Catching up with… Eric Petroelje from ericscc.com
1.Tell us a little bit about how you got into the person to person lending space?
I first heard about p2p lending on the Dave Ramsey show back in April of 2006. He was actually talking about how he couldn’t think of anything crazier to do with your money than lend it out to strangers on the internet. Now normally I’d agree with Dave, but in this case I thought the idea was interesting enough that I had to check it out some more. The more I looked into it, the more I liked the concept. I really felt like this could become an entirely new asset class for individual investors to get involved in while at the same time lowering the cost of borrowing for consumers.
2. What is your level of involvement in this space currently?
My primary involvement has been as a “stats geek” crunching the numbers and analyzing market data in the p2p lending space. I’ve been running my Prosper.com statistics site, Eric’s Credit Community, since May of 2006 and more recently started up LendingClubStats.com to provide the same kind of data analysis for Lending Club lenders. Of course I’m also a lender on both LendingClub and Prosper.com. So far my loan performance on LendingClub has been pretty good, with only a couple of late loans out of 36. My Prosper portfolio performance has been a bit more rocky, but I attribute that mostly to some poor choices in lending to sub-prime borrowers early on before I knew better.
Aside from that, I’ve been interviewed and featured in p2p lending related articles for the New York Times, Wall Street Journal and Smart Money Magazine as well as quite a few blogs and other online publications. I was also a speaker at Prosper.com’s annual conference in 2007 & 2008, and have been an active member of the lender and developer community there as well. I’ve also worked closely over the last couple years with Michael Solomon over at Loanio.com in planning for their new p2p lending platform.
3. Being the first to set up a Lending Club statistics site means you saw an opportunity. What motivated you to get the site up and running?
Ever since moving off Facebook and opening to the general public, Lending Club has really been growing by leaps and bounds. I’d been watching Lending Club more or less from the sidelines ever since you started, and had received many inquiries from Prosper lenders who were moving to Lending Club if I had any data about the Lending Club market. So, as soon as the Lending Club data exports were released, I was eager to leverage what I had learned from ericscc.com to create a similar resource for Lending Club lenders. Now that Lending Club has reopened with a new secondary market, I see a fantastic opportunity for further growth with the unique flexibility that the secondary market offers for lenders.
4. What do you think of the Note Trading platform Lending Club reopened with a few weeks back?
Having the secondary market really sets Lending Club apart in the p2p lending market. For lenders, this will have huge significance in terms of liquidity and risk management. Not only does it give you the opportunity to cash out on your existing loans if you feel the need, but it also gives you the chance to potentially reduce your risk by buying seasoned loans from other lenders.
5. What’s your day job when you are not working on person to person lending statistics?
By day, I’m a software engineer for CQL a great little web & custom software development shop here in Michigan. I’ve been working in the software industry for about 10 years now doing everything from C++ to PHP to J2EE to .NET.
6. You have cultivated an active user community. What has surprised you the most about people’s reactions to P2P lending?
I think the biggest surprise for me has been how many lenders really get personally involved in their P2P investments. I’ve seen many lenders who feel personally cheated when that first late loan pops up in their portfolio. Although late loans are simply a fact of life for any reasonably sized loan portfolio, that feeling that you trusted that person with your money and now they aren’t paying you back elicits a much more personal reaction than say a 20% drop in the value of your Google stock.
7. What steps do you think are necessary for person-to-person lending to become as mainstream as online banking?
From a borrower perspective, it’s advertising, advertising and advertising. Very few people have really even heard of person-to-person lending yet. There has been quite a bit of media coverage, but that coverage has been mostly in places where the audience is much more “lender types” than “borrower types”. When I see an ad for Lending Club during the Super Bowl, I’ll know p2p lending has gone mainstream.
From a lending perspective, bringing in more (hopefully good) borrowers is again a number one concern, especially for some institutional investors that would like to get involved in this space. Information is another key factor for lenders. Lenders want to know more about the risk vs. return factors in p2p lending so that they can feel comfortable that they are going to get a reasonable rate of return after defaults. While the stock and bond markets have years and years of publicly available data behind them and an untold number of tools to analyze that data, the person-to-person lending market is still very new, and the risks are not as well understood. I’m hoping that sites like mine will change that though. As more data becomes available, it will become easier for lenders to make more informed lending decisions and be more confident of their returns – which hopefully leads to more money invested at Lending Club.
8. Any last comments or recommendations to new or not so new P2P lenders out there?
My biggest recommendation for P2P lenders would be to start conservatively. Don’t chase after the high rates on lower credit grade loans until you really feel like you understand the risks. You might not get as high of a return as you could have by diving into the lower credit grades, but you’re also a lot less likely to end up losing money. Also, keep an eye on the market using the various p2p blogs out there and sites like mine, and spend some time networking with other lenders. You’ll be able to learn a lot from their successes and mistakes.
Tuesday, November 11th, 2008 at 11:17 am