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Protocol | Fintech
The people, power and politics of fintech, every Tuesday and Friday.
Photo: Aiden Frazier/Unsplash

Fintech goes on the mortgage offensive

Aerial shot of homes in San Francisco

Hello and welcome to Protocol | Fintech! This Tuesday: mortgage fintech rising, a "true lender" roll-back, and credit-card gripes.

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The Big Story

Rising interest

The fintech pressure on the established mortgage business is only intensifying.

Startups and investors have been moving into this space for the past few years, but two pending IPOs and two impressive private rounds point to heightened interest in startups disrupting a space historically dominated by banks.

The market is growing — but also getting crowded. The mortgage market is growing rapidly, with purchase originations expected to reach a record $1.54 trillion this year.

  • Young people are expected to propel that growth. A new Opendoor survey found most Gen Xers, millennials and those on the cusp of Gen Z believe it's a good time to buy a house (compared to only 34% among boomers.)
  • Last year, Americans took out more home loans than ever before, according to the Wall Street Journal. Nonbanks originated most of those mortgages — 68% of them, up from 59% in 2019, the WSJ said, citing a report from Inside Mortgage Finance.
  • Seven of the 10 biggest mortgage lenders are nonbanks, led by Rocket Companies, now the nation's biggest mortgage lender.

Tech is upending the home-buying process. New cloud and AI technologies are making home-buying, historically a slow process bogged down by tedious paperwork, dramatically faster and simpler. And investors are moving aggressively to back startups — both those benefiting from the transformation and those enabling it

  • Better.com announced in May that it was going public via a SPAC backed by SoftBank.
  • Blend, which provides tools to banks and fintechs that make it easier to process mortgages, made its IPO filing public two weeks ago. The San Francisco-based company disclosed that its revenue soared 90% in 2020.
  • Investors are finding promise in startups that have been around for years. Ohio-based digital lender Lower raised a $100 million series A round, seven years after its 2014 launch.
  • And they are jumping at the chance to back new players. Tomo, a home-buying service founded by two former Zillow execs which launched last fall, just raised $70 million in a seed round, one of the largest seed rounds in real estate tech.

The aftermath of the financial crisis of 2007 to 2009 meant layering on new controls and regulations. Now technology is lightening the burden and opening up opportunities. "Mortgage fintech filled the vacuum," Bill Pearce, assistant dean of U.C. Berkeley's Haas School of Business, told Protocol. The race is on to see who can secure the best position in a transformed market.

— Ben Pimentel

A MESSAGE FROM BROADRIDGE

To stay competitive, firms must leverage next-gen technologies. But, where do you start? Broadridge simplifies the complex to help you improve operational efficiencies, reduce risks and enhance the end-user experience. We call it The ABCDs of Innovation®.

Learn more

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Overheard

  • "The big banks have never made more money, yet an experience with their mortgage business has never been worse. And it's because the incumbents have no reason to fundamentally change." Greg Schwartz, CEO of Tomo, a mortgage startup.
  • "The investment world has dismissed crypto on every leg down for the past decade, thus far to their detriment. The most recent drawdown is 'business as usual' for anyone long enough in crypto business and with familiarity with Bitcoin's polemical history."Anatoly Crachilov, who recently put his crypto arbitrage fund largely into cash.
  • "It's like a mafia, literally. This place is just a scheme. There's no intention of actually solving problems or building things. There's just smoke and mirrors and a coverup."Alicia Reyes, who was CEO of Wells Fargo's European investment bank, in an April 2020 call, three months after she left the bank.

Need to Know

  • Biden signed a rollback of the "true lender" rule. The Congressional Review Act resolution overturned the OCC's rule that clarified that a bank would be the true lender if it funded the loans or its name was on the lending documents. Advocates and some in Congress said the OCC's rule enabled predatory lending.
  • Chime was the most-downloaded neobanking app in the first half of 2021. Chime had 6.4 million downloads in the U.S., with Current (2.7 million) and Varo (1.95 million) following behind, according to Apptopia.
  • Financial Venture Studio is raising its second fund. In addition to the fund, the fintech studio also recently launched its latest cohort of startups.
  • Coming Wednesday: The SEC's Asset Management Advisory Committee will discuss "technology-enabled personalization" with representatives of Fidelity and Betterment, among others.

Making Moves

  • Daniel Marovitz is now heading Booking.com's new fintech unit. He was previously VP and head of payments, and plans to expand the unit to 400-plus people by the end of the year.
  • Spencer Dinwiddie, the Brooklyn Nets basketball star, raised $7.5 million. It's for Calaxy, his crypto startup.
  • Cathie Wood is trying to launch a bitcoin ETF. The head of Ark Invest filed with the SEC for the fund. The SEC has yet to approve any cryptocurrency ETFs.

Deal Flow

  • Kakao Pay expects a $1.4 billion IPO. The South Korean fintech, which provides money transfers, savings accounts and asset management, is backed by Ant Group.
  • Pine Labs raised $600 million. Fidelity and BlackRock led the round, valuing the Singapore-based payments company serving India and Southeast Asia at $3 billion.
  • Orum raised $56 million. The intrabank transfer startup's series B was co-led by Accel and Canapi Ventures.
  • Nigeria's FairMoney raised $42 million. Tiger Global led the series B for the neobank.
  • TeamApt raised $5.5 million. Another Nigerian startup providing banking service for the underbanked is using the money to expand abroad.

3 Questions With...

Payability CEO Keith Smith

What problem would you like to see a fintech company solve?

This is my biggest gripe as a fintech consumer: The credit card companies need to provide a layer of services for compromised cards and subscriptions. Ten years ago, the only subscriptions we used credit cards for was likely a magazine subscription. Today, like many of us, I have a subscription to toothpaste, and about 50 other recurring conveniences. A month ago I found a single unauthorized charge on my Apple Card. The only solution to address it was to give me a new card number. Subsequently, this forced me to track down every single subscription I have and update all of them with my new number simply because that was the only solution the credit card companies provide. If they don't fix this, someone else will.

What fintech trend is most troubling for you?

Centralized clearinghouses with large transaction fees to enable us to trade cryptocurrencies that have been popularized because they are decentralized and allow for fee-less transactions. The irony of this situation should be making our heads explode.

What fintech sector or company is most underrated right now?

Underrated: crypto and blockchain, which are likely overrated by those who evangelize for them, but still likely underrated by the world at large.

A MESSAGE FROM BROADRIDGE

To stay competitive, firms must leverage next-gen technologies. But, where do you start? Broadridge simplifies the complex to help you improve operational efficiencies, reduce risks and enhance the end-user experience. We call it The ABCDs of Innovation®.

Learn more

Data Point

$35 trillion

That's the net worth of Americans age 70 and older — 27% of all U.S. wealth, up from 20% about 30 years ago. Older Americans are expected to pass much of it on to their heirs.

Thanks for reading — see you Friday!

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