Two former Westpac executives have unveiled a fintech competitor to established mortgage providers, with a bumper $33 million first funding round.
The start-up, called Verteva, has raised all of the money from New Zealand-based Bolton Equities and is looking to target a similar market to Athena Homeloans, which raised $70 million in October.
It was founded by chief executive Andrew Walker and Chris Lumby, who worked together in executive roles at Westpac. They said they believed an over-reliance on legacy systems, and a lack of appetite for innovation regarding improved customer experience at big four institutions meant there would be a big demand for a smarter option.
One of Verteva’s core propositions is that it will offer lower-rate financing to borrowers with a better risk profile, and do away with volumes of paper forms with a speedy digital application process.
“Too many low-risk mortgage holders are effectively subsidising the banks’ higher-risk customers. That’s a key structural problem with the current model, where low-risk customers are paying interest that doesn’t reflect their risk profile,” Mr Lumby said.
“We’ll offer those customers a better deal, a transparent sharp rate, and without the hassle of the physically delivered paper-based and lengthy mortgage application process of today.”
‘We saw some investors that couldn’t look away’
The company has been able to attract the funding despite not being open for business yet. It has a basic website where it is taking enquiries and is using its funding to further develop products and pay for its launch marketing and growth plans.
Mr Walker said he had observed lots of fintech start-ups out in the market raising small funding rounds as almost a marketing ploy to create buzz, but said Verteva had been keen to lock in a substantial raise with a longer-term backer.
“When we closed the round COVID was in full effect and we saw some investors who couldn’t look through cycles or who were overweight in impacted sectors fall away,” he said.
“The reality for us is that the pandemic is going to be a massive accelerator for digital transformation across the whole economy as a whole and banking in particular, as digital innovation is particularly lacking in this sector.”
Mr Lumby said attracting new customers off entrenched rivals would be a key part of Verteva’s plan. He said price and pain were the only two things that stopped consumers from refinancing.
He said better rates solved the price point and more intelligent use of data to streamline the approval process made the process a lot less painful.
Digital refinancing could be completed in less time than the average commute, he said, with its systems providing instant decisions with greater accuracy.
“The mortgage process is one of the few left globally where the customer is asked to provide all of the data and do all of the work, which the company then has to verify before coming back to the customer. Often the customer doesn’t know the exact information and they’re forced to guess or estimate,” Mr Lumby said.
“We believe that where the data exists, it should tell the story. That results in a more accurate outcome and a better customer experience.”
He said Athena Homeloans’ initial success in the market showed there was a significant underserved market for non-bank home loans in Australia, and digital transformation more broadly in the finance sector.
While the two start-ups sound similar (Athena was founded by two ex-NAB bankers), Mr Lumby said there would be clear points of difference in its approach to marketing, use of data and the digital customer experience.
Despite recognising the COVID-19 pandemic would cause problems for the housing market, he said this was actually a positive thing for a company looking to shake up an existing market.
“It’s likely that we will see a downturn in the property market, but that isn’t a concern for us. If anything, it will drive customers to look for a better mortgage rate and shop around,” Mr Lumby said.
Originally published by Paul Smith, 12 May 2020, The Australian Financial Review, https://www.afr.com/technology/ex-westpac-executives-home-loan-disruptor-raises-33m-20200508-p54rbi