"The idea behind Prosper is a bit unusual today, but, as the site reminds readers, person-to-person lending—loans without a financial intermediary—has been around since 300 A.D. For those more used to the Internet age, think of it as eBay meets your neighborhood bank. Prosper is an online marketplace that allows lenders and borrowers to bid for loans—with fees and rates than can be much lower than those of a lending institution. Prosper uses credit scores to help its users gauge the risks of their deals, and easy-to-follow instructions on the site help clarify the details."
Time just released their list of the 50 best websites of 2007 which represent their choice of "the best examples of what's new and exciting about the Web right now...sites with exceptional style and smarts, sites that offer new and improved ways to access and share content, generate our own and otherwise enrich the online (and off-line) experience." Prosper was named one of the 50 best websites of 2007. Here is Time's review this year:
"Prosper is a community of lenders and borrowers—or social lending network—operates outside of any bank, so the rates are better. Post a request for a loan, including desired amount and the maximum interest rate you'd be willing to pay; potential lenders place bids for the amount they are willing to lend, and at what rate. Prosper combines the best offers and puts together a loan plan (multiple lenders, lower risk) and manages the repayment over three years (the standard term). The site also does credit checks, and charges transaction fees and servicing fees.
Prosper loans are not secured by collateral, but the loan agreements are legally binding. You can join a group to get the benefit of that group's positive payment history; as a member of a group, your timely payments help improve the group's overall rep, and that can lead to lower rates for everybody. There are loads of rules for borrowers and lenders—members are forbidden to arrange loans outside the Prosper marketplace, for example—and violations can get you booted. Zopa based in the U.K., operates along similar lines (and its site has prettier graphics) but its network is not as big as Prosper's, which boasts more than 300,000 members and nearly $66 million in active loans. Also worth noting: CircleLending which helps manage private loans between relatives and friends."
In addition, I was surprised to find online banking company ING Direct on the list. Here is Time's description:
Prosper has experienced incredible growth over the last year. They have over $70 million in loans. Few competitors have emerged. Lending Club just barely launched a few weeks ago and Zopa has yet to move to the United States. CircleLending targets a different demographic - loans between people who actually know each other. Prosper is growing but will it catch on? I find it somewhat surprising that ING Direct, an online bank, would be considered "new and exciting" but I guess there is a real dissatisfaction with the current banking system. A bank that is easy to use and provides high interest rates on checking and savings accounts is very refreshing to consumers.
Prosper is successful because they match borrowers who want to pay less than bank or credit card interest rates on loans with lenders who want to earn more than bank savings account or CD interest rates on their investments. Through greater efficiency, will online banks such as ING reduce the spread between the two and shrink the market for Prosper?
Edit: Originally I did not see Prosper on the list and wrote this post as 50 best websites of 2007 - ING replaces Prosper. Thankfully an observant reader quickly corrected me. I've edited this post to reflect the accolade. Only the title and about three sentences were edited to make the post correct and I added the Time's review of Prosper. Congratulations Prosper!