Peer-to-peer consumer loans platform Prosper was doing around $US150 million (£97.1 million) of loans in 2012 but only $US8 million (£5.1 million) in revenue and losing money.
Just three years later, and two years after new management came in, Prosper is now on track to lend $US3.7 billion (£2.4 billion) over its platform this year, on revenues of $US200 million (£129.5 million). It’s also breaking even.
Aaron Vermut and his father Stephen joined the business in early 2013, with Stephen initially serving as CEO. The pair more or less had to rebuild the business, Aaron Vermut told the LendIt Europe online lending conference in London this week.
Clearly they did a good job — Prosper is now the second biggest peer-to-peer lender in the US after Lending Club.
You might expect digital and technological chops to be behind the success but Aaron Vermut, who is now CEO, credits a surprisingly old-fashioned marketing method with driving business — direct mail.
Vermut told the crowd at LendIt Europe: “When we got started we re-calibrated our risk model so it was predicated on pulling peoples’ credit files then sending them direct mail with offers. Prior to that it was key words and direct to site traffic. A lot of that turned out to be a lot more subprime than we anticipated.”
Prosper would buy personal credit data from the credit bureau to see what interest rates to offer people on loans. Then it would send people pre-approved offers in the post with a code to tap into the website to get the deal.
Prosper’s online platform lets investors lend money directly to consumers who want to borrow. It’s a typical finetch business based on sophisticated risk modelling and a slick platform.
So it’s surprising to hear that the bulk of its borrowers, at least back then, were driven to the platform by old fashioned post — not even email.
The Wall Street Journal recently noted this trend, saying that the “average monthly volume of personal-loan offers sent through the mail has more than doubled in two years to 156 million in the year through July, from 73 million in the same period in 2013.”
The WSJ says this is largely down to the rise of online lenders and claims Prosper sent 20.2 million pre-approved loan offers in July. Vermut told me at LendIt that this figure was higher than the actual number but the article was right that the volume of offers in the post is trending upwards in the US.
Why direct mail works so well
So why is a thoroughly modern tech business still using old fashioned postal offers rather than Google AdWords and other more modern marketing techniques?
“We don’t want people who are looking for money online,” says Vermut. “If they’re at their computer searching for money, they’re probably not going to pay you back.”
People who are actively searching for loans tend to be desperate and these tend to be subprime borrowers.
Vermut says its important to find borrowers who don’t need the money but could benefit from it by, say, refinancing another loan or paying off credit card debt.
While Vermut says direct mail was the key to getting the struggling company back on its feet, now Prosper has returned to some online marketing.
Vermut says: “For the first eight or 10 months it was predominantly direct mail. Then we started to do partnership with affiliates. It’s gone from 100% SEO to 100% direct mail to today where it’s 40% direct mail, 40% partnerships, 20% digital.”
Prosper’s loss rate is around 3%, while average returns are around 7%.