The Art of the (Micro) Deal Chris Larsen, chief executive of Prosper Marketplace, explains how the online service links lenders with borrowers for micro loans.
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The Art of the (Micro) Deal

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The Art of the (Micro) Deal

The Art of the (Micro) Deal

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NEAL CONAN, host:

You may have used the Internet to find a date or to bid on an auction, but if you're like more and more of us, chances are you do some banking online. Now there's a site that hopes to combine the principles of all three: think eBay for borrowing money.

Prosper.com is an online marketplace where users lend and borrow money with each other. And since it opened its virtual doors last February, Prosper has grown to more than 140,000 members, lending and borrowing some $33 million.

The man behind Prosper is Chris Larsen. He's the chief executive of Prosper.com. He joins us now from the studios of Sports Byline in San Francisco. Nice to have you today on TALK OF THE NATION.

Mr. CHRIS LARSEN (Chief Executive, Prosper): Hi, Neal, how are you today?

CONAN: I'm very well, thanks. Prosper brings complete strangers together online in order to lend and borrow money. Why would they want to do that rather than to go to the bank?

Mr. LARSON: Well, we think that both borrowers and lenders - lenders being anybody with as little as $50, so any American - can get the lower interest rates on their loans and make a better return than they would at a bank. So we think this idea of a person-to-person lending marketplace - an eBay for money, basically - should allow both sides to really do well and also really control sort of where their money is allocated. So we think that's a good thing. It's more participatory. It's more democratic and more lucrative.

CONAN: And you said as little as $50. Is there an upper limit?

Mr. LARSON: Not for lenders. So a lender is free. They can take an entire loan offer, but more typically, a lender is putting maybe small amounts, and they're making hundreds of $50 loans to hundreds of people. In that way they're doing, you know, just what the banks and credit cards do - they spread their risks.

And now with technology, you can do that very easily. We think people should be able to participate in those very lucrative markets for banks and really keep the wealth themselves.

CONAN: Well, how does this work? If I'm somebody who wants to borrow, let's say, $5,000, I go to Prosper.com. What do I do?

Mr. LARSON: That's right, a borrower would go to Prosper. They would make a listing - much like they would on eBay, but they would be saying I'm looking for $5,000. Here's the maximum interest rate that I'm willing to pay, and we help guide them based on their credit score. Prosper will check them. We'll make sure they are who they say they are, and we'll risk-grade them based on their credit score.

And then lenders - so anybody with $50 or more - can say, okay. That looks like a good risk. Or they can also say, you know what? This is someone starting a new business, maybe a woman entrepreneur, maybe somebody in my ethnic group. I want to support this person so they can make a good return and also control where their money is allocated, and there are a lot of people like that.

CONAN: And as I understand it, borrowers sometimes include personal information, pictures, that sort of thing.

Mr. LARSON: Yeah, it's interesting, and we were always surprised by this. You know, we make it so the borrower can be completely anonymous. We'll know who they are, but they - you'll have an eBay-like handle. But we also allow them to put pictures, tell stories. They can put a video. They can, you know, link to their small business, and most people do that. And I think that they find that the lenders want to read about the stories, and they want to make those decisions. They want to feel connected, almost like it was in the old days, you know, "It's a Wonderful Life." You know, where does your money come from? It comes from your neighbor. And I think it's a throwback to that, and people enjoy that.

CONAN: Do you have a picture of Jimmy Stewart and the savings and loan there in "It's a Wonderful Life?"

Mr. LARSON: That might get a better bid.

(Soundbite of laughter)

CONAN: Might get a better bid…

Mr. LARSON: But you're free to do that, yes.

CONAN: I wonder, if I'm a lender and I go to Prosper.com, and what do I - just browse through these and look for somebody who looks interesting?

Mr. LARSON: That's right. You can approach it a number of ways. You can - you know, based strictly on returns - you know, what's the rate, what's the risk? We try to give you a risk indication so you know what you'll be making. But more commonly, people will search for, perhaps, small businesses. Maybe you want to support an organic tea company. You can find that.

Maybe you want to support people that are a member of a group. We allow groups to come together, much like micro lending. So perhaps you want to support a local group, an alumni group, a military group, women entrepreneur group. So you're free to do that, and that's the way most lenders approach it. They want to make a good return, but I think they also want to feel connected and like they're helping someone with their money while they're making a good return.

CONAN: And what protects me if I make a loan in good faith to John Smith and he gets the money and hops the next plane to Rio de Janeiro?

(Soundbite of laughter)

Mr. LARSON: Well, so Prosper's duty is to handle the collections. We report to the credit bureau. So we really have all the same consequences that you would if you didn't pay your credit card. And in addition to that, if you're a member of a group, there might even be some shame, and your reputation might be hurt within your group, and that's what micro lending's based on. We allow that as well.

But the other key thing is most lenders should spread their money around. It's much better to make hundreds of $50 loans than, you know, one $5,000 loan, and we make that very easy.

CONAN: So diversify, diversify, diversify.

Mr. LARSON: Absolutely.

CONAN: And as you look at this, what's been the biggest loan so far that you've - I guess - brokered there at Prosper.com? What do you charge, a small percentage?

Mr. LARSON: So the biggest loan that we allow at this point is $25,000, and we've had many of those. Many small businesses will take those amounts. We hope to go bigger as we grow. For lenders, though, it's unlimited. Some lenders have as much - almost a million dollars for some of the bigger lenders, you know, people who are very active. Prosper takes 1 percent of the completed loan. We don't charge for listings, but we take 1 percent from the borrower at funding, and then half a percent from the lender as we manage the loan for - administer the loan for the lender.

CONAN: And as you look ahead to the future, obviously, you've had a lot of growth this first year. What do you anticipate?

Mr. LARSON: Well, we're really pleased with the way it's going so far. The first year, I think, was successful. I think we're pleased with the returns that we're seeing lenders make. We're pleased with the rates that borrowers are getting. So we hope this will continue to grow. Scale is very important, and we do want to be that eBay for money. We think there's a real - it's a huge market. There's just an enormous amount of wealth that people, we think, should be capturing. And we hope this technology will help people do that.

CONAN: And are you making money yet?

Mr. LARSON: You know, we're on plan. We're not profitable yet, but we are making revenue. It's a very good model, and that's important, you know, people should know. We want this to be a sustainable model, much like eBay. That's important for everybody. So it is aimed to be a for-profit, and we're pleased so far.

CONAN: Well good luck to you, appreciate it.

Mr. LARSON: Thanks, Neal.

CONAN: Chris Larson is the chief executive of Prosper.com. He joined us today from the studios of Sports Byline in San Francisco, where Prosper is based. And this is TALK OF THE NATION from NPR News.

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