How Does Prosper.com’s Verification Work?

Many of you have seen that Prosper had a record month of loan origination in September. Good for them and good for us. That makes this a good time to review a couple of things in their process that help us as investors in their p2p lending platform.

What does Verification mean? That is the method that Prosper uses to verify the information that is listed by the borrower on the loan listing is accurate.  In the borrower section of the site, there is some detailed information on what Verification is and what the stages are. Here it is:

Prosper Verification Process
Source: Prosper.com

There are 3 very clear stages of verification based on what has been submitted to Prosper and what is left to send to them.  Stage 1 is generally a request for info to verify and Stages 2 and 3 are various levels of verification based on what info has been given to Prosper and what still has to be sent to them for final approval.

Verification and Time To Funding

It's important to see that there are 3 clear stages here for a couple reasons. One of which is that loans are typically not taking the full 14 days of the listing to get fully funded. This means that the time to verify is shorter and is more likely the reason to hold up a loan funding than the 14 day period.  Another reason is that, as clearly stated at the bottom of the image, loans that reach Stage 3 have a 63% chance of originating, which is a pretty high number.

Why are these things important?  Because money deployed but not earning interest is, well,  not earning interest. In fact, when I calculate my ROI (return on investment), I count this 'cash drag' as zero interest earned. We need our money working for us.

Tip:  Increase the speed your money is deployed by seeking loans in Verification Stage 2 or 3

With 3 stages and a 63% chance of originating once in Stage 3 then Stage 2 and 3 is closer to a done deal than Stage 1 and we have all had experiences where we put money into a loan, the loan doesn't fund and it gets kicked back to us to put into another one, all the while earning no interest for us. This tip will help to slow down the downtime that our money has on the sidelines in between loans.  This is one of those cases where knowing and understanding the borrowing experience a little better can help us use our money more effectively when invested in their platform.

About the author

Stu Stu Lustman, the author of this post, is a Credit Analyst by trade trying to bring Commercial Credit Analysis techniques to the world of Peer to Peer Lending. Check me out on Twitter, LinkedIn and Google+

3 thoughts on “How Does Prosper.com’s Verification Work?

  1. Stu, You make many good points here but if investors are focused on the higher yielding loans then they need to ignore verification stage. Why? Because high yielding loans (grades D or below) only stay on the platform for a matter of minutes before they are fully funded. If you wait for verification stage 3 in these grades you will not find many loans to invest in.

    However, for AA, A and even B grade notes your strategy here can work very well.

    • Peter, yes that is true and it does not work for every loan on offer.

      I was thinking of it as a cash management/minimizing cash drag type of strategy if there are similar loans in profile but one in a more advanced stage than the other.

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