Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

It's been less than three weeks since LendingClub's very public debacle left everyone wondering: are the business models of such peer-to-peer lenders viable?

Prosper Marketplace, one of the biggest online lending platforms in the U.S., may find out soon if there are many believers left. In an attempt to shore up its future, the San Francisco -based company hired advisers to weigh strategic options including a stake sale, according to multiple reports on Thursday.

It comes at a tricky juncture for Prosper. The online lender -- which connects debt investors with borrowers seeking between $2,000 and $35,000 for purposes including debt consolidation, taxes, vacations and adoptions -- has lifted the rates it charges its riskier borrowers. This lessens the competitive advantage of its products.

Paying it Forward
Prosper Marketplace this week raised the rates on its loans for the second time this year, citing the forward-looking credit market and interest rate expectations
Source: Prosper

 

Fewer loan applications and less appetite from buyers of those loans could exacerbate the slowing growth that Prosper revealed this month, when it said it would cut nearly a third of its staff. So even though it hasn't been plagued by the same corporate governance issues and regulatory scrutiny as LendingClub, its last valuation of $1.9 billion in an April 2015 fundraising round appears impossible to maintain in any stake sale. 

Brakes On
Prosper Marketplace, like LendingClub, is facing slowing growth
Source: Company filings

As such, it makes sense that Prosper's investors are trying to preserve as much of the value of their holdings as possible by hiring advisers to proactively search for new capital. Already, the company has met with potential investors such as Fortress Investment Group, Bloomberg reported this month. 

I wrote previously that LendingClub, at its depressed valuation, could catch the eye of suitors such as SoFi, the online lender that has the support of Japan's SoftBank (and a bigger valuation than LendingClub and Prosper combined ). Big banks wanting to bolster consumer finance arms might be interested too.

Wells Fargo, with $19 billion of cash and cash equivalents, said this week that it sees marketplace lenders as "important competitors". The bank wants its customer experiences to be as transparent and instant as those of the online upstarts. An acquisition or investment would help it get there more quickly.

And while Prosper may be struggling with stagnant growth, it still has attractions: namely it's customer relationships, $1 billion of loan arrangements in Q1, a known brand and -- most of all -- strong proprietary technology.

If prospective investors think marketplace lending has a future, and banks like Wells Fargo seem to, then Prosper may be a decent bet. Compared to LendingClub, it certainly has less baggage.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. SoFi's last private round valuation was $4 billion vs Prosper's of $1.9 billion and LendingClub's market cap of $1.6 billion

To contact the author of this story:
Gillian Tan in New York at gtan129@bloomberg.net

To contact the editor responsible for this story:
James Boxell at jboxell@bloomberg.net