Prosperity for Fintech

Yesterday Prosper announced their acquisition of financial and identity management startup BillGuard. This news marks a transformative moment for the online lending industry. Why?

This is the first indication that there is an online lender out there that is thinking beyond the loan.

One of the biggest threats to online lenders, whether they are P2P or balance sheet, is the very nature of their business.

Lending is a commodity business. Cash is the product that lenders sell, and cash looks and feels the same to any borrower. The only things that matter to the customer are the rates, terms and customer experience associated with acquiring that cash. And, for the most part, these attributes look nearly identical across product categories (consumer term loans, small business loans, mortgages, etc.).

The Cost of Identical Customer Experiences

The experience and service most online lenders provide is completely transactional. Customers come, they either get their cash or they don’t, and they go. There is very little if any brand affinity or loyalty. Customers will go where the money is cheapest and easiest and that presents a race to the bottom scenario for most lenders selling a commoditized product.

As the space becomes increasingly saturated across consumer and business lending, competition becomes more and more fierce, and the cost to acquire customers who do not value about your name brand or lack thereof rises dramatically.

The Importance of Delivering Additional Value

I have always believed that to stand the test of time, lenders will need to deliver value to their customers outside of just providing credit. They will need to think creatively about additional services and products they can offer their customers to keep them engaged and loyal. This is what the future of banking could and should look like.

Given the interest rate environment, customers don’t really care where their deposits are so long as their money is safe. The real winners will help customers think holistically about their financial health and be a partner to them over the long term. This does not just come in the form of providing the same loan product over and over again. It comes in the form of broader financial management and education. Just as a bank cross-sells multiple products to keep their services sticky and customers engaged, lenders must begin to think the same way in order to avoid the slog of battling through complete commoditization. Imagine a combination of Wealthfront, Mint and a lender — a complete package to keep customers engaged while delivering value outside of the transaction.

Changing the Game

This is why Prosper’s acquisition of BillGuard is so exciting: it’s the first time a major online lender has drawn a line in the sand and differentiated themselves through the potential of providing additional services to keep their customers (both existing and potential) happy and engaged through a multi-product offering.

This will and should be the first of many acquisitions or in-house builds that help propel the most strategic-thinking lenders into a different league. This is what the future of finance for consumers and business owners should look like, and it’s going to be an uphill battle for most lenders as consumer-product DNA is not in their blood.

As orthogonal as some of these offerings might appear, they just might be the necessary ingredient to building and growing a real and lasting brand that resonates with today’s savvy consumers.