Online lenders should steer clear of M&A

By Ryan Weeks on Tuesday 1 August 2017

Alternative Lending

Another acquired fintech firm flops, as online lenders cement their reputation as impulse buyers.

Another acquired fintech firm flops, as online lenders cement their reputation as impulse buyers. 

News broke late last week that Prosper’s financial wellbeing app (Prosper Daily) will be discontinued. The platform has decided to focus on its core business of lending to consumers; the app appears to have been thought of as more of a satellite.

A few of the people on the Prosper Daily engineering team will be retained by the company, and will henceforth focus on improving the platform’s investor and borrower experience, according to LendAcademy. Existing users of the app will be directed to a similar service named Clarity Money, should they wish to continue keeping tabs on their finances.

Prosper acquired a personal finance analytics company named BillGuard in September 2015 in order to pave the way for the Prosper Daily app. The acquisition set them back by $30m.

It’s hard to argue that the purchase has been anything short of disastrous, in light of the app’s shelving. But it is perhaps worth noting that, in terms of longevity alone, BillGuard has fared better than others that have fallen victim of the online lending sector’s splurges.

Another consumer lender, Avant, purchased a financial health platform called ReadyForZero in March 2015. ReadyForZero helped users to consolidate their debts by pinpointing areas of pronounced distress and recommending new options for paying off those debts. It took just one year for Avant to give up on the project.

Zenbanx was a different type of acquisition to the BillGuard and ReadyForZero examples, but was no more effective. Zenbanx was a multi-currency mobile banking platform, active across the US and Canada. SoFi splashed out (an undisclosed sum) on this one in February of this year, saying that it would use the technology to expand into the digital banking space. Sixth months later, TechCrunch reported that SoFi was closing down Zenbanx – a move that seems to have been related to its decision to pursue a bank charter.

There have been a few successful acquisitions in the wider world of online lending, sure. Marketplace lender Funding Circle bought Zencap in 2015 in order to break into Europe, and while it has had to do a fair bit of tweaking, the UK-based firm is now active across the Netherlands and Germany.

But the genre of acquisition which very clearly does not work is online lender-on-financial health/management platform.

It might seem like a smart match, making lenders more multi-faceted while introducing cross-selling opportunities. But the reality is that companies like BillGuard – if used as an origination source – become exponentially less valuable the moment they’re acquired. Their value lies in their independence: grab at them and they’ll turn to dust. 

We now have three examples of rapid value destruction resulting from the splurges of online lenders; perhaps it would be best if they kept their wallets pocketed for a while.

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