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Laura Rowley Money & Happiness

Laura Rowley, Money & Happiness

Log On and Prosper

by Laura Rowley

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Posted on Thursday, October 4, 2007, 12:00AM

Personal finance is getting faster and, well, more personal, judging from the new technologies unveiled at the Finovate conference in New York City on Oct. 2.

The event showcased clever solutions for a variety of personal finance dilemmas, but the biggest trends were products to track your money in real time and build a social network to support your financial goals. Here are the highlights.

Motivation for Young Debtors

Geezeo, a free online account aggregation tool and social networking site, is aimed at 18- to- 34-year olds who want financial control -- with a little help from their friends. "Instead of writing five checks a week, this group is doing thirty-five debit transactions in a week," says cofounder Peter Glyman. "They have become more and more detached from their finances."

Users aggregate all of their accounts -- savings, checking, credit cards, student and auto loans, and so on -- in one place. Transactions appear on Geezeo in real time, and can be easily sorted into spending categories. And users can check their bank balances by text message to avoid overdraft charges.

The big twist here is a social networking component that invites users to chat about financial products and start their own discussion groups around common interests (like "starving musicians") and mutual goals (such as "pay off my credit cards"). Other users can offer encouraging comments, or even chip in toward the cause via PayPal. So far the groups are sparsely populated, but there's potential here -- if only because it's much more inviting to chat about money anonymously than to disclose precarious financial matters to family and friends.

Help for the Financially Clueless

Mint is a free money management tool that's a cocktail of Quicken, Google, and LowerMyBills.com. It takes a few minutes to set up -- users register anonymously, and then add login information for bank accounts, credit cards, and other accounts they want to aggregate. Mint claims its patent-pending technology can automatically track and classify your spending in specific categories with 95 percent accuracy, versus about 45 percent for Quicken. It will email you when you have a low account balance or a bill due.

Mint's unique proposition: Click the "Ways to Save" tab and it'll suggest savings that are unique and personal to you. The company claims its users typically find $1,000 in savings opportunities in their first session. In his demo at the conference, founder Aaron Patzer showed an example of someone who had $22,000 in a Fifth Third Bank account earning no interest. By switching to an ING Electric Orange account at 3.5 percent interest, the consumer would have $700 to $800 a year more in his pocket.

Well, duh. I seriously doubt there are any Yahoo! Finance readers keeping $22,000 in a zero-interest checking account (at least I hope there aren't). If you already get the whole magic-of-compounding thing, you might be more interested in a Mint application that tracks how you spend money on your credit card and suggests one that would offer more rewards based on your spending patterns. And if Mint notices that you're spending $150 on separate cable, phone, and Internet services, it'll suggest that you bundle the services and tell you how much you'd save.

Although Patzer says Mint doesn't keep track of names, Social Security numbers, and the like, you have to wonder how many people will be comfortable sharing all of that financial data with a web site -- which then shares it with vendors. Patzer says the company will be objective, suggesting the best leading vendor for users regardless of whether the vendor pays Mint referral fees. He also says users will view these savings suggestions as value-added opportunities rather than intrusive advertising. Time will tell.

Cash for the Strapped

When Renaud Laplanche was building his first company, TripleHop Technologies, he financed it with personal loans and annoyingly high-interest credit cards. He eventually sold the business to Oracle. That experience inspired his new company, Lending Club.

Lending Club, which launched on Facebook in May and had its own site by September, uses technology to match borrowers to lenders willing to offer unsecured loans of $500 to $25,000 with three-year, fully amortizing terms. The distinctive angle here: The search technology looks for social connections between the borrower and the lender.

A potential lender goes to the site, inputs the amount he's willing to lend and the level of risk he's willing to take, and then the site looks through the existing pool of borrowers for affiliations -- a shared college alma mater, professional experience, or geographic background. The lender sees a description of the loan, but no personal information on the borrower. On its first 100 days on Facebook, the company facilitated $1 million in loans at an average interest rate of 12.6 percent.

But this isn't a solution for the subprime crowed. Potential borrowers are weighed on the same criteria a bank would use: a FICO score of at least 640 and a debt-to-income ratio of 25 percent or less, excluding mortgages. Late payments are reported to credit bureaus.

In the auction space, Prosper is the largest person-to-person lender with 430,000 members lending $91 million in the first year. The borrower profiles are extensive, including the repayment history of other Prosper loans and endorsements from friends who have bid on the loan.

Prosper mined its own data to give lenders a better view of their risk. A new feature tells borrowers the historical risk of default on a specific kind of loan, such as loans to recent college grads. In addition, a new tool allows lenders to construct a portfolio of Prosper loans with a predictable rate of return and a specific risk level. Users can create and publish their own portfolio plans, which other lenders can grab and personalize. "We're expanding the power of community and collective wisdom to get great lending decisions," says Chris Larsen, Prosper CEO and cofounder.

An Option for Late Payers

A business-to-business technology that looks particularly promising for the busy or careless bill payer is the expedited payment option. It was created by Metavante, a technology payment provider that serves 90 of the largest 100 U.S. financial institutions.

Imagine you're on a business trip and realize you haven't paid the mortgage. You hop online and the bank offers you the option to pay immediately for $4.95. Sure, the bank earns a little income for what's normally a free service -- but you get to pay the mortgage instantly without a ding on your credit report or a late fee (which would no doubt be higher than $4.95).

It's a win-win solution for an obvious service gap in the online pay world. Watch for it at a bank near you.

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36 Comments

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  • Lexi - Tuesday, October 9, 2007, 5:41AM ET  Report Abuse

    • Overall: 2/5

    Prosper has disappointed me. Out of 21 loans I made, 6 defaulted. Collection agency which charges a huge chunk, has not been able to collect any money so far. Lot of scammers with sob stories on Prosper. Be careful!

  • Yahoo! Finance User - Tuesday, October 9, 2007, 1:31AM ET  Report Abuse

    • Overall: 2/5

    I agree on most of the comments on Prosper. Yes, it was a risk loaning money to strangers, but with a supposed collection agency waiting in the wings, an opportunity to see the borrower's sob story and what has turned in to empty promises to repay, I will wait out the maturity of the loans that are being repaid, then take my money elsewhere. Out of seven loans for a total of $1k, two of the borrowers have defaulted for half of my investment. Not worth the risk. You would have more fun with your money in Vegas and have a better chance at making a ROI.

  • Tim - Monday, October 8, 2007, 4:21PM ET  Report Abuse

    • Overall: 2/5

    Prosper is a great idea, in theory. Then again is lending strangers money ever really a good idea ? Here is my personal experience with Prosper -- if you lend money to anyone with lower than a B rating (according to Prosper's proprietary rating system), you have nearly a 40 percent chance of getting stiffed. Way higher than their estimate of risk. Be careful if you decide to try to "Prosper" in this fashion.

  • ChrisW - Monday, October 8, 2007, 1:59PM ET  Report Abuse

    • Overall: 3/5

    Follow your finances from one place online. That's a great idea on paper, but: 1 - Can we trust ALL employees of these companies with our most sensitive info? 2 - Several are offering the service. Which start-up will succeed, which one will tank? The question is of importance. Whoever has been in the dotcom meltdown knows that liability stops when the lights are switched off. Who will blank out the hard drives where my bank info has been stored??? I would subscribe to this kind of service if it were hosted by a regular brick-and-mortar bank that will still be there in 20 years. But for now I'll go on with my Excel sheet, thank you. Take the time to follow your finances, it's worth it.

  • Jaron - Monday, October 8, 2007, 12:58PM ET  Report Abuse

    • Overall: 3/5

    I am not a fan of online sites where I can manage "all" of my financial information. Personally, I think E-Trade has the most nifty feature to allow me to manage most of my bank accounts online for investing purposes (Citibank is getting closer). No, E-Trade does not have all the fancy features the other sites have, but it suits me just fine. As for Prosper, I have been a lender since June and have earned a fairly decent rate of return (approx. 9% at last check) selecting a fairly conservative portfolio based upon my own criteria. No, 9% is not an earth shattering return but lending money never will be and just one default will tank my portfolio (it is still small). I have heard about and even experienced a few of Prosper's flaws. BUT, remember the troubles eBay had when it first started? Yet, how many people made millions using eBay? Personally, I believe Prosper is on to something and I forsee more such P2P lending in the future. I just wish Prosper would offer secured debt or a secondary loan market for Prosper loans.

  • Eric Eskin - Sunday, October 7, 2007, 10:07PM ET  Report Abuse

    • Overall: 2/5

    Tried Mint.com previously--very unstable site but I had been waiting for a site which offered somewhat unique aggregation capabilitities. In this article Laura offers Geezeo--another bust. Not only is the site unstable, I am actually seeing accounts which are not mine. It never ceases to amaze me how few authors effectively exercise the sites they recommend.

  • Omar - Sunday, October 7, 2007, 12:58PM ET  Report Abuse

    • Overall: 4/5

    I have been looking for a replacement to my quicken program for a while now. As a result, I went to mint.com and tried their tool, and the experience was not up to my expectations. The have a nice idea but is still immature. I hope they keep improving it. The more users they have the more likely the little annoyances will be fix. I will wait a couple of moth before I give it a try again... Thanks for the pointer thought, I now have a new addition to my "Finance" bookmarks.

  • GeneB - Saturday, October 6, 2007, 11:26PM ET  Report Abuse

    • Overall: 1/5

    Prosper is a great way for borrowers to get money that they don't have to pay back! Just take out a loan for $25K and walk away, is my motto. Runor has it, Prosper does nothing for collections. If you want to clean up your credit, just negotiate with the junk debt buyer in 6 months. Pay back your loan for pennies on the dollar. Come one, come all get your free money!

  • Yahoo! Finance User - Saturday, October 6, 2007, 9:10AM ET  Report Abuse

    • Overall: 1/5

    Wow..p2p money lending..good way to get ripped. She should try herself first before writing it.

  • Yahoo! Finance User - Saturday, October 6, 2007, 4:37AM ET  Report Abuse

    • Overall: 2/5

    I don't understand Prosper. The effective rates for lenders don't seem to be what they say because borrowers pay off principal much faster than in most loans (i.e. with a home mortgate, your payments are almost entirely interest for a long time). If you look at one of Prosper's sample loan payment examples (http://www.prosper.com/borrow/loan_calculator.aspx?amount=250&rate=15&grpmbr=False&cg=0&share=0&schd=True, you will see that a loan of $250 at 15% (22.63% APR) nets a total interest payment of $61.97 over 3 years. These numbers came directly from Prosper's "loan calculator." That amounts to just over 8% a year for the lender (when total payment is divided by 3 years at the end of the loan), not nearly the 15% they suggest when they explain it. This seems to be because the principal is paid off so rapidly that interest payments drop quickly over the course of the loan. Am I missing something here? I guess you get the payments back monthly and could technically reinvest that small amount each month into another loan, but that seems like a bad plan compared to just leaving the money somewhere else to compound. Add to that the fact that this is much higher risk than most other investements (if you want the "safer" borrowers, look to earn far less). All in all, it seems misleading to me.

  • Yahoo! Finance User - Saturday, October 6, 2007, 12:40AM ET  Report Abuse

    • Overall: 2/5

    If you look at people that have loaned significant amounts on prosper ( $10K) and look at cases with a higher average loan age you will discover that almost no one is getting a good return ( 10%). Most are getting low single digits and many are losing money because of high default rates. You'd be better off in a CD. This is the dirty secret of Prosper. They are counting on lots of ignorant lenders that don't understand the risks and are bidding rates down way too far. I learned this the hard way and have stopped all lending. Add to the risk that the investment is not liquid and you have a very bad deal. It's amazing more people haven't figured this out yet.

  • Heroine Worshipper - Friday, October 5, 2007, 10:09PM ET  Report Abuse

    • Overall: 5/5

    P2P banking is probably going 2 B the way it's done. P2P lending lets anyone be at the top of the investment food chain. If anything goes wrong with the investment, the lender gets paid first. The difference over common banking is there is no physical collateral involved with this process. The money U lend can't be swapped for cars if the borrower fails 2 pay. Web 2.0 doesn't have a collateral system in place. Your only collateral is common traits between lender and borrower. Web 3.0 will probably solve this problem.

  • Yahoo! Finance User - Friday, October 5, 2007, 9:21PM ET  Report Abuse

    • Overall: 5/5

    I love prosper, I have been lending money thru it since a month after they opened for business. I just started a blog so people can save time by finding the best loans thru my site. http://logonandprosper.blogspot.com/

  • TT - Friday, October 5, 2007, 8:41PM ET  Report Abuse

    • Overall: 1/5

    Don't bother with these fancy schmancy services. There probably run by some guy from their garage. Sure, give me your online bank login, and I'll send you an email when it drops below a certain level. Just read Penelope Trunk's article. She tells you how to make $300K a year as a financial analyst without going to business school.

  • BU Economist - Friday, October 5, 2007, 5:26PM ET  Report Abuse

    • Overall: 3/5

    Those who put some education, leg-work, and prudence into Prosper can be successful. I doubt it will be easy to manage a portfolio with more than a few hundred loans, though. My brother has done well on the site, but I'm taking a wait and see approach. I agree with most commenters that the average Yahoo Fin reader knows all this stuff... but some of my friends who didn't go to B-school would be well served by reading this since they refuse to take any action to better their financial portfolios.

  • Yahoo! Finance User - Friday, October 5, 2007, 4:29PM ET  Report Abuse

    • Overall: 1/5

    Unsecured loans to online borrowers? Beautiful scam, especially when the risk rating is provided by the company that runs the site. I wouldn't touch that if the interest rate were 12% per week, let alone 12% per year.

  • Yahoo! Finance User - Friday, October 5, 2007, 3:52PM ET  Report Abuse

    • Overall: 5/5

    Awesome!

  • Ricohitman - Friday, October 5, 2007, 2:26PM ET  Report Abuse

    • Overall: 3/5

    Good article, but you forgot Yodlee. Yodlee is the best thing out there.

  • Nick Name - Friday, October 5, 2007, 2:12PM ET  Report Abuse

    • Overall: 2/5

    Cash for the strapped. What happens when people dont repay the unsecured loans with Prosper? Do they send out thugs armed with baseball bats to break the kneecaps of deadbeats?

  • seawolf - Friday, October 5, 2007, 1:44PM ET  Report Abuse

    • Overall: 4/5

    Very practical article. I would recommend it to all that would like make their financial lives a little more personable and flexible in the same time.

  • Yahoo! Finance User - Friday, October 5, 2007, 11:58AM ET  Report Abuse

    • Overall: 3/5

    I was not happy with mint either. I buy most of my gas from Costco. It clearly shows up as Costco Gas on my account. I also buy other stuff at Costco, it clearly shows up as Costco Warehouse. On mint.com however, it lumps them all together as Groceries and then underreports my gas purchases. Less than useful, it is actually misleading. I would also rate Mint.com one star. They are in their early stages though, so perhaps this kind of thing will be fixed. Another annoying thing I noticed was that it said it could only pull 30 days of history on my accounts. Both of the banks I entered allowed over 1 year on their sites, so not sure why they just skimmed the surface.

  • Yahoo! Finance User - Friday, October 5, 2007, 11:46AM ET  Report Abuse

    • Overall: 3/5

    My mint.com experience... Mint.com recommended I switch my American Express card to an American Express card that earns less rewards and since I don't carry a balance the 0% intro rate savings it was using as a calculation isn't actually the savings it claimed. ' It also recommended I switch my cable service to a provider that isn't in my area (Verizon FiOS TV). And since I've been waiting for FiOS TV for a while, this one stung a bit ;-). I also tested it by before signing up, moving $23k into a less than 1% interest checking account I have and leaving my 5% savings account with only a $2k. I was hoping it would either recommend I move the bulk of my money (perhaps based on spending habits) into my existing high yield account or even recommend a new high yield savings account. It did neither. I give one star for a good UI but very poor execution on what it claims it can do for me. Please go back to the drawing board. Oh and for you security minded folks, I changed my online passwords to something specific to test mint out and then changed them again after my test. I hate the idea of them having my online account access...

  • Shawn - Friday, October 5, 2007, 11:19AM ET  Report Abuse

    • Overall: 2/5

    Article would be better balanced if author actually checked Prosper's results - current lenders are finding defaults greatly in excess of their published figures. Once in default, Prosper does virtually nothing to obtain repayment. It is a great site for people looking to rip off others - you can 'borrow' $25,000 and only have to make one payment of a few hundred before disappearing!. Note - this is with a borrower that was rated by Prosper as "AA", not some sub-prime person.

  • Yahoo! Finance User - Friday, October 5, 2007, 11:12AM ET  Report Abuse

    • Overall: 3/5

    I think her analysis of Mint misses the point - it's like free Quicken with MUCH better automatic categorization of spending. Didn't the author try out the service before knocking it?

  • Yahoo! Finance User - Friday, October 5, 2007, 9:46AM ET  Report Abuse

    • Overall: 4/5

    FYI on Prosper - Great site for borrowers. Especially borrowers who do not intend to pay back their lenders. There is very little that Prosper does to try to collect bad debt and they usually just write it off pretty fast. It's like free money!

  • J. C. R. - Friday, October 5, 2007, 8:16AM ET  Report Abuse

    • Overall: 2/5

    The down side to "aggregators" is that, should a data breach occur, it involves *everything* that was put into the system, perhaps even logon credentials to several different financial sites. I, for one, will not be going there.

  • MarketD - Friday, October 5, 2007, 5:16AM ET  Report Abuse

    • Overall: 2/5

    Prosper does indeed have some data-mining features, and has much more data to mine than its new competitor, Lending Club. However many of the features mentioned in this article do not yet exist (such as ability for lenders to create and swap portfolio plans) There is also no way to segregate listings based on educational status (ie college grads). This article is a good start but obviously needs some editing

  • Yahoo! Finance User - Friday, October 5, 2007, 2:28AM ET  Report Abuse

    • Overall: 1/5

    RE the second paragraph about Prosper (4th paragraph from the bottom of the article): none of those features actually exist! Did the reporter just reproduce a press release? Is it an error? Does anybody edit these things?

  • Yahoo! Finance User - Friday, October 5, 2007, 12:16AM ET  Report Abuse

    • Overall: 2/5

    Not really breaking any news. Most Yahoo Finance readers already know about these sites. This article would be great if you wrote it a year ago.

  • Y! Finance User - Friday, October 5, 2007, 12:04AM ET  Report Abuse

    • Overall: 1/5

    Wow. This author is out of touch.

Showing comments 6-35 of 36<< PreviousNext >>
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