Back in 2005, Prosper was the first peer to peer lender to launch in this country, offering online unsecured consumer loans. It was a sea change at the time when offering a loan online was a novel idea. Now 12 years later, the company is leaning on their experience in the personal loan space to enter a new product category: HELOCs, or home equity line of credit. Around the time Prosper first launched, HELOC lending was at all time highs. It subsequently fell during the financial crisis, but is now on the rise again.
Prosper noted that according to a 2017 TransUnion Study an estimated 10 million consumers will take out HELOCs between 2018 and 2022 which would be more than double the number originated from 2012-2016. Part of this trend is the increase of home values over the years with homeowners wanting to to unlock the equity in their homes.
The new HELOC product will launch officially in early 2019. We spoke to Prosper CEO David Kimball to learn more about the new offering. The press release noted that Prosper “will be partnering with banks to improve the application process and reduce the time from application to closing”. What’s most interesting is that the move represents a significant change compared to their personal loan business when it comes to business strategy. While HELOCs will be offered directly through Prosper.com, they are also providing the offering as a white-label service to banks. We don’t yet know which banks they will be working with initially, but this is a trend we’ve seen more and more with fintech players. There are very few fintech lenders with traction today that operate a monoline businesses, most have grown to have a separate business line, many with a private label type offering for banks similar to the one Prosper is going to offer.
The banks will benefit by offering a tech forward product that leverages Prosper’s customer base and all of the data that Prosper has collected over the years. Prosper will be paid a fee for the use of their technology engine. It will be the bank’s underwriting model and capital which means the terms will vary from bank to bank.