Prosper - Getting Started - the Lender's Perspective

It's kind of addictive browsing listings on Prosper.com. For investors that like to take personal control of their finances, it gives you a whole new class of fixed income investment options. Deciding who to fund can be rewarding in multiple ways- the prospetcts of helping out others, and earning a higher rate of return than most fixed income investments. Risks abound, of course. People often put up their sometimes sad stories of misfortune, and your heart goes out to them. Yet, at the same time, it's a question of trust, as they are difficult to verify. Some have poor credit records, and are on the brink of financial disaster. Although Prosper does credit checks to try and prevent fraud and verify identities, Prosper doesn't seem to have any fraud protection guarantees. Paypal for instance, provides at least some guarantees against fraud and partially reimburses those who were defrauded. One mitigating factor however, is that you can select a collection agency so that if a loan goes into default, the agency will try and collect for you (while taking a HUGE cut of what they are able to get).

Well, despite the risks, I decided to jump right in as a lender. Unfortunately, the way Prosper handles new accounts, it takes quite a while for you to get rolling. First, you apply for an account, which gets approved fairly quickly - it takes about 15 minutes. Then, you have to verify your bank account- they make a deposit and withdrawal that you need to enter to verify your account- this took 3 days for me (I signed up on a Saturday). Then, you need to wire transfer money to your account which takes another 2 to 4 days. This is in sharp contrast to the speed and efficiency of doing the same thing with my ETrade account. ETrade has "instant" wire transfers- talk about great customer service and instant gratification! ETrade probably does this by doing a quick balance check, and initiating the transfer from your bank, but then they actually temporarily put up their own money in your account while the transfer is happening so you can start investing immediately. Prosper needs to learn a few tricks in improving their operations and customer experience here.


(Disclosure: I own stock or options in ETrade at the time of this writing)