Monday, December 18, 2006

Flash - Prosper Loans Pending Review

Man, this is aggravating. I had this whole post nicely typed up and then my laptop froze! I'm not a happy camper. I don't know what it is with my laptop, it must dislike certain places, like upstairs at my house or the University's computing labs. Regularly, every time the laptop is there, it will, inevitably, freeze. Dead, kaput, no-one is home, press the power-off button dead. And when it restarts, there is noting in the event logs that can help me identify the problem. It's like a sudden death, inexplicable. But downstairs, in my study, at Starbucks, in the TV room or the kitchen, never a freeze like this. I cannot conceive of the common denominator of the places it freeze vs the places it doesn't, so I'm stuck.

Enough ranting. As I was saying in my previous attempt, I track the number of loans that Prosper has in pending review status. These loans have been fully funded by lenders on the Prosper site, but they are waiting on Prosper personnel to verify some of the borrower's data. All good, I like the fact that Prosper is doing some checking on my behalf to verify the borrower's identity, income etc. What I don't like is that this delay is not supposed to take 3-7 days and "rarely" (Prosper's word, not mine) longer than 14 days according to Prosper's documentation.

Lately it has become apparent that an increasing number of loans are in pending review limbo, see this little table:

Want to guess how much money that is? Slightly more than $1,500,000. That's a lot of money for both Prosper and for us lenders.

Now I'm acutely aware that Prosper must be burning through its cash reserves at an alarming rate, they can't possibly be making enough money to pay for lots of additional loan verifiers, but this is an important part of Prosper's business. Both lenders and borrowers come to Prosper with the expectation that their funds will be handled promptly, within the limits of prudence. For a borrower to have to wait 2 weeks after their loan has funded for the transfer process to start, is a very long time.

Let's look at the worst case. John A Borrower decides he needs some money to refurbish his bathroom. After two days spent at Lowes, he recons he can do it with $12,000 (hey, it is a nice bathroom!). So John considers where to borrow the money from, he has a 0% teaser rate on his credit card, or a 5.99% rate on another, then there's his bank and then there is this new-fangled Internet start-up called Prosper. So he decides that he doesn't fully trust the CC companies, his bank treats him like a number and Prosper says it is the place for Person-to-Person lending and borrowing. John A Borrower is just fine with borrowing from a bunch of fellow Internet denizens, so he creates a 7-day listing on Prosper (he could have gone for 10 days, but he recons he would fund in 7 days with his good credit). So after 7 days John has a funded loan at 9.5%. Having watched the bidding process drive his loan rate down from 14%, John is ecstatic, he can hardly wait to tell his wife, the neighbour and anyone in the office who will listen. However, over the next 14 days as John is struggling to comply with the review process, his enthusiasm slowly wanes, being replaced with a modicum of frustration. It gives his office buddies a good laugh to say "Hi John! and how's that Prosper loan of yours coming along?" and hear the muttered curse john utters under his breath.

Finally, on day 12 of the process, John's loan is released from pending status and he gets an email that the money will be in his account ... when? "2-4 bloody days more" growls John.

By the time John can pay the contractor that is supposed to start on his bathroom remodel, the mold will have grown an inch - it will be almost 21 days since he started his listing on Prosper.

That's too long a wait for an Internet process.

My suggestions:

  • Overlap verification with the listing process. If the borrower funds to 50%, send them an email with a case number that is uniquely assigned to them (so it can be reused if the borrower doesn't fund and has to relist).
  • Allow the borrower to fax material as soon as their case number is provided to them. Email should also be accepted, sometimes better imagery can be obtained from a scan than from a fax (yes, I know about Photoshop, but I can fax a Photoshop image as easy as I can email it).
  • Keep all their material in a folder unique to that borrower.
  • Date the folders so that they can be handled in a first-in-first-out basis.
  • Do away with telephone customer support, no successful Internet company that I know of has telephone support easily available.
  • Apply those resources to verification.
  • Have as an objective to pay the borrower within 7 days of listing, or if the listing period is 7 days or longer, three days after the listing has ended.

This is really the core, crucial process of Prosper and it should work more efficiently than it does right now.

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