I suspect there’s a cycle in fintech.
Disruption, collaboration, conformity, then back to disruption again. Recently there feels to be a trend towards collaboration with the incumbent institutions. It’s almost as if some fintech companies have no higher ambition than to become a widget for a bank. However, the disruptive businesses that emerge are usually the most interesting, and frequently have the greatest potential. They often have a vision for taking entire market sectors by providing a service in a fundamentally different and vastly improved way.
Christian, let’s talk about challenging rather than selling out.
It is interesting to see how some other FinTech companies are teaming up in different ways with banks and other “traditional” finance players. There are lots of different options, but few of them have appealed to us. We have banks that invest in us, in so much as they put significant amounts of money onto the LendInvest platform to invest in our loans. It works well for both sides but when it comes to formal joint ventures or partnerships with banks, it’s not something we’re looking at. We believe we’re trying to do something different to how the banks and traditional financiers have done things in the past. Specifically the process to securing a mortgage can be the poorest consumer experience around. We’re looking to fix that. Teaming up with banks now seems counter-intuitive.
In an absolute nutshell, how does it work, your service?
We were the first marketplace lender to enter in the property market and we’re bringing technology to mortgages for the first time. Typically, going to a mortgage lender is a very poor consumer experience. It’s one that’s entirely offline as well. You can’t apply for a loan or mortgage online with a bank. Instead if you go to a bank’s website, you’ll only find a booking form for a face-to-face appointment in a branch where you’ll fill out lots of paperwork. For us, it’s about bringing the borrower online to apply, and having a process that is not one of paperwork, but an online system.
So I could apply for a mortgage to buy a house through your platform?
Yes you can. Right now we lend to property entrepreneurs looking for mortgages to finance their rental properties or development projects. Our most common sort of borrower is one who is buying a property at auction, renovating it and then selling it on. But we’re lending more and more to people who convert of offices to residential developments, or start from scratch building houses from the ground up. We’ll lend up to 75% of the value, which isn’t particularly aggressive. In fact, on average we lend up to 60-65%. What attracts borrowers the most is the speed at which we can assess their applications, underwrite and complete. There are certain points in the process like having valuers visit the property and having independent lawyers doing the legal work that can’t be automated. Plus we’ll never let a machine make the ultimate decision about whether to lend or not. But, there’s still a lot that can go online or be underpinned by tech to be faster and easier – the borrowers’ paperwork, the searches, conveyancing and administration. Our goal is to get the application process down to a couple of days. Three months vs a couple of days, it’s the killer app for sure.
Do you get repeats?
Yes we do. We like working with borrowers who transact 5 to 10 times per year. Like in the rest of the mortgage market too, mortgage brokers make a lot of valuable introductions too to long-term customers.
What’s your big picture, when it’s finished?
I don’t know if it’s ever finished, but we would like to be the mortgage business that brings online lending for the whole market. Whether it’s a home you want, or a rental property, if you need a mortgage, you would come to LendInvest and it would get financed. Ours will be a smooth, easy, online experience.
How about the investment side of LendInvest, the peer to peer?
The p2p is one component of our funding base that makes up about 30% of our total incoming capital. The remainder comes from the two funds we manage and several institutional funding lines. Having a hybrid model like this means the borrowers know the money is there. If we say we’re going to lend to you, we will. Your mortgage isn’t dependent on a crowd decision. Likewise, when an investor selects a loan to invest in, it has already been pre-funded. The loan is there, it’s a fact and the investor will start earning great interest straight away.
Can they buy in half way through a loans cycle?
Yes, they can buy a piece of that liability for the piece of the interest. The loan cycle is relatively short (averaging less than a year) and there are always other loans to choose from. The cost to the borrower is between 6% and 12% per annum, and investors earn on average 7%. There’s no reason for a mortgage to take three months, other than that the banks have bad technology, too much bureaucracy, and processes that don’t work. We know it can be done so much better. Simple. Transparent. Fair.
We chat some more; it’s a great business, it’s already a pro table business. A few days later I get a press release through. Another £17million raised. Go LendInvest.
By Bird Lovegod