Interview with Prosper CEO Chris Larsen

Last week we published a press release issued by Prosper.com – a social network for lending and borrowing money online. Today you are invited to read an interview with Prosper CEO Chris Larsen.

Svetlana: As far as I know, your experience with on-line loans started with E-Loan. Then you founded Prosper.com and it took 2 years of development. That’s a long time for development when we talk of startups. What was so innovative that it took 2 years to develop and launch the service?

Chris: I also have experience within the offline world of mortgages and financial services that predates my co-founding of E-LOAN. All of that experience combined has helped prepare me for the launch of Prosper.
The two years of development was to ensure that we had cleared the proper regulatory approvals and that we’d buttoned-up the process completely. Even though individuals lending to one another is an age-old process, the idea of putting this online and allowing it to cross traditional community boundaries to include anyone in the US is a new idea and requires a strong foundation of technology, process and expertise.

Svetlana: Last week you announced impressive milestone of 100,000 users and over $20 million in loans. It is definitely a piece of information that is worth sharing with online community. Could I possibly ask how you managed to get all those people at the website within only months since Prosper.com launch in February?

Chris: Prosper’s success is due to the passion of its members. We certainly have a plan on how to grow the company and its awareness, but the tremendous growth of the company and the milestones you mentioned are because our lenders and borrowers have been so involved and have helped spread the word about Prosper. Prosper is built on social networks and groups of people joining forces for mutual benefit, so it only makes sense that word of mouth would fuel our growth.

Svetlana: I found an interesting piece of information on history of people-to-people lending at your website. And then you only give comparisons between lending/borrowing at Prosper.com and traditional things like banks, credit cards, etc. Does that mean that you compete solely with traditional offline lending institutions? Do you see any online competition anyway? Or do you at least expect some players entering the game soon?

Chris: People-to-people lending is certainly an age-old concept that is still played out in its traditional form in many cultures. We think of Prosper as another option for individuals looking to borrow or lend money, not as a direct competitor to banks or credit unions. And there are certainly plenty of other ways for people to participate in this process – from the traditional methods in other cultures to non-profit options such as Kiva.org. There are also people-to-people lending companies that are operating in other countries, but we are currently the only service of this kind available to US residents.

Svetlana: Could you unveil some information on what fraud and identity verification techniques are used at Prosper.com?

Chris: Prosper takes fraud and identity verification seriously. We view our primary role as providing a safe and secure environment for our members to interact with one another. This prevention takes many forms, including state of the art technologies, credit and fraud checks, pattern matching and analysis, and reporting and vetting by the community itself.

Svetlana: Well, that brings me to the next question. What is the role of groups at Prosper.com? Do they complement to traditional techniques of identity verification? Do you see the future of online identity verification with affiliating to some groups and proving your actual existence by referrals or on the contrary with things like passport and driver licenses faxing?

Chris: The role of groups is a key part of the Prosper community. Prosper was built on the concept of groups as a way to drive peer reputation and accountability to influence good borrower behavior. Validation of a person’s ID will always be handled by checking a social security number or something similar so as to remove any doubt from the process. But groups are important in helping borrowers to potentially win better interest rates from lenders, in helping to ensure that loans are repaid in a timely manner, and in making it easier for lenders and borrowers to find common ground when trading funds.

Svetlana: What do you consider as Prosper’s major advantage (or competitive edge)?

Chris: I think we have two primary advantages over potential future competitors. The first is our social element and strong member base. We believe that the personal connection people can make on the site is vital to perpetuating a system of people-to-people lending - that is why we allow anyone who has passed through our verification process to participate on the platform.

This allows the marketplace, not a formula, to decide what is important or worthwhile in a borrower, while also maintaining a strong return on a lender’s money. For example, someone in New York who is originally from Boise can lend money to a small business in Boise trying to make a go of it at an interest rate that is better than the small business could find on credit cards or a bank, but that also is higher than the lender could make on a high yield savings account. Both become winners.

The second is the regulatory approvals mentioned earlier. This is a long process that is unique to every state and will take time for others to accomplish.

Svetlana: And that brings me to my last question. In your yesterday’s press release you mentioned that “Prosper’s marketplace platform is patent pending”. Is it possible to give some more details on that? When was the patent application submitted? When do you expect to have your platform patented? What will be covered in the patent? What are the chances that you will manage to avoid online competition by patenting?

Chris: We filed a patent for the key elements of Prosper marketplace soon after the concept was created to protect our intellectual property. We believe this is a key value of the company.

Svetlana: Thank you very much for your time, Chris. I hope our readers will find them interesting and some of them will join Prosper and will benefit from your services.