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Prosper Tweaks Automated Quick Invest and the API

by Peter Renton on February 22, 2012

Prosper released their Automated Quick Invest (AQI) tool back in October. It worked great for a while – it was a totally hands off way for investors to find new loans and invest in them without ever having to login. But as many investors have shared here in the comments on this blog, it started to have some problems a few weeks ago.

What was happening is Worth-Blanket2, Prosper’s largest investor, was snapping up entire loans as soon as they were available on the platform. Sometimes these loans were only available for literally 20 seconds before they were fully funded by Worth-Blanket2.

You see, Worth-Blanket2 was using the API to do their investing and this API allowed investing in a new loan every second. So Worth-Blanket2 could invest in 60 loans in the first 60 seconds they were available. Considering that most of the time there were less than 60 loans added to the platform at a time, they essentially blocked out the retail investor from many loans.

This would not have been a problem except for the fact that investing through the API superseded investing through AQI. This meant that anyone using the API (mainly institutional investors and it-savvy individual investors) was able to invest their funds before any individual investors like myself.

No More Advantage to the Institutional Prosper Investor

The tweaks that were done last week ensured the advantages that API investors had has now gone away. Instead of being able to place an investment every second, these investors can now only place a bid every 90 seconds. Here is how it was explained to me in an email from Prosper:

The objective of this series of tweaks was to make the API and AQI essentially equal in average time to bid. The average API bid was being placed much faster than the average AQI, which was a problem once we became listing constrained. Moving the API time between bids was a fast way to address the speed issue, which we think we have now approximated. At 90 seconds, API’s are taking about 15-20 minutes to complete whereas before the change they were complete in under a minute. The AQI’s are also now at about 15-20 minutes (after speeding up that process though these tweaks) although it is possible to have a stray AQI take longer. We have another tech improvement that will make the AQI’s faster still (too early to estimate a speed ratio improvement yet), but that is a few weeks away. At that time, we’ll also reduce the API time between bids to get back to API/AQI parity.

Separately we are working on making the overall AQI’s faster verses manual bids and to place all bids in the same process. Today, AQI’s work on a round robin process and execute separate from the API process. Putting all three bid sources in a common bid process is the longer term solution to the issue. Until then, we’ll continue to watch the AQI versus API bid speeds and may adjust the time between bids accordingly.

More Loans Hitting My Automated Quick Invest Now

I am very pleased that Prosper took notice of this problem and addressed it very quickly. My experience, while anecdotal, has been positive. After investing in just three loans through AQI in the first half of February, in the last six days I have invested in nine loans with no change in my investing criteria. It is not quite back to where it was in October and November last year but it is certainly an improvement.

What about other Prosper investors? Have you seen an uptick in your AQI investments in the last week. I am interested to know how it is going for you.

 

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{ 21 comments… read them below or add one }

Charlie H February 22, 2012 at 7:31 am

Well that was a fast fix.
I wonder how the institutional investors feel about this?

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Laura February 22, 2012 at 8:21 am

I’d noticed the AQI wasn’t finding as many loans and I increased the amount of manual investing to keep my funds working. Now that this tweek improves my opportunity, I’ll layoff a bit to let the AQI work.
When I’d heard about this problem, I was afraid I’d be left out in the cold. I’m willing to spend time managing this investment, but knew that the API access might ruin my returns since I’m not IT saavy enough, nor a large enough investor to invest in that kind of a machine to pick loans.
Glad to hear Prosper is working on maintaining access for the retail investors!

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Bilgefisher February 22, 2012 at 8:41 am

I’m certainly happy to see such a quick response. While I haven’t had any autoinvest loans hit, I’m guessing it will happen shortly. It also allows an opportunity to manual invest now. Still gotta log in at 9 and 5, but at least I don’t have to keep hitting the refresh button to still miss out on a loan that was only 10% funded at first glance.

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Roy S February 22, 2012 at 9:27 am

I, too, am extremely pleased with how prompt Prosper was in addressing and resolving this issue.

I quickly adjusted and automated a few searches. In addition, I deposited another $1,000 to see how well the system now works.

As a side note, I have recently discovered something on Prosper’s website referencing “Hidden listings.” Anyone know anything regarding these hidden listings and what they may be? I can’t find anything out about them.

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Peter Renton February 22, 2012 at 2:20 pm

@Charlie, I don’t think Prosper would have done this change if they felt it would annoy Worth-Blanket2. It makes little difference to them if they und 98% of the loan in one hour or 100% of the loan in one minute. As long as they are putting enough money to work overall I imagine they are happy.

@Laura, I am with you. I don’t have time or inclination to setup investing through the API so I rely on the automated investing tools. I think you will find an uptick in your AQI investments in coming days and weeks.

@Bilgefisher, If you want to be sure that you get all the loans you want it is a good idea to login at 9am and 5pm every day. But looking at Worth-Blanket2′s loans from the last week you don’t any investments timestamped 9:01am or 5:01pm like you did before.

@Roy, I have seen the Hidden Listings thing before although I can’t remember where now. I chatted with Glenn about it and he said he will get us an answer.

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Kent February 22, 2012 at 4:19 pm

Peter,

I can confirm your experience. I have also seen a significant bump in the number of AQI investments. Previously, there was a real problem with Worth-Blanket2. I was one of the lucky few who could invest (my lowly $25) in the same loans as Worth-Blanket2. But to do this, I had to be ready to invest right at noon and 8:00 PM EST and take very little time (a couple of seconds) to review the listing before investing. Kudos to Prosper for listening to the concerns and reacting quickly. Also, thanks for work with Propser on this Peter!

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Peter Renton February 22, 2012 at 4:44 pm

@Kent, Thanks for chiming in. Before I talked with Prosper about this (thanks to the comments on previous posts) I did an experiment. One time right on the stroke of 5pm Pacific I looked at all the previous borrower loans (grades C and below) on the platform that were added. Then I hit refresh every five seconds and I would see them drop off one by one until there were none left after about 90 seconds.

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Roy S February 22, 2012 at 8:23 pm

@Peter, I just spent the last hour repeating your experiment. Here are my takeaways…

1) I think I might be an idiot. No, not because I spent an hour repeating your experiment. I think I might be an idiot because from everything I gather, including the name, the AQI should be…well, automated. Am I mistaken? Can I just have my Quick invest settings on autopilot and automatically invest in loans that meet my search criteria as soon as they hit the platform? I logged in, and at 5:03 PM PST I went through and did all my Quick invest searches and manually invested into loans using the Quick invest feature–none of it was automated. So…am I an idiot?

2) If I’m incorrect and there is nothing automated about the AQI, it appears that if I have any significant amount to invest on Prosper that I must still live on Prosper to get a shot at any loans I may be interested in. If the AQI is actually automated, then maybe having it work prior to WB2 taking the first few loans would be nice.

3) The new “fix” really just seems to be a patch. Instead of WB2 investing in all the loans 3 minutes after they are posted, the loans are slowly gobbled up. I just see the number of available loans steadily decreasing. With the new fix, the process is a lot slower, but I invested in $25 in one loan. The rest of it was taken by WB2. Both funding times were listed at 5:04 PM. So I just barely squeaked by in getting that one. Yes, there were other loans where a dozen or so other people had the opportunity to invest in the loan prior to WB2, but it usually correlated with the longer time period prior to WB2 investing the higher number of investors. Of course, this wasn’t always the case. Thank you, Prosper, for the fix. But at this point I’m still looking forward to a real update to better resolve this issue.

4) I had to open up my investment criteria a bit to get more loans to invest in. I dislike investing in loans that are only in the first stage of verification for many reasons. When I opened up my criteria to include those loans, there were a lot of loans that I ended up investing in that I otherwise would not. I generally prefer to wait for them to go to stage 2 prior to investing in the loans, however, with WB2 taking a large chunk of loans when they first hit the platform there is no guarantee they will still be listed when they go from stage 1 to stage 2.

5) There really are a lot of loans on the platform. And there were many that hit the platform at 5 PM. What is lacking is the number of loans that meet my criteria. So the question really boils down to whether the investors really know which loans are the good loans and which loans are the bad loans? Or will another 4 loans not be fully funded in 5 hours simply based on the whims of the Fates? And should I be upset about not getting the loans that I want when there are other loans that are still waiting to get be funded that I am fully capable of funding?

There you have it. Those are my thoughts so far from my experiment. I’ll sleep on it, and if I think of anything else to add, you know I will post it!

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Glenn G. Millar February 22, 2012 at 8:35 pm

Hidden Listings – If you are using auto-quick invest search, complete a search, and then delete some of the listings before investing, these listings are “hidden” from view on future searches, on the assumption you would not be interested in them.

Hope that helps.

Glenn G. Millar
Prosper Employee

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Peter Renton February 22, 2012 at 9:56 pm

@Roy, Automated Quick Invest is most definitely automated – the challenge you are finding is that it is not necessarily quick. Most of the time I find my AQI notes are invested around 10 or 15 minutes past the hour. Tonight I invested in four notes through AQI ranging in time from 5:14pm to 5:22pm. My guess is that if you hadn’t gone and invested in these notes manually AQI would have picked them up maybe missing out on one or two.

What Prosper needs to work on is speeding up AQI so that manual investors don’t get precedence. Right now, anyone like yourself can login at 5pm and snag all the loans you want – I would like to see AQI run (I think as you suggested) immediately the loans hit the platform. They should be able to process hundreds of transactions a second I would think which should see all the AQI’s invested by 5:01pm. Then what is left over will be available for manual investors.

@Glenn, Thanks for the clarification, that makes sense.

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Roy S February 22, 2012 at 10:47 pm

@Peter, I think I only had 2 loans where WB2 invested in them prior to 5:10. So, you would be correct. I have made several suggestions on your blog regarding how I think Prosper should approach automated investing to make it as equitable as possible. Obviously, there will be no perfect solution to satisfy everyone, but I think a lot of my potential solutions would go a long way towards fixing these issues.

Right now, I like having it where manual investors get precedence over API. Having that advantage allowed me to invest in more loans than if I had waited for the automated system to kick in and allows me to have a better chance of getting a bid off before WB2 can pick it up. Yes, that means having to live on the site right now, but once Prosper can implement a (hopefully better) solution this is the best option available–of course, with a smaller portfolio I really don’t see this being as big a problem for me as it is for the larger investors, like yourself. And…I don’t really think there are too many retail investors who will be able to take advantage of this option to squeeze out other investors. If they would speed up the AQI (a solution you quoted as being a few weeks away), that would be preferable, but then I would think that WB2 may switch over to using the AQI rather than the API leading us to same issues we were just facing.

@Glenn, Thanks. That actually rings a bell now that you mention it!

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Bilgefisher February 23, 2012 at 8:18 am

This is a good patch. It allows folks the opportunity at loans. The previous setup was near impossible without the use of API. Yes, there is still the major problem that AQI doesn’t fund as quickly. That results in missed opportunities at the best loans. I’m sure the upcoming fix will minimize that.

I guess I’m more curious as to the purpose of API. Seems all it does is allow 3rd party software to do exactly what AQI does. Why have both when AQI is sufficient? If everyone is on AQI everyone has equal shots at the loans. What am I missing?

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Neal Smith February 23, 2012 at 10:37 am

There is another way for prosper to tackle this…have the loan interest rate adjust based on how long the loan has been posted.

Example – a 3 year C loan could be listed at 20.40% for the first hour, then go to 20.49%. Investers using the api or aqi could choose between first hour investing or letting their automated tools wait for the better rate. Borrowers’ rate would be a weighted average.

Using technology to slow down bids is silly when there is a tried and true method – money.

Neal

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Charlie H February 23, 2012 at 11:46 am

I think a big part of this problem is that the loans are still miss-priced.

WB and others will gobble up a small subset of loans in <20 min while another subset of loans sit on the platform for days at a time.

This means to me that the interest rates charged on the loans that fund very quickly is too high and the interest rates charged on the loans that fund slowly or not at all are too low.

Risk is being miss priced and so demand is very asymetrical.

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Roy S February 23, 2012 at 12:39 pm

@Charlie, The problem with p2p lending in general is that it is so new. So yes, I’m sure there are loans that are still mispriced. But you have to also keep in mind that Prosper holds just a tiny, tiny segment of the unsecured loan market. There might be a high demand for a certain subset of loans simply because the vast majority of this market is held by larger institutions that don’t cater to those who wish to invest in p2p lending. This doesn’t necessarily mean that the loan is mispriced based on the borrower’s risk. The hope is that Prosper is basing their rates on their risk models and the entire unsecured debt market and not the supply and demand of the investors on the platform. This is why I am glad Prosper moved away from the bidding system. Loans can be more accurately priced according to the overall market rather than the individual investors on the platform. When the p2p lending companies gain a larger market share, then I would see where it would be possible that the investors on p2p platforms would have a large enough share to impact the overall supply and demand of the entire market. Until then, it would be a mistake to price the Notes according to the whims and desires of the investors on the platform, especially when just one investor can influence the prices on the platform in such a dramatic way.

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Peter Renton February 23, 2012 at 2:49 pm

@Roy, It seems that only a small percentage of investors are using AQI so it is likely that camping on the platform at 9am and 5pm will give you some advantage. I think Prosper are fine with that because the smaller investor is hardly going to take all of a $15,000 loan. It will be interesting to see how it all shakes out.

@Bilgefisher, I think the purpose of the API is for larger or more sophisticated investors to build systems to invest. I have never downloaded so I don’t know the details but I imagine it gives you far more information than the retail site. And I know it predates the AQI by a long way.

@Neal, Interesting idea. Although from my perspective it would need to be a big difference in interest rate (at least a couple of percentage points) before it would change my investing behavior.

@Charlie, I agree, there is certainly mispricing still and will continue to be for some time. And as Roy points out, both Prosper and Lending Club are not motivated as much by supply and demand of investors (although I imagine it is a consideration) but rather are they pricing well for the risk. They obviously believe that but it is clear that many investors (myself included) still prefer investing in a 20% loan from a repeat borrower with a long payment history than a new borrower at 20%. Even if the risks are the same.

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Glenn G. Millar February 23, 2012 at 2:57 pm

@Roy – Quasimodo? Doesn’t that name ring a bell too?

@Neal – Prosper used an auction bid system for the first four years of its existence, which let the market bring down the rate based on demand. We switched to a fixed-rate model in December of 2010. Others on this forum can comment, but it was generally a very good decision.

@Charlie – I was going to comment, but Roy pretty much hit the nail on the head. We are working on getting more borrowers every month across all credit bands, and seeking investors to concentrate on the credit bands that are not as popular.

Glenn G. Millar
Prosper Employee

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Mike February 24, 2012 at 10:08 am

Does anybody know if WB2 is an individual or an institutional investor?

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Roy S February 24, 2012 at 12:03 pm
Peter Renton February 25, 2012 at 4:25 pm

@Mike, Yes as Roy points out you can always look up the screen name for any investor and find out whether or not they are an institutional investor.

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White Coat Investor March 2, 2012 at 9:44 pm

Great post. That’s very helpful to me as I consider rollling over an IRA.

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