Thursday, July 20, 2006

My take on Prosper's newest set of improvements

see Announcement thread:

NO MORE DIRECT LINK TO TOP 10 GROUPS -- AND ADMISSION FROM PROSPER THAT RANKS WEREN'T PROPERLY CALCULATED!!

(though, the old link to the top 10 still works.... :P)

my personal opinion on ranking these improvements, roughly descending order:

supoib!!!

Reporting loan payments to Experian
Borrowers who track their credit closely may have noted that Prosper doesn’t yet show up on their credit report as a tradeline. Starting in the next week or so, we will start reporting all loan repayments (and lack thereof) to Experian. This is an important step in helping Prosper borrowers improve their credit scores with the major credit reporting agencies.
Better interest rate guidance for borrowers
Borrowers will now be given minimum, maximum, and average interest rates for borrowers like themselves when they create their listing. Now there will be no excuse for an HR borrower who creates a listing for $25,000 at 5% interest – this borrower will now see a clear indication at the point that he enters his interest rate that it is way below average.
Email preferences
Now you can choose which Prosper email you actually want to receive in your email inbox and your Prosper “Messages” box. You can even choose to only receive messages from members with a role (borrower, lender, GL), or only members of a specific role. A small caveat: many messages are mandatory and cannot be shut off, but if you experience an email that should not have been sent (or an email that should have that wasn't), please let us know and we’ll get it fixed. Thanks for your help!
Improved messages interface
Now you can select multiple messages at once and mark them as read or delete them in bulk. You can also filter your messages by those received within the past day, week, month, or ever.


I eagerly await the opportunity to avoid a 4 figure count of messages, and trim my mailbox to 2 digits smile.gif

Interesting, possibly useful in reassuring borrowers and GL's:

Funding forecast
The new funding forecast graph (found on every listing page) will let you know the likelihood that a loan will be fully funded. It’s a simple linear extrapolation of existing bids over time, but should help lenders estimate funding and decide whether or not to participate earlier in the bidding process.

Needed for completeness/desired:

Group leader statements
Now group leaders will get their own monthly statements, outlining the details of their group’s loans and corresponding group rewards (if applicable).

Borrowers with listings and loans can start groups
This is really just a bug fix, but now borrowers who have active loans can start their own groups on the site. We have heard from a lot of borrowers who had a great experience borrowing, but were blocked from starting a new group because it would have required switching their membership to the “Group leaders group”. Now that that group is no longer in the picture, borrowers can start a new group at any time.


Bad (only the part where the cap wasn't bumped):
Late fee and electronic funds transfer discount changes
We have changed the fee for late payments generally from “the lesser of 5% or $15” to “the greater of 5% or $15” of the unpaid installment amount, contingent on state-by-state regulations. Additionally, the electronic funds transfer discount for borrowers has been raised from 0.25% to 1.00%. This also effectively lowers the maximum interest rate available to lenders from 28.75% to 28% (in states where there is no rate cap). These changes only apply to listings created after the update.

My issue is with not raising the rate cap to deal w/the additional loss of interest rate. Prosper Jon, what you're saying is only half-true in an economic sense.

QUOTE (Prosper Jon @ Jul-20-2006 12:14 PM)

While the increase to 1% does effectively lower the max lender rate you might see on listings, its not a charge paid by the lenders so you shouldn't need to adjust your bids to maintain your desired ROI.


Most obviously, ROI (return on investment) is a handy heuristic, but not very useful in the absence of other info. For instance, your ROI on buying a lottery ticket from a badly run lottery program might be 50% -- but that's based on the one in a gazillion chance that you win! In comparison, a 8% ROI (expected return) derived from a relatively "safe" investment -- eg, the stock market, over long periods of time, may be rationally and strongly preferred.

I've alrady posted on the following effect as well, but the econ 101 explanation holds here too -- when there be a tax on a good, whether it be levied on the buyer or the seller, the same effect on net utility occurs. the only thing that determines who "actually" pays the tax, is how flexible demand and supply are. (concrete example: diabetics really need insulin. gov't taxes drugstores, tells diabetics that they aren't the ones paying the tax. drugstores shrug, and raise the price of insulin exactly the amount needed to make as much money, after tax, as they did before. diabetics have to buy insulin nonetheless at that higher price.) Thus, saying that the charge isn't explicitly paid by lenders is not that helpful.

Similarly, if for some reason, 1% became 10%, it very obviously reduces the maximum possible ROI for any investor, even w/o risk adjustment, or defaults, to 19% or so -- and again, that's before defaults!

Finally, this is a less prominent effect, but going with the 10% example (for ease of explanation), if C borrowers w/bank drafts only come onto prosper, they'll leave when they realize that to offer lenders 13% or so, they need to pay 23%. The 1% has the same effect, only far smaller -- so you're marginally reducing supply as well.

None of this is meant to detract from the very real need for Prosper to save money on bank drafts, or reduce default (perhaps) by increaseing incentives for ACH'g
__END__



Don't know what the offsetting cost is on Prosper's end, and I assume this is a good change:

Bank account verification changes
We have made two big changes to bank account verification:
[*]Everybody will now be able to use the “instant account verification” option that lenders have been enjoying for a few months now. This will take a lot of headaches out of the account verification process, and will speed the process greatly for many borrowers and group leaders.
[*]New borrowers (without verified accounts) will not be able to verify their bank accounts until their listing has reached at least 5% funded. Prosper’s costs for bank verification are significant, and in an effort to reduce unnecessary bank verifications (on borrowers who are never going to get funded), we are introducing this requirement. We don’t think it will significantly affect lenders’ willingness to bid on listings (currently, verified bank accounts are not a huge factor), but it is something new that lenders should keep in mind.

i believe prosper andrew referenced the fact that borrowers can now, like lenders, use a CashEdge like interface to automatically verify accounts instantly -- if they bank w/one of the many online banks that are big enough to be listed w/cashedge and choose to let cashedge do auto confirms, and they know their online banking info. Thus, no more verification deposits for most borrowers and lenders.

HOWEVER, I have never been able to add new bank accounts w/the cashedge-like instaverify system, and have ALWAYS had to do manuals on prosper. (This was true even after the prior announcement that lenders could do insta0verifcation. I've added ~10 accounts, the latest one within the last 2 weeks -- no dice.)

EDIT: Sorry -- I didn't realize each new account was hurting so much -- I went back and counted 10+ unsure.gif

My suspicion is that lenders joining before the last instaverification announcement, might have gotten the benefit of instaverifying -- but old lenders adding new accounts would not, due to some bug.

QUESTION TO ALL: has anyone seen the instaverify interface (specifically, lenders joining before or after the announce date who subsequently added new bank accts from large, online banks)?

6 Comments:

At 1:48 AM, Anonymous Anonymous said...

"Most obviously, ROI (return on investment) is a handy heuristic, but not very useful in the absence of other info. For instance, your ROI on buying a lottery ticket from a badly run lottery program might be 50% -- but that's based on the one in a gazillion chance that you win! In comparison, a 8% ROI (expected return) derived from a relatively "safe" investment -- eg, the stock market, over long periods of time, may be rationally and strongly preferred."

Just a heads up for a mathie type. The ROI on a lottery tends to be MINUS 50%. This is an important point - gambling typically has a negative ROI - that is, you tend to receive back less than you put in.

 
At 8:05 AM, Blogger cellardoor said...

heh -- yep -- my ref to a "badly run lottery program" might have been too oblique a reference to this fact...

 
At 9:08 PM, Blogger cellardoor said...

ok, rather than use doubly negative qualifiers:

1.lotteries are usually negative expected value for the ticket purchaser

2.my reference to a badly run lottery program implied that such a lottery program might (unrealistically) provide positive expected value for the ticket buyer (and expected losses for the program runner).

 
At 6:14 PM, Anonymous Anonymous said...

I joined yesterday as a lender- but I have to wait to check on the deposits next week- no instant verification for me...

 
At 8:53 AM, Anonymous Anonymous said...

I just joined today, and I too was not able to use the instant verification. My checking account is with on of the big national banks, so I know that they should have what is required technically for verification (I use Microsoft Money with this account all the time and it has no issues).

 
At 2:25 PM, Anonymous Rob said...

CellarDoor:

You have interesting views on the p2p space and the functionality our sites should offer.

Wondering if you would be open to trying out Lending Club and providing feedback to us on your lending experience there.

Please drop me a note at rob[at]lendingclub[dot]com

Thanks
Rob

 

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