The Bank of Mom and Pop

Person-to-person lending is finally ready to take on banks and credit card companies.

By Farhad Manjoo
Posted Tuesday, April 19, 2011, at 5:14 PM ET

Things were looking so good for Prosper.com five years ago. To most people, the economy appeared to be functional, dot-com nightmare stories had faded from memory, and the time seemed ripe for Web 2.0 to take over the world of personal loans. Prosper and several other "person-to-person lending" sites operated like an eBay for credit: Prospective borrowers put up requests for loans, disclosed their credit rating and the reason they needed the money, and tried to make a case for lenders to take a chance on their dream—at attractive premiums.