This is a very legitimate question. After all, if Prosper doesn't make money then it is a flawed business model and doomed to eventual failure. On the other hand, any money that Prosper does make is going to be coming out of the pockets of lenders or borrowers.
The fee structure at Prosper is pretty straightforward:
For borrowers there is a closing fee of 1% of the amount borrowed for AA-D credit grades, and 2% for E-HR credit grades. The minimum closing fee is set at $25. For non-electronic loan payments there is an additional 1% charge (this is an optional fee).
For lenders there is a 0.5% loan servicing fee for AA-A credit grades, and a 1% servicing fee for B-HR credit grades. These fees are deducted from each loan payment as they are received.
So, for an E or HR loan Prosper is earning a total of 3% of the loan amount, while for an A or AA loan Prosper's take is 1.5%.
The only additional fees are late payment fees (which are directly passed on to lenders), and a failed payment fee of $15 for cases where there are insufficient funds in the borrower's bank account.
I don't think these fees are unreasonable. The lender fees are similar to what you would see at a mutual fund, and less than you would pay for portfolio management at other financial institutions. For borrowers the fees are less than you would pay in closing costs for a loan at most banks. However, it is important that borrowers and lenders understand these fees. If you are a lender and want to make 10% on a B loan then you need to bid at least 11%, while on an A loan you could bid 10.5% to earn the same amount of interest. As a borrower you need to be aware that the amount requested is going to be reduced by the closing fee amount.
So, how much money does this earn for Prosper in aggregate? Here is a rough guesstimate:
Prosper has closed about 12,000 loans with a total dollar amount of $76 million. If Prosper earns between 1.5% and 3% per loan, that means they have grossed between $1.14 million and $2.28 million so far.
So, we have a rough idea of how much money Prosper makes in gross revenue. Since they are not a publicly traded company there is little information publicly available about their expenses. Many of their functions such as loan collections are outsourced. I would guess that the remaining major expenses are as follows:
My guess is that after factoring in these ongoing expenses, and the initial expenses for building the platform, Prosper has yet to earn a profit. However, this is often the case with young companies, and Prosper does have some strong venture capital backers that gave them some initial funding to work with. Also, Prosper has great growth potential as the leader in an industry that is expected to experience a lot of growth over the next few years.
