One of the most disruptive startups in the financial industry is Prosper, a peer-to-peer lending marketplace. Since its launch in February, 2006, Prosper has attracted more than 450,000 members who have loaned $96.4 million to each other. There is so much liquidity on Prosper now that the startup wants to create a secondary market for loans on the site.
Right now, if you loan money to someone on Prosper, you have to wait for the term of the loan to expire to get all of your money and interest back (unless the debt is paid back early). A secondary market would allow individual lenders on Prosper to sell loans to each other right away, and perhaps even package them together. Such a secondary market could make Prosper a more appealing place for larger financial institutions to invest in.
Hints of what Prosper is up to can be found in an S-1 registration the company filed yesterday with the SEC (see press release). The part of the S-1 (which is not yet effective) that caught my eye was this:
The Lender Participant Rights are associated with the $500,000,000 in aggregate principal amount of Notes to which this prospectus relates. This amount represents the aggregate principal amount of Notes that Prosper expects will be originated on the Platform during the one-year period beginning on the date of this prospectus together with the principal amount of Notes that have been originated on the Platform prior to the date of this prospectus.
In plain English, that means that Prosper expects that the cumulative amount of loans on the site a year from now will be worth up to $500 million. That would still be peanuts for most banks, but would represent a fivefold increase from the amount of loans originated on the site so far.
Prosper has raised $40 million from Accel Partners, Benchmark Capital, the Omidyar Network, and Fidelity Ventures.