate in their services.
The two behemoths in the peer-to-peer lending business are currently Lending Club and Prosper. Prosper.com was the first company to successfully introduce the idea of person-to-person lending online in 2006, but was shut down by the Securities and Exchange Commission (SEC) on November 24th of 2008 after being found in violation of the Securities Act. After a settlement with the SEC, The company re-launched on July 10th of 2009 and is now trying to rebuild its former empire.
While Prosper.com was fighting its legal issues, another competitor, Lending Club took Prosper.com’s business model and refined it. They took additional steps to make sure that only credit worthy borrowers could participate in the site and began to implement collections practices to make sure that lenders maximized their rates of return. Lending Club has now issued over $50 million in loans and will soon have their 25,000th investor.
Zopa is the number three institution in the world of peer to peer lending. Zopa differentiates itself by having operations in Italy, Japan and the UK. Its US operations are much smaller than that of Prosper and Lending Club and are working with USA Fed Credit Union to manage its US operations. Additionally, Comunitae has been developing a peer-to-peer lending site for the country of spain and
Kiva, a distant cousin of Prosper and Lending Club, has been operating successfully since the industry was formed. Unlike Prosper and Lending Club, Kiva is a non-profit and lenders are providing loans to individuals in third world countries hoping to start small businesses. Lenders do not make a rate of return on their money since the non-profit doesn’t consider itself an investment and more of a way to make a non-profit donation.
Other entrants in the P2P lending industry include People Capital, a social lending site for students wishing to borrow money for college and Loanio, a smaller US-based peer lending site that recently filed an S-1 filing with the SEC.
Another company, Pertuity Direct, ceased operations in August after the National Retail Fund (the mutual fund that underlies Pertuity Direct’s investment vehicle) convened and voted “to approve the liquidation and distribution of all shares of the fund”. The company has not issued a press release since March and their blog has not been updated since May, although their website still appears to be active and functional.