Determinants of Success in Online Social Lending: A Peak at US Prosper & UK Zopa

Abstract

This paper examines social or peer to peer lending in two platforms, Prosper in the United States and Zopa in the United Kingdom. The hand-collected sample consists of 600 random loan requests -- 300 in each platform -- in different stages of fulfillment during the month of February 2011. The results show significant platform differences in terms of basic common characteristics such as loan amount, maturity and interest rate, as well as credit rating and borrower experience. Furthermore, the different measures in the speed of funding emphasize the importance of credit risk in both platforms as well as the likely use of rules of thumb by retail lenders. Lenders appear to have limits in the capital invested per loan and fund more slowly loans with lower credit ratings and loan purposes that may be related to lower credit scores. In the case of Zopa, besides lending more slowly, they also propose higher rates. Overall, evidence suggests that there are commonalities but also significant differences between Prosper in the US and Zopa in the UK.