Prosper could get bigger than Google

Prosper is a P2P lender founded by former E-LOAN founder and CEO Chris Larsen and follows in the footsteps of Zopa, a UK based startup. Prosper has helped originate loans over $35 million over the last 18+ months. The unsecured consumer lending market is huge- if you think Google's potential playing field or EBay's universe of opportunity is large, consider this- in one quarter (fourth quarter, 2006) banks gave out $382 billion dollars in credit card and consumer loans. Or over a trillion dollars. Compare this with total internet advertising revenue of $4 billion dollars in the same quarter. (The global advertising market is $406 billion dollars annually)

I have followed Prosper for close to a year (see my earlier posts here and here,) and used it as a lender playing with $1000 to get a feel. So far, here are the statistics on my experience:

Loans:
Active loans: 14
Principal loaned: $657.79
Avg. interest rate: 18.52%
Late/Bad loans: 0

My APY, after fees is 18.04% - way more than what I have earned in other investments. Now, clearly this is not a typical experience and my appeptite for risk is higher. However, with this positive experience I am likely to lend more, and even consider borrowing when needed.

What is Prosper doing right? And wrong.

• Listen: Prosper has reached out to its user community. I have been contacted for a user study and they have incorporated feedbacks from that session.
• Growth at the right rate: Prosper is building a community and that requires time. The fact that they are dealing with real money requires trust to be built between Prosper and the users, and between borrowers and lenders. Over time, these borrowers and lenders will become the evangelists.
• Ease of use, not AJAX: Yes, I love sexy UI's as much as the next valley guy but if you want a community site that welcomes everyone including 75 year old rich retiree as a lender, you want to keep the site easy and accessible.
  

And what is it they are doing wrong. I am still not satisfied with how much time it takes me to search and find good borrowers. The platform is too complex for new users and not powerful enough for savvy users. They ought to consider building a power tool (site) for heavy users and further simplify the user interface for others.

What do you think about prospects of Prosper? Do you prefer Zopa? What advantages do they enjoy over banks?