How Notarize plans to make online house-closings the norm
The market matured in 2020, but CEO Pat Kinsel sees real estate as just the beginning.
For Notarize, real estate closings have opened up a huge market opportunity. What the company has its eyes on next could be even bigger.
The 6-year-old eNotary is fresh off closing a $130 million series D round last week, bringing its total funding to $213 million. In the last year, the company has seen its revenue grow sixfold, in part due to an 800% increase in the number of real estate transactions the company has processed over the last year.
Notarize first made headlines back in 2017 when the company facilitated the first remote closing. But for CEO Pat Kinsel, Notarize's latest moves in the increasingly hot world of e-signatures set the company up beyond just real estate. He sees a real opportunity for the company to be the last-mile solution for legal infrastructure, sort of like what Stripe and Plaid have become for the financial services industry.
"We want to plug in and give people the best, most compliant, most usable, most effective closing solution," Kinsel said. "I think that digital closings will be the mainstream in short order."
In an interview with Protocol, Kinsel described why he believes the back-end infrastructure work his company has done puts it years ahead of new direct online notary competitors like DocuSign, what the new funding will allow Notarize to expand into and what the future of home buying will look like.
This interview has been edited and condensed for clarity.
You raised funds less than a year ago. Was another round on this timeline always in the plan?
Everything accelerated. We had a great 2019 pre-COVID on the back of the work we had done to create legal clarity in the market: 2017 [saw] the first-ever real estate transaction in the country; 2018 was the first-ever will; and we had Fortune 100s using us in all 50 states going into 2019. So 2019 was a huge improvement to our business metrics, and our plan for 2020 and beyond was to continue to do well in real estate and really win one enterprise financial services customer. We wanted to validate that there was much more of a broad platform with significant appeal. Now, we work with Transamerica, TIAA — I can go on and on in terms of these marquee enterprise customers.
So our plan was not to raise money until later in this year, and we still have most of the money that we raised last year. But for our current customers now, if we just process all of the transactions that they want to send us, we're a $700 million revenue business.
And "What does it take to do that?" is the question. There are different workflows we may or may not support. There might be regulatory requirements that we don't support yet, systems we haven't integrated with yet, teams that need to be trained or onboarded. For us, that was the decision to step on the gas and to raise the round.
Let's talk about the 2017 real estate closing. How much of the process today is the same as it was then? And how much is different?
I actually think some history is helpful here, if you'll indulge. We launched in Virginia in February of 2016, and almost immediately after that, the National Association of Secretaries of State came out with a task force to study the issue. We engaged in that and traveled the country and visited all these people, and ultimately, they changed their policy. But early on, we introduced a bill in Maryland, very much when this was not yet a solved matter. And the Maryland Mortgage Bankers [and Brokers] Association came to the hearing. We thought it was going to pass, and they basically came to these hearings and said, "Time out, this cannot pass because it will destroy the housing industry." They said, "We can't execute mortgages in this state unless we know Fannie Mae is going to buy them and Freddie Mac's going to buy them and the title underwriters are going to insure them. Our entire housing market is going to basically fall to shreds unless we have certainty that these transactions are still effective and have the full legal standing."
So, I remember driving out of Maryland that day with my co-founder Adam, and we looked at each other and we said, "Look, let's just go convince Fannie Mae." At the end of the day, the issue is that people need to know their lien position is going to be held up in court. You have a mortgage, and in the event of default or some claim, ultimately this notarization has to be in good standing. So we basically simulated bankruptcy trustee cases in all 50 States. We did the legal research, and we came back and presented that. At the same time, there was this huge momentum on the legislative front. We passed in Texas, and Texas was a big enough market that people said, "OK, this is really going to happen." And that's when we were able to do the first closing. When we did that first closing, we wanted to do it across state lines to prove that the legal framework was valid. So it was United Wholesale, a Detroit-based mortgage lender. The couple was in Chicago. The notary was in Virginia. And the title company was in Texas. And it was fully insured by Stewart Title and purchased by Freddie Mac. It was a completely normal, standard mortgage just executed online and across state lines.
So to answer your question: That is still, today, what allows the market to operate. We have this legal framework that allows us to serve clients irrespective of geography. And that's what's changed in the industry so much. You now have a title company that can say, "Hey, we can actually have a centralized closing team." That's where people are seeing the future of the industry. It's not just about [needing] to close these loans; it's let's redesign our organization, putting people and resources in different parts of the country in order to fulfill transactions. As far as what's different, a lot of our process [then] was manual. The workflow to create the transaction was actually eight hours of manual work of getting data out of systems and keying it in. We're now fully automated in that regard. It's now this instant, always-available service that people can rely upon.
You're saying that the regional, more-centralized approach is a function of progress for the industry, but it's also just a function of the differences in state laws, right? What happens if a federal regulation on remote online notarization passes? How does the playing field evolve then?
It's not just state laws, it's county, industry, counterparty, underwriter. For example, a real estate transaction in Miami-Dade is different from one in Palm Beach, which is different than one in Pennsylvania. And one in Texas that's underwritten by First American is different from one that's underwritten by Fidelity. It's freaking bananas. What our customers want is to not have to think about a single thing. They expect our platform to ensure it has the right notary, the right things on the document, et cetera.
We've been super involved in the federalbill; we helped to introduce it. We found the sponsors for it. We've done hundreds of hours on the phone. All that is a floor. All that says is that so long as this minimum standard is met, these transactions are valid for all use cases at a national level and for all state and federal agencies. There are still gray areas just as a result of the way laws are written. The federal law is really supposed to clarify those sorts of issues, but every state and every county is still going to have their own requirements.
In the funding release, it says your completed transaction volume is up 800% for real estate. Where do you see that current number and rate in terms of the pendulum? Will things swing back as reopening happens? Is that number now the balancing point?
In the history of our company, we've never had someone go back. And it's really a function of two things. One, it takes work to get up and running, and once that work is done, why would you undo it? And two: People love it. And I mean that in every regard. Consumers rave about it; our partners save tons of money.
We have statistics from our customers that, without us, a real estate closing can have errors in as many as 30% of transactions that require a partial re-execution. With us, it's basically zero. There are these enormous efficiencies, and then separately, our customer base is only about 2% penetrated and growing month-over-month.
And I would add that real estate is a network. The more that we onboard, the more transactions we can serve. Our system has an automated rules engine that will qualify transactions, so when we can add another partner, it increases the number of eligible transactions. Or if we add a new county, it increases the volume across all of our customers.
You mentioned part of the new funding might be used for tech development. What's that look like?
We're super focused right now on being the platform that powers everybody. We want every service, every platform, every company to be able to have a highly customizable version of our service that they can integrate within their own workflow. One of the trends that's really happening in real estate is this end-to-end concept, that a consumer [can] search for a home, apply for a mortgage and ultimately close through one core experience.
Other companies are focused on different parts of that, but we want to plug in and give people the best, most compliant, most usable, most effective closing solution. If you don't close, nothing matters. And that's true not just in real estate. If you think about a Stripe or a Plaid, these companies that are the engine that really drive an industry, we're already down this path.
And if you think about the institutions relying on our platform, these are critical transactions that are often required by law or regulation. You can't turn people away. So [we have a] push for accessibility, and then of course security and uptime.
In a lot of industries, this year has seemingly given a peek at the future by showing what could and couldn't change quickly. What does buying a house look like a few years from now? What's still ripe for change?
First off, because it's my bailiwick, I think digital closings follow the same timeline as everything else. If you look at the rate for home search, for mortgage applications online, they went to basically 70% and above within three or four years. The idea of applying for a mortgage online was kind of far-fetched just a couple of years ago, and with the success of [companies like] Blend and Roostify, that industry has exploded. I think that for us as well — because we follow in a digital process — if you're searching for a home online and applying for a mortgage online, you're very likely going to close online. So I think that digital closings will be the mainstream in short order.
More broadly, I'm actually a big believer that a lot of the banks are going to have a resurgence, specifically in mortgage lending. The banks and also real estate companies have the customer. If you're a bank, and Blend is successful and Fannie Mae's Day 1 Certainty is successful, and you want to buy a house, you can pull up your Wells Fargo app and say, "I'd like a mortgage." They have all your income and your financial information, and if they have automated underwriting, they could just offer it to you. And Realogy and Zillow have the same thing, just much earlier in the funnel.
A lot of these companies are now putting the pieces together. They have a mortgage lender, a title company, et cetera. And that's really where we play. These people that are trying to connect the dots to digitize the whole experience most likely work with us.
It's a market that's heating up. DocuSign recently put out a notary product. You said these companies connecting the dots digitally are likely using you right now. Why or why aren't you worried moving forward?
Honestly, I think we forced DocuSign into the market. At the end of 2019, they were saying the space wasn't important. And I think if you look at the organizations that have been winning, they've been forced to respond. We've been doing this for six years. We've been engaged in all of the regulatory conversations. There is no shortcut to building a compliant online notarization product. And there is no shortcut to serving all the industries. They have a long way to go before they can match what we can provide today.