We are back with David Kimball, CEO of Prosper for part 2 of our series covering marketplace lending. In case you missed it check out part 1 here! One thing that I want to stress after discussing many of the challenges Prosper and the P2P markets have been facing head on for the past couple of years is that the future economic opportunity for these organizations is bright.
After having an opportunity to sit down with David I left feeling energized and excited about the days ahead. It’s his humbleness, and just as much his confidence in Prosper’s approach to building a business for the long term, that reassured me that the news you may read neglects to see the longer term picture.
Profitability is imminent, and opportunity is abound for an organization that has had its ups and downs, but is finally finding its footing and is headed for a positive trajectory. Check out some of the highlights of where Prosper is headed in the days ahead thanks to the creative and talented team that is working tirelessly to change the lending markets for the better!
CL: Entering as CEO at Prosper during November of 2016 likely wasn’t easy. 2016 was a challenging year in the headlines for marketplace lending, but how have you worked to set the direction of the organization and keep the noise out?
DK: The benefit of being here through 2016 is that it enforced to me that we had the right mission and company focus for a long-term trajectory.
We had to make a lot of tough decisions in 2016, but by the fourth quarter I felt confident that we were back on track. July of 2016 was our lowest month of originations and we've been growing on a month over month basis since then, and doing it in a much more sustainable way than we'd done it previously. By the time we reached the end of the first quarter of this year, I looked around at the collective team and said "Look at what we've been able to accomplish."
We’ve been playing not to lose for the last 12 months. Now we are playing to win.
CL: And winning you are doing. Prosper recently announced a major securitization across some major investors. What do you think attracted them to Prosper?
DK: When you think about the securitization, it's really the same motivation that drives the people and institutional investors who buy loans directly from us through our platform. It's the same concept. This is an attractive, short duration asset class. The securitization just lets us expand our investor base.
CL: How do you see Prosper and others in this industry building out service capabilities in order to prevent the commoditization of the space where it all comes down to competing on price?
DK: I think the space will always be a commodity. Loans have been around forever, and investment opportunities very similar. As a borrower, you want to find that lowest price loan, and as an investor you have a competing desire, you want to have that highest return. The ability to manage that is really a commodity.
What we need to do is continue to embrace technology and make the experience so intuitive, so human centered, that people flock to it. As demand grows, pricing will be driven down for the borrowers, which is exactly what we want. We want to provide people with better access to credit at a lower price and give access to the investors. The best thing we can do is to make it easier and more efficient for both sides of that equation.
CL: Does Prosper have plans to add additional loan products in the near term, be it auto loans, mortgages, etc.? Are any of these more attractive than others when thinking about entering new product categories?
DK: Our focus right now is on the asset that we have, because as I said, we can do an even better job at what we're doing right now. As far as what could be next, I’d say look at the banking system and consider what products are the most painful for the consumer, take the longest, and are the most intensive. Those are the ones that end up being prime opportunities for “disruption.” It’s an overused word, but it’s true. Before we push into new products, we need to make sure that we've proven ourselves on the existing asset class.
CL: There are several SaaS startups offering “marketplace lending” type solutions to SME banks. Do you look at the proliferation of tools to mimic marketplace lending as a threat to, or rather as a validation of your business model?
DK: I think it's a natural evolution of the space. Part of the reason this started 10 years ago was that online access wasn't something that was common. Additionally, the unsecured personal loan space is an area where banks have not traditionally put a lot of their investment, for good reason. There are other places for them to spend a lot of their focus and their time, and probably for a better return. When you see others begin to lean into the space, you realize that they understand that it’s worth the investment. Certainly, it's a validation in that regard.
Really, by having more groups in the space, I think it makes the industry better overall. You see better technology because there are more people thinking about what can be done to make it better, but ultimately it benefits the consumer. Whether they go to us or to Bank XYZ, they have an opportunity to have a better experience than they had four or five years ago. They hopefully have an opportunity to access lower cost credit, and on the investor side they now have access to a new investment class with a great return, as a result of bringing technology into a space that hadn't been invested in in the past.
CL: As a CEO something you probably face daily is how to grow the business in a market that is heating up while finding ways to be cost efficient. What has been your approach to managing this challenging proposition?
DK: We reduced our growth in 2016 in order to make sure we were focused on sustainability. If you look at the market correction that took place last year, I think ultimately it was a good thing for the industry, because it allowed us to take a pause. As we've grown since July of last year, the growth certainly has been at a decent pace, but it is probably at a slower pace than had historically been seen in this space. Now, when we look at growth, we ask ourselves if this is the right kind of growth. We want to make sure that it’s sustainable and repeatable.
In the second quarter, we were able to generate cash at a lower volume that we’ve seen at our high-point. I'd rather have us have a slower pace of growth, but do it at a sustainable level. This gives us the ability to determine how we invest it and gives us more control of our own destiny.
The Minute Rundown with David Kimball
CL: If you could provide one tip to someone considering being the CEO of a startup or high-growth business like this, what would it be?
DK: If it was in the P2P space specifically, I'd say come work with us. We’re looking to embrace new technologies that will help us innovate and differentiate ourselves in the industry so we can get back to being more of a disruptor. If you've got better ideas and that's the reason you want to start in this space, we're open to those new ideas. We can do this better and we know it. So, at the end of the day, I’d say, “Come join us.”
CL: If you could model yourself after one founder, who would it be and why?
DK: I was told early in my career, when you're in marketing, don't sponsor one athlete, but sponsor a group. If you sponsor one athlete you're exposed to the pros and cons of that individual, and so I think the same thing goes on the founder side. I don’t model myself after one, but try to take various learnings from those that I admire.
One thing that I love about certain founders is the passion and ownership that they bring to the business. The fact that no matter what, they want to see this great idea come to fruition, and they want to see people embrace it. I love even more those founders who continue to see that company through growth vs. those that tap out when there's a good amount of money to be made. They see it through because the vision and their commitment to it remains the same. As we look at this company, we want to make sure that we have a founder’s culture. We want to make sure that we're in this for our customers, that we're in this because we want to make this space better. That's the passion I love from what I've seen in the founders in this area.
Walking through the Prosper office after our discussion continued to shed light on what this organization is building. From data scientists to marketing strategists, the future of lending and access to better credit products lies in the hands of a group of individuals who may not have been your traditional bankers back in the day.
What organizations like Prosper are doing is breathing life into a lending industry that was fraught with stale market tactics, predatory lending practices and an old boys club way of doing things. This new group of individuals taking an innovative approach to an old-school business is invigorating to see.
And sure Prosper went through its bumps in 2016, but what David said on our way out is that what ended up happening was the individuals who stuck around are really the ones who want to see this through and who truly believe in innovating the lending markets. With a tighter focus, stability from the top, and a passionate group of individuals I have a great deal of confidence that Prosper is positioned well to spur truly Simple.Innovative.Change
Thanks David, and the whole Prosper team for your vision and commitment to the future of financial services.