In what can be chalked up as one of the more interesting Fintech related acquisitions taking place, Prosper Marketplace has acquired BillGuard in a deal reported to value $30 million. The intriguing aspect of the deal is that on the surface there is very little apparent overlap of synergy between the two firms.
One of the longest tenured P2P lenders, having launched in 2006, Prosper Marketplace provides alternative finance personal loans. The loans cover needs such as home improvement, debt consolidation and car purchases. Among Prosper’s value propositions is its efficiency for borrowers, for whom it provides a transparent and simple to understand scale that shows the relationship between one's credit scores and expected loan terms. According to Prosper, since launching, they have facilitated over $4 billion in loans.
Operating an entirely different business is BillGuard. Offering a personal finance app, BillGuard provides users with a centralized solution for tracking and analyzing their bank account transactions and credit/debit card expenses. The word ‘Guard’ in the firm's name comes from the app’s crowdsourced security feature which lets users highlight suspicious credit card charges, which information is then used to warn other users.
Lead generator
As mentioned, on the surface the synergy between the two firms is minimal. The underlying aspect is that both BillGuard and Prosper face the consumer market. Most importantly, and each in their own way, both firms' mission is to improve their customers' finances by saving them money on either their loans or overall expenses.
By acquiring BillGuard, Prosper gains the app’s customer base as potential Leads for their lending marketplace. Within their announcement of the deal, Prosper stated that the acquisition “gives us the opportunity to lower our cost per acquisition, and to be in front of the customer when they are ready to make a credit decision.”
In this regard, Prosper is following a strategy used by many marketplace lenders as referral costs have been rising. The referral market for lenders has become such a lucrative sector, that many multi-million dollar businesses have been created around in this market. Arguably the largest is consumer credit scoring firm, Credit Karma, which has used the referral model to reach a greater than $1 billion valuation for its business.
As P2P and marketplace lenders are growing, increasingly encroaching on a market that has been traditionally dominated by banks, handling rising customer acquisition costs has become a greater issue. Among the results of this trend are partnerships between fintech lenders and companies that serve the SME and personal investment market. Examples include Kabbage teaming up with tax preparer Intuit and LendingClub’s partnership with DIY home improvement site HomeAdvisor.
Beyond lead generation
Among the other interesting aspects of the deal is that it has been announced that BillGuard will more or less continue to operate as its own entity and that the company’s headquarters will remain in Tel Aviv. As such, Prosper will be providing BillGuard with the ability to continue to innovate and expand its core feature set that operates within the consumer finance market.
The independence would be expected to allow BillGuard to continue growing its user base which is a net positive for Prosper. In addition, it could lead to new monetization models being incorporated. One specific feature that is mutually beneficial is the expansion of data collected by BillGuard for the use of credit scoring. In this regard, credit score alternatives to analyze borrower risk are becoming an important tool for marketplace lenders to reach customers that are turned away by banks.
