As peer-to-peer lending sites try to broaden their appeal, they have learned that marketing themselves takes a delicate balancing act.
The challenge — keeping growth on both the lender and borrower sides in a state of equilibrium so that neither camp concludes the market is skewed against their interests. Though the supply-and-demand issue has parallels in many industries, it is a special challenge for peer lenders who act as facilitators and must draw both types of users from the same pool of everyday consumers for their models to work.
In consequence, marketing campaigns have been almost nonexistent among the niche's pioneers. A major peer lender, Prosper Marketplace Inc., has avoided any major marketing campaign because, it says, it is wary of seeing one side of the lender-borrower equation outgrow the other.
A rival, Lending Club Corp., is bolstering its marketing efforts now, but with a campaign very focused on potential lenders. The Sunnyvale, Calif., company has developed several ways to promote its services to one group or the other and even tinkers with the interest rates borrowers pay when it needs to correct a lopsided mix.
"Right now, we have an imbalance," said Renaud Laplanche, Lending Club's chief executive. "We have too much demand compared to supply," meaning requests from borrowers outstrip the number of lenders willing to fund loans.
A few months ago, Lending Club began promoting its service through online search engines, which lets the company reach specific people based on the keywords they use in searches.
"We can buy more investment-type keywords if we have a shortage of lenders, or we can buy more personal loan and refinancing keywords if we need more borrowers," Mr. Laplanche said. And if the supply-demand mix gets out of balance, "we can always push the marketing efforts on one side or the other" to even it out.
The ad campaign seems to be working; "we are getting a lot more supply now," he said. "This imbalance is diminishing."
Lending Club has other ways to manage the growth rates on both sides of the supply-demand equation.
Mr. Laplanche said his company is careful about where it advertises, to make sure it reaches only potential lenders when loan requests are going unfunded or only borrowers when an abundance of people are willing to grant loans. He said that caution extends to Lending Club's perception of media exposure — it tries to to avoid overexposing its brand to one pool of users relative to the other.
The company also adjusts its interest rate to attract specific types of users. Unlike some online lending sites, Lending Club sets the interest rates on the loans it facilitates, and Mr. Laplanche said the company can raise rates to attract people who see online lending as an investment opportunity or trim rates to appeal more to people looking for reasonably priced loans.
"With the base rate mechanism, we have a good deal of control," Mr. Laplanche said. "It feels like a central bank."
Mr. Laplanche said his company likes to maintain a roughly even mix of borrowers and lenders but that he tends to be a bit more careful when promoting Lending Club to people willing to make loans because they are more likely than borrowers to be repeat users of the LendingClub.com site. Borrowers "repay over time, but they also don't need to come back to the site," he said.
Prosper Marketplace has also been careful to manage its exposure with an eye to its customer satisfaction levels. The company, which celebrates its second anniversary today, has avoided any major marketing push.
Chris Larsen, its chief executive, said that he would rather attract a steady stream of satisfied borrowers and lenders than risk an imbalance with an advertising campaign that reaches too many of one group and not enough of the other.
Keeping its advertising reined in has helped Prosper manage the numbers of both types of users, and both pools remain small enough that the company can respond to feedback from them, Mr. Larsen said.
"It's something we're comfortable with building over time, building the right way, making sure both sides are happy," he said.
One company learned this lesson the hard way, although not by an expensive marketing campaign. Kiva Microfunds, a San Francisco nonprofit organization, helps people fund microloans to people in developing countries, often for small entrepreneurial ventures.
Kiva works with microfinance partners around the world that find potential borrowers, and Premal Shah, Kiva's president, said it is hard to maintain a steady supply of qualified borrowers, so his company often has a surplus of people willing to lend.
The imbalance only intensified after endorsements from President Bill Clinton and glowing appearances in the mainstream media, including a September episode of "The Oprah Winfrey Show."
"Oprah was massive. Our Web site crashed," Mr. Shah said. Traffic on the site jumped from about 200 users per day to 500, and shortly after, Kiva limited individual loans to just $25 (this restriction was lifted last month).
"It's unusual to cap people's philanthropic desires," he said, but that was the only way to make sure as many lenders as possible could use the site. But even with the growing pains, the positive media attention was "totally worth the effect," Mr. Shah said.
He also said Kiva cannot reach more potential borrowers by increasing its advertising because it must vet each microfinance partner to control risk, a time-consuming process.
"The knobs that we have to turn right now to manage the equilibrium are a little different" from what peer-to-peer sites use, he said. P-to-P lending networks are hardly alone in grappling with these kinds of issues.
Another example of the risks involved in trying to manage competing constituencies was in evidence last month when eBay Inc. announced a policy barring sellers from giving negative feedback on buyers.
Before long, media reports were full of accounts of sellers angered by the policy, including talk about the possibility of a boycott of the site.
Ebay stood by the decision, but this week also announced it would be lowering the fees it charges sellers in certain product categories on its auction site.
