Prosper.com: A New Path for Smart Money

Overview and Update


First US peer-to-peer lending platform;
launched in 2006



Pioneered the development of this asset class



Prosper Marketplace, Inc. is backed by top
investors including Sequoia Capital, Accel
Partners and Benchmark Capital



Prosper Marketplace, Inc. management team
brings experience from Wells Fargo, Merlin
Securities, Bear Stearns, Barclaycard US, Bivio

Figures shown above are dollar weighted.

Networks and CNET Networks



Prosper Marketplace, Inc. has 85 employees

with a broad range of experience and
complimentary skill sets

PROPRIETARY & CONFIDENTIAL

. PROSPER FUNDING LLC . © 2013

2

What is peer-to-peer lending?
Traditional Bank Financing

High credit costs
Lack of available credit
Hidden fees

High cost base
(branches, ATM, etc.)

Peer-to-Peer Lending

Competitive rates
Access to credit
Transparent terms


Low cost base


3

The Investment Opportunity: Disrupting consumer credit
Consumer credit has been a large, consistently profitable asset class
Equivalent to sixth-largest GDP in world





CURRENT
MARKET SIZE*

Well-established market. Consumer credit data starts in Q4 1945
Current market size excludes home related debt
Small loan size. Credit card average balance is $7,300
Primary demographic user of consumer credit is 30-44 years old

$2.8 TRILLION
ADDRESSABLE
MARKET**

$850 BILLION

Peer-to-peer lending
Currently ~$3.3 billion out of $850 billion

* Consists of consumer credit card debt and installment loans
and does not include loans secured by real estate.
** Consists of revolving consumer debt outstanding
Source: Federal Reserve



4

Solving the central problems
Investors face a difficult environment



Likelihood of suppressed future economic growth
Portends low returns and high volatility for most
asset classes



Fixed income offers little yield and a lot of
duration risk



Cash has a negative return

Borrowers face a difficult environment




Uncooperative lending institutions
Limited access to capital
Desire to improve balance sheet and pay down debt
is restricted by these two factors



5

Unsecured consumer interest rates remain high



Durable interest rate levels throughout economic cycles
Small loan size and lack of collateral cause above market interest rates

Source: Federal Reserve, Prosper



6

The history of consumer credit


Positive lending spread in 26 of 26 years
throughout volatile economic and interest
rate cycles



Banks keep majority of consumer credit
loans on balance sheets due to steady
profitability



Little previous access for investors. Only
low yield ABS and private transactions
surrounding distressed assets

Avg. credit card interest rate - credit card charge-off rate =
est. lending spread on consumer credit (1985 to 2013)
* Federal Reserve data



7

How peer-to-peer lending works
Value Exchange between Borrowers and Lenders
Loan Criteria

Loan Request

Loan Originates

Loan Funding

Principal & Interest


Principal & Interest


8

Attracting creditworthy borrowers
The Prosper marketplace
Highly creditworthy borrowers
BORROWER CREDIT PROFILE

LOAN PURPOSE

AVERAGE
4
CREDIT SCORE

701

AVERAGE
INCOME

$85,761
As reported
by borrowers

Source: Prosper, dollar weighted originations, 12 months ending
September 30, 2013

BORROWERS GET

• Lower fixed rates
• Fully amortizing loans
• No hidden or tricky fees



9

Borrower requests a loan



10

Lenders choose loans to fund



11

Transparent reporting
Account Summary



12

Risk management process
Risk process is rigorous, efficient and thorough





Targeting and credit policy determine who is approved and at what expected loss rate
Underwriting process verifies borrower information

Tracking and analysis of performance establishes feedback loop to improve quality of models
Continuously looking for arbitrage pockets and eliminating them

Originate Loans

Inbound Inquiry




Measure
Performance
vs.
Expectations

Adjust Policy,
Product, Pricing

Identify
Segment
Variances and
Drivers


Data Collection




Direct-to-site
Affiliates/partners
Direct mail

Verification







Verify identity
Verify address
Fraud screen
Verify bank account
Verify employment
on majority of loans


Borrower data
Bureau pull

Credit Scoring





Proprietary scorecard
Additional adjustments
Rating assigned

Servicing





Lender statements
Payment processing
Customer relations

Collections






1-15 dpd: Internal
16+ dpd: External
120 day charge-off policy
Post c/o: External

13

Expected Return by Prosper Rating
Expected Returns by Prosper Rating for seasoned loans (“Seasoned Returns”)3

Source: Prosper, as of September 30, 2013



14

Consistent lender returns
4

Source: Prosper, September 30, 2013



15

Hypothetical portfolio example*
Allocation

Lender
Yield5

Estimated
Loss2

Estimated
Return2

3 year - 65%
AA

5%

6.72%

1.59%

5.00%

A

5%

10.48%

3.26%

6.83%

B

15%

14.47%

5.23%

8.47%

C

15%

18.49%

7.58%

9.65%

D

10%

22.82%

10.50%

10.45%

E

10%

26.70%

13.14%

11.19%

HR

5%

30.33%

15.74%

11.85%

AA

5%

7.32%

1.79%

5.37%

A

5%

10.81%

3.32%

7.09%

B

10%

15.15%

5.11%

9.25%

C

5%

19.74%

7.38%

11.03%

D

5%

24.27%

10.36%

11.93%

E

5%

28.46%

13.50%

12.42%

18.32%

7.64%

9.38%

5 Year - 35%

TOTALS

Source: Prosper, September 30, 2013

* This hypothetical example is not intended to be indicative of any specific investment. The hypothetical example is included for illustrative purposes only and is not
intended to represent the past or future performance of any specific investment.



16

Lower overall portfolio risk, greater current income




Prosper’s monthly returns show low correlation to other asset classes*
Low standard deviation of returns helps reduce overall portfolio volatility
High current income increases overall portfolio income

Source: Prosper

Source: Bloomberg, Prosper / August 2009 through latest data
points available as of September 30, 2013

* Any comparison of Prosper Notes with other fixed-income products as potential investments should include consideration of numerous additional factors beyond
duration and yield, including but not limited to government-backing, balance sheet strength, credit insurance and overcollateralization.



17

Balancing volatility and returns




Higher rated loans greatly enhance overall portfolio stability
The right mix across rating grades will vary depending on an investor’s risk-tolerance

* Prosper return expectations calculated using 100 loan portfolios by credit grade overlaying simulation of economic downturns to projected estimated returns.
** Risk free asset assumed to have a constant 1.20% return (5 year Treasury yield as of May 30, 2013).



18

Working closely with regulators
Investing Activities Regulated by the SEC


Notes are issued pursuant to a registered public offering governed by a Form S-1; Notes have been
registered since July 2009



Prosper Marketplace, Inc. and Prosper Funding LLC are public filing companies (file 10-Ks, 10-Qs, etc.).

Prosper Marketplace, Inc. has 5 years of audited financials and Prosper Funding LLC, which was formed in
2012, has 1 year of audited financials



State-by-state Blue Sky registration also required: Notes are registered in 30 states, plus DC

Borrower Activities are Subject to Consumer Lending Laws
 Prosper is subject to Federal and state consumer lending laws and other laws applicable to financial
institutions (privacy, anti-money laundering, etc.)



Partnership with WebBank exempts Prosper Loans from state-by-state interest rate and fee caps

Prosper has a Deep Regulatory Expertise
 Developed through years of careful analysis and extensive interaction with Federal and State Regulators
 Prosper Marketplace, Inc. has an experienced in-house legal team with expertise in securities and
consumer finance, and has developed a sophisticated compliance management system



Advised over a number of years by premier outside counsel with strong regulatory relationships (DC offices
of Covington & Burling and Skadden Arps)



19

Prosper Marketplace, Inc. Contact Information
Institutional Relations

Ron Suber

Eric Thaller

John Higgins

Head of Global
Institutional Sales

Head of Institutional
Relationships

Director,
Institutional Relations

T: (415) 593-5478

T: (415) 593-5588

M: (203) 809-4420

rsuber@prosper.com

ethaller@prosper.com

JHiggins@prosper.com



20

Disclosures
IMPORTANT DISCLOSURES
Borrower Payment Dependent Notes (the “Notes”) are offered pursuant to the Prospectus, which accompanies this presentation and which is also available at www.prosper.com/prospectus.
Persons considering investing in Notes should review the Prospectus in its entirety.
This presentation includes forward-looking statements. Forward-looking statements inherently involve many risks and uncertainties that could cause actual results to differ materially from
those projected in these statements. Where, in any forward-looking statement, we express an expectation or belief as to future results or events, such expectation or belief is based on the
current plans and expectations of our management and is expressed in good faith and believed to have a reasonable basis, but there can be no assurance that the expectation or belief will
result or be achieved or accomplished. You should carefully read the factors described in the “Risk Factors” section of the Prospectus for a description of certain risks that could, among other
things, cause our actual results to differ from these forward-looking statements.
All forward-looking statements speak only as of the date of this presentation and are expressly qualified in their entirety by the cautionary statements above and in the Prospectus. We
undertake no obligation to update or revise forward-looking statements that may be made in this presentation to reflect events or circumstances that arise after the date made or to reflect the
occurrence of unanticipated events.
Neither Prosper Funding LLC nor Prosper Marketplace, Inc. are registered as an investment adviser with any federal or state regulatory agency. The information contained in
this presentation is for informational purposes, and should not be construed as individually tailored investment advice or as a recommendation with respect to any security or
investment approach. This presentation has been prepared without regard to the circumstances and objectives of its participants and should not be relied upon as authoritative
or taken in substitution for the exercise of judgment by any individual. Each individual should consider the appropriateness of any investment decision having regard to his or
her own circumstances, the full range of information available and appropriate professional advice. Prosper Funding LLC and Prosper Marketplace, Inc. recommend that each
individual seek independent investment and financial advice concerning any services or investments discussed in this presentation.
1

Borrower credit scores are Experian FICO08, except that borrower credit scores for all listings begun prior to September 6, 2013 are Experian Scorex Plus.

2

Estimated return is the difference between the estimated effective yield and the estimated loss rate. Estimated effective yield is equal to the current yield (borrower interest rate minus the
1% servicing fee) (i) minus estimated uncollected interest on charge-offs, (ii) plus estimated collected late fees. The estimated loss rate is the estimated principal loss on chargedoff loans. All
estimates are based on the historical performance of Prosper loans for borrowers with similar characteristics. The calculations of estimated return, estimated effective yield, and estimated
loss rate require significant assumptions about the repayment of loans, and lenders should make their own judgments with respect to the accuracy of these assumptions. Actual performance
may differ from estimated performance.
3

Seasoned Return calculations represent historical performance data for the Borrower Payment Dependent Notes ("Notes") issued and sold by Prosper Funding and Prosper Marketplace,
Inc. since July 15, 2009. To be included in the calculations, Notes must be associated with a borrower loan originated more than 10 months ago; this calculation uses loans originated
through November 30, 2012. Our research shows that Note returns historically have shown increased stability after they've reached ten months of age. For that reason, we provide
"Seasoned Returns", defined as the Return for Notes aged 10 months or more.
To calculate the Return, all payments received on borrower loans, net of principal repayment, credit losses, and servicing costs for such loans, are aggregated and then divided by the
average daily amount of aggregate outstanding principal. To annualize this cumulative return, it is divided by the dollar-weighted average age of the loans in days and then multiplied by 365.
All calculations were made as of September 30, 2013. Seasoned Return is not necessarily indicative of the future performance on any Notes.
4 To

calculate the lender return by month of origin, all payments received on borrower loans originated during that month (i) minus principal payments (ii) minus servicing fees (iii) minus
charge-off’s are aggregated and then divided by the average outstanding principal balance. To annualize this return, it is divided by the dollar-weighted average age of the loans in months
and then multiplied by 12. Seasoned vintages are categorized as those vintages that are at least 10 months old.
5 Lender

yield equals borrower interest rate minus Prosper servicing fee.



21

Prosper.com: A New Path for Smart Money

Recommandé

Recommandé

Contenu connexe

Tendances

Tendances (20)

Similaire à Prosper.com: A New Path for Smart Money

Similaire à Prosper.com: A New Path for Smart Money (20)

Plus de Ron Suber

Plus de Ron Suber (8)

Dernier

Dernier (20)

Prosper.com: A New Path for Smart Money