Prosper Marketplace - Competing of Online Financial Services in the Digital Era - Case Study Example

Name: professor: Subject: Date: Competing in Digital Era Description of the Company Prosper Marketplace is a provider of online financial services and has its root in San Francisco, California. It is the first ever peer-to-peer marketplace of lending. Through its website (prosper.com), individuals can lend as well as borrow funds. The company makes its revenue by charging some fee on borrower's funded loans as well as from the annual servicing fee of the loan mainly from the lender. It does operate numerous administration tasks of loans such loan repayment as well as a collection, acting on behalf of the lenders as well as borrowers. Since its establishment in 2006, the company has a total membership of 1,080,000, and this number keep on growing thus the company has the capacity of becoming more successful in the future. By 2011, the total number of the funded loan stood at $234 per share and at the same time. Various investors including Benchmark Capital, Omidyar Network, Accel Partners, and DAG Ventures back the company, thus enhancing its success. Currently, the total amount of the company's funded loan stands at $3 trillion (Lend Academy 1). Through prosper.com, borrowers can request the various amount of loans mainly from the lenders, who in return can fund them amount from around $2,000 to around $35,000 per the request of the loan. Prosper carry out the process of ensuring the verification of the borrower's identity as well as provide the selection of personal data before it can fund the loan. Since 2010, the company adopted a new business model and started utilizing pre-set rates that are determined by the company by a formula that evaluates the credit risk of each prospective borrower. Under this model, borrowers are not entitled to determine the rate of a loan. Although it started as a marketplace specializing in debt and personal consolidation loan, the company is currently exploiting niche verticals ranging from auto financing and home improvement to elected Green and medical loans. By 2020, marketplace lending, now standing at less than 1% is estimated to have attained a 10% growth by 2020, and it is anticipated that it will spread to other countries including the UK, China, and Australia. By coupling institutional funds additionally to retail, the marketplace can ensure the broadening of their portfolio to various borrowers as well as sustain momentous growth for a long time (Cognizant 1). Digital opportunity Access to credit acts as the vital spark to business as well as economic growth. The advancement in technology, as well as the availability of data, is bringing about changes in the manner by which small businesses as well as consumers do secure financing. Prosper marketplace, like other online marketplace lenders, provide credit to various customers. Over the years, Prosper Marketplace has undergone evolvement to sophisticated networks that feature partnerships with financial institutions, institutional investors, securitization transactions, as well as direct lending. The company has consistently created digital opportunity, and its role in online marketing was recognized last year by winning the 2015's "Online Finance Company of the year." It has continued to create new opportunities for business and has consistently gained both local as well as international recognition. Apart from that, it has created a platform where finance as well as money is no longer being controlled majorly by banking institutions but is currently entering the domain of digital era (U.S. Department of Treasury, 1). Subsequently, it ensures that people are investing in a manner that is socially as well as financially rewarding. Moreover, it stands as a strong leader regarding Fin Tech space via the technology of proprietary credit scoring in combination with complete transparency when it comes to credit risk. This ensures that the competitors comprehend the competitive returns and that the borrowers are getting fair rates. Consequently, the company offers various lending products ranging from asset classes to ensure a reduction in market vulnerability. There has been a continuous evolvement of the peer-to-peer system of the transaction, and the trend is likely to continue in future (Lend Academy 1). The company has also witnessed an important growth, and this is prompting the traditional banks to partner with digital lending marketplaces such as Prosper. For instance, the company loans issuance stood at $2.4 billion, showing how impressive the company has growth. There has been an improvement in the business's performance over time. However, it is important for the enterprise to ensure that more physical branches, as well as opportunities, are available for the marketplace borrowers to ensure the existence of interaction with the lenders via the digital platform. The company has consistently ensured the delivery of innovative features as well as products, ensuring that borrowing becomes better. Apart from that, the company continues to introduce exciting initiatives, making it continue to be the best peer-to-peer lending platform. The consumer lending market is being revolutionized by peer-to-peer lending, and the company is a leader in this transformation (Cognizant 1). Disruptive Innovation and Value Network Analysis The most recent change witnessed in the company is the mobile app called Prosper Daily which offers the consumers with powerful tools suite to ensure that the financial decision that they are making is smart. Through the app, the customers gain the capacity to view their budgeting, tracking spending, financial accounts, identifying charges that may be questionable, as well as monitor the score of their free credit (U.S. Department of Treasury, 1). Marketplace lending is currently in takeoff and is a perplexing new model for unsecured lending for customers. The company has established a new paradigm that simplifies how one can get an unsecured loan. Any business innovation is manifested by new features that separate it from the existing practice of operations. Among the changes present in the company and that target, the lenders include bad debts' provision, a legal framework that aims at dealing with defaulters as well as least possible guarantee returns (Lend Academy 1). Another prevailing innovation is that potential borrowers are characterized by "social" info in addition to "financial" variables for instance debt-to-income ratio, homeownership, or credit grading, and this ensures that the potential lenders have a hint. For example, borrowers can provide their personal pictures as well as that of their family, home, or pets, as well as provide information about their leisure activities or work via writing as well as about why the company can trust them regarding their capacity to repay the loan. Therefore, the borrowers' info is enriched compared to that of the professional lenders for instance banks who estimate the worthiness of the credit. A user with an account of Prosper marketplace can post the listing of the loan, providing the textual information regarding why they need the loan. The company centers on technology in what it offers to both the lenders and the borrowers (Cognizant 1). Economic Characteristics About 80-85% of the company's loans are utilized to ensure the consolidation of consumer debt. The platform has attained success compared to the bank because it has lowered the customer acquisition cost. The company controls 20% of the market share. On 15th February this year, the company adjusted its loss and pricing rates to ensure an increase in the investors' return. Since August last year, the company has been upsurging loss rates and prices for borrowers and this is in reaction to the upsurge in the forward rate of interest as well as the widening debt capital market spread. Prosper marketplace price changes are as shown below: While the exact composition of the portfolio going forward will result from the reaction of the borrower to the increased prices as well as prospect marketing mix, the above figures fairly represent the changes' potential impacts. The changes in pricing have occurred to ensure the preservation of the Prospect marketplace loans competitiveness compared to other assets that are traded publicly (U.S. Department of Treasury, 7). The company's investments have consistently delivered a solid performance of the credit. The company also can ensure the prediction of loan performance by looking at the present environment as well as providing an appropriate calibration of its assets as evident by the robust track record that it has developed. Following the 2013 adjustments made to the model by the company, there has been the delivery of firm credit product to its community of investors whose performance has been consistent (Lend Academy 1). The company's cumulative curve of the same is as follows: While the company does not consider that recent volatility of the market has negatively impacted its portfolio of loans, it, however, recognizes that the wider spread of the credit impacts its product's relative attractiveness against the potential substitutes. Apart from the pricing as well as loss changes, the company has been investing in its collection capabilities and servicing. These investments will assist in ensuring that the firm is persistent in the delivery of the solid returns to its investors in a situation where the recent volatility of the market finds its way to the American consumers as well as the real economy. The repayment by the borrower is usually three to five years on a fixed term (Lend Academy 1). The company also has in place a secondary market platform that ensures that the investors are buying as well as selling the business's loans (notes). The pricing of the notes is either discounted or marked up. Data Aspect The company makes the publication of its performance statistics within its website. At the same time, the data is availed to the public to ensure its analysis (Cognizant 1). The company's condensed unaudited consolidated balance sheet is as follows: Challenges and opportunities from IP The company has made a shift from the classic model of P2P. It can ensure that the borrower is being connected to the investor. Being new in the market, the company as well as other marketplace companies has less regulatory restraint when it comes to their operations. Technological advancement, as well as the presence of data, has currently changed the manner by which the consumers can secure financing. There has been the emergence of online marketplace lending as an industry that ensures that users are receiving faster credit (U.S. Department of Treasury, 1). The online marketplace credit companies such as Prosper utilizes data as well as modeling techniques for underwriting and this act as an innovation as well as risk. While algorithms that are data driven may accelerate the assessments of credit as well as lead to a reduction of cost, they also act as different income risk in the outcomes of the credit and also has the perspective for violation of fair lending. Significantly, these applications lack the opportunity to ensure the checking as well as the correction of data that is utilized in underwriting the decisions. Opportunity to ensure the expansion of credit access: Online marketplaces have the capacity to provide an expansion of access to some form of credit by ensuring the provision of loans to borrowers. Distribution partnership existing between the traditional lenders and the online marketplace lenders such as Prosper may offer a chance to provide the leveraging of technology to ensure an expansion of access to credit to market that is underserved (Lend Academy 1). New models of credit, as well as operations, stay untested: there has been the development of new underwriting tools as well as business patterns in a period characterized by low rates of interest, tough overall conditions of credit, as well as declining unemployment. However, the industry has not attained a complete credit cycle testing. To ensure the sustained growth as well as access to credit via the constant online market leading development, it is essential to provide the following: Guarantee the promotion of transparent marketplace mainly for investors as well as borrowers Provide an expansion for credit via partnership that will help in providing affordable as well as safe credit Offer support to the development of affordable as well as reliable credit by ensuring that the government-held data is being accessed Provide an interagency integration via the standard working groups' creation for online marketplace lending (Cognizant 1). Works Cited U.S. Department of Treasury. Opportunities and challenges in online lending. 2016. Print. Lend Academy. Prosper.com: review for new investors. 2016. Retrieved from: http://www.lendacademy.com/ Cognizant. Marketplace lending: a mature market means new partner models, business opportunities. 2014. Print. Read More