It was last November when we first heard that Prosper had plans to expand their offerings from personal loans into HELOCs. In 2018 David Kimball noted that they would be partnering with banks on the new product and loans would be available both directly through Prosper.com and also as a white-labeled offering. Now we know their first bank partner is BBVA.
As you’d expect from a fresh offering in 2019, the online application takes just a few minutes and potential borrowers are provided with an instant pre-qualification. There are also no origination fees. Per the official press release, BBVA USA is Prosper’s exclusive bank partner in four states (BBVA Ventures has also participated in Prosper’s equity financing rounds).
We were able to catch up with Prosper CEO David Kimball again to get an update on the new offering. He noted that while they would have liked to bring it to market faster they wanted to make sure they took the time to do it right.
The platform will initially be available to customers in Alabama, Arizona, Florida and Texas direct through Prosper.com and a select group of BBVA US customers will have access via a BBVA branded version of the same platform in the coming months. One of the benefits of this bank partnership is Prosper will not need to go to the capital markets for funding. BBVA is just their first bank partner and Kimball shared with us that they have an additional bank partner in the pipeline and they are looking towards having a national footprint soon.
Most people are already familiar with Prosper’s personal loan offering and Prosper tested the cross sell of their HELOC in an interesting way. After a potential borrower went through the application process for a personal loan, some borrowers were offered two different options: the personal loan they applied for, or a HELOC. The types of applications that typically fit were those loan applications for debt consolidation or home improvement.
Kimball noted that since these customers already were in the mindset of receiving a personal they often ultimately selected the personal loan. Some consumers weren’t swayed by the promise of a lower interest rate (often several hundred basis points cheaper) and they also had to weigh other factors. Prosper has worked hard to improve the user experience, but the application process is longer than that of a personal loan meaning the borrower may not receive their funds as fast. It is also likely that borrower education is a factor as some consumers just aren’t familiar with a HELOC. Prosper is looking to remedy these challenges both with speeding up the process and working on a strategy for borrower education on HELOCs. They are also looking to offer the HELOC as an option sooner in the funnel for particular situations like a borrower seeking funds for a home improvement.
As for the partnership approach itself Kimball noted that their two pronged approach through Prosper.com as well as offering it as a white label approach has its benefits, mainly the stability of funding. It seems like there is a trend these days of the fintech lenders becoming tech providers. We’ve seen this in consumer lending with Avant’s Amount as well as on the small business side with OnDeck’s ODX platform. By offering the tech platform the fintech companies get to benefit from the banks existing customer base thereby saving on customer acquisition costs.
The HELOC is a product with an interesting history. HELOCs peaked around 2009 as many consumers used their HELOCs as an ATM to fund various purchases as home prices continued to go up in value. Since then it’s no surprise that they have fallen steadily over time and HELOCs have not rebounded with the recent rise in housing prices and the subsequent rise in equity that homeowners have ($6.3 trillion in the second quarter of 2019). One of the big challenges will be educating borrowers on the benefits of this product over competing products like the personal loan which are already optimized for a great customer experience. When used responsibly and with further innovation to the time to fund, the HELOC is clearly a better product for homeowners. With a few fintechs getting into this space, namely Figure and now Prosper it’s going to be interesting to see if we see an increase of homeowners again opting for HELOCs.