Thursday, August 17, 2006

Improving groups, first in a series of off the cuff rants

Ah, group rewards -- the source of mucho controversy on Prosper forums. Some randomly selected thoughts on the matter:

A)I agree that sourcing borrowers not on prosper, deserves some sort of compensation. My next idea to push will be asking prosper to separate referral fees, which go to the GL, or whoever successfully refers a borrower to prosper who then gets funded -- from group rewards as they exist today.

in other words, pretend that Hi_Max sources a borrower from off prosper. the borrower hates his group, joins fanafi, gets funded. Hi_Max will at that point in time, get a "referral bonus," just as fanafi will get the current type of group leader rewards.

This furthermore allows for increased specialization, and thus, efficiency -- after all, one can refer lots of people to prosper, and get referral fees -- why bother requiring such people to be group leaders? Thus, affiliate agents recruit for referral fees, and group leaders can concentrate on leading groups -- or if they choose, they can still go for referrals as well.

After all, if one wants referral fees, one has to roughly proxy them by creating a standard non-100% shared group, and then invite friends/craigslisters/people at work to your group, and get them funded -- the referral and GL functions are inseparable.


B)basically, as a simple economics problem, group fee effects on borrowers and lenders have to do w/elasticity of borrower demand vs lender demand for loans -- to the degree that it is a borrowers market, borrowers can take the otherwise GL fee'd slive and set a lower rate, and still get lenders to bid on it. (At present, I'd argue that it is a borrower's market if holding borrower quality constant)

in other words, econ 101 says in an efficient market, imposing a 50 cent tax on widgets on sellers vs on buyers, has the same net economic effect on all parties in the end. The person who bears the brunt of it is the person w/least flexibility re: selling or buying the product, not the person who is technically targeted.

a simple to understand example at the extremes (for simple but middle of the road egs, google demand elasticity, tax, etc...

as always, making unrealistically idealized econ assumptions.

say diabetics all have decent amounts of money in our economy, and REALLY value insulin. if the government places a tax on sellers of insulin, rather than buyers, the sellers need only raise the price of their supplied insulin by almost the amount of the tax to offset their losses -- diabetics will still pay nonetheless.

Why lenders boycott certain groups:

C)Some lenders feel that for the same reasons that they bid on social loans for below-market rates, they should boycott UNJUSTIFIABLY high fee groups -- that is, not because the fees exist, but because those groups are demonstrably not value-additive -- or even value-subtractive, or have in the past been proven to lie to get borrowers to join their group. (these lenders are happy to bid on certain fee-charging groups, in other words.)

D)Other big lenders feel that by reducing the future prominence of certain groups by not bidding on their members (groups that don't add value/charge really high fees), offsets the occasional loans that are still worth it today after return adjustment for fees today. This is not as silly as it sounds -- if I'm unable to place as much $'s today in Prosper as I want because borrowers are getting bid down too far (shortage of good borrowers, surplus of lenders), but anticipate that a year from now, I could/would put 10x what I invest today into prosper, shifting the balance of power away from cruddy groups makes sense -- and some groups seem to have responded to this type of pressure (or possibly shifted their rewards to confuse borrowers, or what have you).

12 Comments:

At 8:25 AM, Anonymous cubbiesnextyr said...

How would you track the referrals? Would it be via a personalized link that each member of prosper would get? - That would probably lead to people spamming trying to get their link out to many people, which of course would look bad for prosper.
OR, would you suggest putting the onus on the person coming in to prosper to type in the name of the member who referred him/her? Which of course has it's own problems of either misspellings, not typing it in at all, not knowing the person's member name on prosper, etc.

 
At 9:13 AM, Blogger cellardoor said...

this isn't my field of expertise/I've not done any real research into affiliate schemes...that being said, some more off the cuffedness...

1.to some degree, the first concern is already out there, insofar as GL's want lots of people to join their groups...though there's more incentive when a referral fee is added.

2.that being said, perhaps some variant on the second method might be useful. ask new borrowers at join time if they were referred by someone, and set the box to default to YES. Ask the person to type in the name or username of the referrer if known. Prosper can then recontact the borrower later on to get the correct match, or use a database of real names to see if the referrer is person X or not...

 
At 2:46 PM, Anonymous Anonymous said...

Open referal fees may be just begging certain bad individuals to start spamming. It might be feasible so long as prosper is heavy handed about spamming.

 
At 10:56 PM, Blogger James & Miel said...

This is a good posting.

I have about 3,300 in prosper, and the weakest part of the service is the group features of the site.

This sounds like an interesting idea, perhaps prospers management will consider revamping that portion of prospers business model.

Best,

James

 
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have you guys heard anything about this loanio company?

 
At 6:22 PM, Blogger hybrid rental car said...

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At 8:35 PM, Blogger Ben Joseph said...

Pardon the intrusion, but the MIT Club of Northern California is hosting a panel on social lending. We are have panelists from Prosper, Lending Club, and Microplace. The event is in the SF bay area on Wednesday, December 5th. Here's the event link:

http://www.mitcnc.org/Events_Single.asp?eventID=1365

I invite all of you to come.

 
At 5:22 AM, Anonymous Anonymous said...

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I started a new blog related to lending with prosper so I think there is mutual benefit. Let me know, as soon as I hear from you I will add your link.

My site URL is:

http://p2plendingwithprosper.blogspot.com/

Regards,
Isaac

 
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At 7:14 AM, Blogger lorraine said...

I have a D rating but I pay all my bills on time and I make good money. What are the chances my loan will get funded. Please help

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