There is big news out of Prosper this morning. They have made their second acquisition this year (in January they bought a healthcare lender) and it is not what you might expect. They have purchased BillGuard, a personal finance analytics company with offices in Tel Aviv and New York. BillGuard is not a lender; its core product is an app that helps consumers track spending and detect possible fraudulent charges.
This was not the kind of acquisition that I expected out of Prosper so yesterday I chatted with CEO Aaron Vermut to find out more. He was, not surprisingly, very enthusiastic about this deal saying it will give Prosper an edge in many new ways.
What does BillGuard actually do?
Before I get to Aaron’s comments let’s explore BillGuard. Funnily enough, I have been a user of BillGuard’s free service since 2011. One of the cool features that drew me to the product back then was their crowdsourced technology where they would use the crowd to flag any possible fraudulent charges on your credit card bill. When someone detects a fraudulent charge from a merchant this flows through to others who use that same merchant. Over the years, it has been useful to me catching the occasional questionable transaction.
Today, BillGuard offers far more than just this crowdsourced technology. They have a full service personal finance app (highly rated on both the Android and iOS stores) that helps consumers with budgeting, tracking expenses, credit monitoring and even identity theft. It is kind of like Mint and LifeLock rolled into one product. They have 1.3 million registered users and have flagged over $70 million in fraudulent transactions for their users.
How does BillGuard fit with Prosper?
At first glance this seems like somewhat of an unusual acquisition for Prosper. But as Aaron explained in our conversation they are a great strategic fit. There are four main strategic benefits for Prosper:
- Customer engagement – Right now after Prosper issues a loan to the borrower it is difficult for them to maintain engagement with that customer beyond servicing the loan. BillGuard provides them with a service that will help the borrower manage their finances and stay engaged with Prosper.
- Lead generation – Prosper works with a number of marketing channels and partners but they don’t have a major source of borrowers that they control completely. BillGuard could provide them with that.
- Tech expertise – BillGuard has created a very popular app and Aaron was extremely impressed with their entire tech team. He was excited to bring that expertise in-house.
- Business Development – When approaching large companies for partnerships Prosper will now be able to offer more than just a loan. BillGuard gives a tangible benefit for an entire population of potential borrowers.
Aaron told me that Prosper is trying to find borrowers before they are looking for a loan. They want to build a relationship with these people so when they do need to borrow money they think of Prosper first.
This deal came about because BillGuard had engaged a banker, FT Partners, and were in California exploring opportunities. Prosper did extensive due diligence on the company and their team and decided they were a great fit both culturally and strategically. Prosper paid $30 million in cash for BillGuard.
My Take
This deal is clearly driven by the never-ending search for large numbers of quality borrowers. While Prosper could just buy another lender and find a pool of borrowers that way, this deal provides Prosper with something that few marketplace lenders have: a valued added offering to engage potential borrowers before they need a loan.
The pool of potential borrowers who may one day need a loan is far bigger than the pool of borrowers who need a loan today. When a borrower connects their credit card account to BillGuard they share a treasure trove of information that Prosper can use. They will know spending patterns, the interest rate a borrower is paying and much more. This can lead to very targeted offers that should provide a steady stream of qualified borrowers to Prosper.
There are obviously other benefits as well but moving downstream to where the borrowers live seems like a smart move to me.
