Peer to Peer Lending Returns – Prosper Says They Beat Lending ClubApril 20th, 2012 by David Waring
In a previous article comparing Prosper vs. Lending Club, I indicated that I thought the peer to peer lending returns for both companies were essentially the same for investors using their service to invest in P2P loans. I was however unable to do a direct comparison, because of the different ways the companies calculate their returns.
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As one would expect, calling it tie was not satisfying for either company. Almost immediately I received an email from Prosper’s Chief Investment Officer asking me how I came to the conclusion that the peer to peer lending returns for both firms were the same. After our discussion he send me the below response:
Why Prosper Feels its Peer to Peer Lending Returns are Superior To Lending Club
Response Delivered By Joseph Toms, Chief Investment Officer, Prosper
Editor’s Note: Prosper’s methodology of calculating returns only includes seasoned peer to peer loans. Seasoned returns in this context refer to loans that are over 10 months old. Unseasoned would be all peer to peer loans, both over and under 10 months old.
As discussed, we feel incorporating unseasoned loans into the calculation overstates the actual return, particularly when a company loan portfolio is rapidly growing. However, in the interest of an apple-to-apple comparison we have run our performance numbers and are providing return figures that are unseasoned so that a true comparison can be made across the industry. When similar ROI methodologies are applied, Prosper’s ROI increases from 10.46% to 11.15%. This return is notably higher than the return previously noted throughout the article. Prosper has led the industry in P2P lending returns since 2009.
Perhaps a better way to compare returns is to use an independent third party site like Lendstats.com. This creates an immediate apple-to-apple comparison using a consistent methodology that is wholly impartial. It’s also important to note that Prosper completely revamped its model in 2009. The company therefore has what we call Prosper 1.0 and Prosper 2.0 (the current model). When reviewing Lendstats’ objective analysis, an important point for consideration emerges. If you compare the returns through the two completely different models of Prosper 1.0 and 2.0. the compound return of a dollar invested in 2007 ends up being 32.12% at Prosper versus 33.11% elsewhere. There is not much of a difference. However, if you compare the lending platforms in operation in the industry today, the Prosper 2.0 platform outperforms the competition: a compound return of 45.55% at Prosper and 32.09% at the second best P2P lender. We think the data is irrefutable. Prosper has led the industry in reliable high-yield P2P returns, outperforming the competition consistently since 2009.
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