One aspect that interested me is that they encourage borrowers to join in social groups, in the hopes that this will create greater social trust and less likelihood of default. Here’s how they explain it:
Responsible people tend to stick together. At Prosper, a group can be official, like a school’s PTA, or informal, like the neighborhood dog-walking club. In either case, one person is the designated group leader who confirms that everyone in the group is real.
When you join a responsible group with a good payment history, you get a good reputation by association, and lenders are more likely to offer good interest rates. But, belonging to a good group puts some pressure on you, too. If you stop making your loan payments, you’ll not only tarnish your own reputation, but the group’s as well.
I don’t know how that will work in practice, but I like the idea.
Side note: I found out about Prosper from Zopa, who are quite good-humoured about this competitor – even though they claim Prosper is trying to stop them visiting their site.
Side note2: Jimmy and I are off to see Zopa on Friday to do a follow up podcast. Should be fun.