In hindsight in definitely seems dumb. But back in 2006, credit cards were a big source of profits for banks especially for folks who carried balances. The concept of offering consolidation loans, as well small business, auto loans seemed sensible and splitting the difference between the 5% or 6% banks were paying savers and the 12-20% they were charging borrows seemed like a win, a win.
Well I certainly wouldn't call it dumb. You went into it with something you could afford to lose. While it doesn't sound attractive to me, and I think the odds are against it working, that does not preclude the chance that it could work for you, and it sure doesn't preclude me just being wrong. Nothing ventured, nothing gained.
Now, just looking at those numbers - I think they miss two things:
1) I'd assume the CC companies also have a larger 'portfolio' of occasional borrowers - people who carry a balance for a few months to get over this-or-that expense, but will pay it off. The CC gets a nice interest payment from them. I would think Prosper attracts people who are going into long term debt, and I just bet that the loan default rates are much higher in that group. I just don't think that someone with an occasional need is going to bother with the Prosper route, the CC is easy, and while 20% is a high rate, if it is just for a month or two it really isn't that much out of pocket. IMO, not enough to seek out alternatives when dong nothing (just paying the CC company) is so easy.
2) The CC companies are making money on the transactions, even from people who pay the bill in full each month. This diversifies their business a lot. A default here and there can be considered the 'cost of doing business' to gain all those 3% (or whatever) transaction fees (somewhat less net from those of us with rewards cards). To the CC company, if a strict credit check policy means turning down a lot of people and fewer transactions overall, then they might actually lose overall due to lower total transaction fees. This revenue stream is gone in Prosper.
It was relatively cheap experiment and somewhat interesting. The really stupid thing is that I seriously considering putting $100K into the system. Several people did put that much money into Prosper, most of whom I understand had lower net worth than myself.
But you
didn't, so it wasn't stupid. Considering something is never stupid.
And I'm not surprised that people with lower NW did put in that much (and will probably lose $ on the deal). That's also probably
why they have lower NW than you
-ERD50