Digital Finance Analytics (DFA) Blog
"Intelligent Insight"
I discuss the evolution of the mortgage industry with Anthony Baum, CEO of Tic:Toc Home Loans.
How will the tighter underwriting standards play out, and how will the Royal Commission recommendations impact the industry?
Note that I believe the future of the mortgage industry will be digitally driven, and Tic:Toc is on the leading edge, so an apt topic for “Digital Finance Analytics”! Digital disruption is coming….
The new CO:Lab home loans, a collaboration between Tic:Toc and the $7 billion La Trobe Financial, can help self-employed Australian’s and business owners excluded by traditional eligibility requirements, as well as customers looking to refinance to invest money into their business.
Tic:Toc launched the World’s first instant home loan™ in July 2017 in partnership with Bendigo and Adelaide Bank, and is now collaborating with another key partner and shareholder, La Trobe Financial, to help bring the home loan process up to speed for a broader range of self-employed and small business applicants.
Announcing the launch of CO: Lab, Tic:Toc founder and CEO, Anthony Baum, said while major lenders continue to tighten lending to small businesses, Tic:Toc has specifically broadened its home loan suite to offer digital home loans to many more Australians, including a broader range of self-employed professionals and small business owners.
“More than 17% of Australians work for themselves, so it’s important home loans keep pace with the shifting workforce to support self-employed customers. “Australia’s self-employed and small business owners have traditionally endured a notoriously difficult home loan process, with an often impractical burden to provide large amounts of documentation.
“Our partnership with La Trobe Financial, one of Australia’s longest operating and leading non-bank credit specialists, has created a broader set of loan options via Tic:Toc’s streamlined home loan assessment and approval technology. This means business owners and self-employed customers now have more loan options, with less hassle and at a lower cost.
“For example, a business owner can use the equity in their home to invest in their business at home loan prices. This could save them up to around 6% per year on standard business loans from the major banks, and they can apply and be approved the same-day via our award-winning online platform.
La Trobe Financial President and CEO, Greg O’Neill said, “As a key shareholder in Tic:Toc, we’re excited to partner with Tic:Toc in developing and launching digital CO:Lab home loans and bring this unique digital approach to market for Australia’s business owners needing finance at such a very important time in the credit cycle. “As one of Australia’s longest operating and leading non-bank credit specialists, we want to support innovation in our industry. We are very proud to back Tic:Toc as they embrace smarter and more customer centric ways to assess and secure home loan and other finance for a broader range of clients moving forward.
Australian fintech Tic:Toc – the world’s only fully digital home loan platform – has announced Bendigo Bank will use Tic:Toc’s proprietary technology to power its own instant home loan, Bendigo Bank Express.
The white label partnership will allow Bendigo Bank to be the first Australian lender offering a digital home loan application and assessment process under its own brand, accelerated with Tic:Toc technology.
Tic:Toc launched the World’s first instant home loan™ in July 2017, and is now collaborating with financial institutions to offer their platform as a service; helping bring traditional home loan processes up to speed.
Tic:Toc’s technology offers customers a streamlined digital fulfilment process, while lenders benefit from significant efficiencies in the way they can originate home loan customers. The automated assessment strips cost from the process and delivers higher responsible lending standards via inbuilt reg-tech and digital validation of income and expenses.
Announcing the agreement, Tic:Toc founder and CEO, Anthony Baum, said most importantly, the customer will be the ultimate beneficiary of the collaboration between financial institutions and fintechs.
“Tic:Toc is changing the customer experience when it comes to home loans. It’s no longer necessary to wait weeks for home loan approval, when it can be done digitally and conveniently.
“There’s actually not much difference between home loan options. But there can be a big difference in how that home loan is delivered, and the experience for the customer.
“Our automated assessment and approval technology also creates dramatic cost efficiencies for lenders.
“You only need to look to the United States to see how a digital home loan can change a market: Quicken Loans is now America’s largest home loan lender after launching their online product, Rocket Mortgage.
“Our partner, Bendigo and Adelaide Bank, shares our passion for great customer outcomes, so we’re delighted the Bank has chosen Tic:Toc to offer its customers a truly digital experience, if they want it.”
Bendigo and Adelaide Bank Managing Director, Marnie Baker said, “Our partnership with Tic:Toc is another example of Bendigo and Adelaide Bank investing in innovative technologies to offer Australian consumers more choice, and ultimately, better digital experiences.
“Our strategy means we can provide the best solution to customers by selecting the right partner to offer the right services to meet our customers’ needs and make it easier for them to do business with us. Fintech disruption, combined with banking innovation, is helping us drive better outcomes and we consider relationships with fintechs, such as Tic:Toc, as a mutually beneficial strategy.
“We believe we can grow our business through our vision of being Australia’s bank of choice and we will do this by providing new and existing customers with valued and relevant products and services, all while investing in new capability and innovation,” she said.
Bendigo Bank Express will be available to customers in early 2019.
Since its launch, Tic:Toc has received more than $1.6 billion in value of submitted home loan applications. While the white label product will be available directly from Bendigo Bank, the multi award-winning home loans originated by Tic:Toc are already available throughout Australia at tictochomeloans.com.
I discuss the current dynamics of the mortgage industry with Founder and CEO Anthony Baum today. See my earlier post on their business model.
Please consider supporting our work via Patreon
Please share this post to help to spread the word about the state of things….
Australian fintech Tic:Toc, has today announced a reduction in its fixed home loan (live-in) rates by up to 0.10%, bringing their headline 1-year fixed rate to 3.59% (comparison rate 3.64%).
I discussed this rate price move and the current dynamics of the mortgage industry with Founder and CEO Anthony Baum today. See my earlier post on their business model.
Tic:Toc’s 2-year fixed home loan (live-in) will match their standard variable rate at 3.64% (comparison rate 3.65%).
The rate cut increases Tic:Toc’s standing as holding the lowest 1 and 2 year fixed rates in the market (27 August, https://www.finder.com.au/home-loans/fixed-rate-home-loans), possible due to the cost efficiencies in Tic:Toc’s automated assessment and approval platform.
Tic:Toc founder and CEO, Anthony Baum, said the decision to reduce fixed rates was great news for home loan customers and new home buyers looking for stability for the foreseeable future.
“We recognised there is a lot of confusion in today’s market; with slumps in house prices; out of cycle rate changes; and erratic predictions around interest rate rises.
“Helping Australians better manage their home loan repayments, or move into home ownership, is our priority, and we want to do so with full transparency.”
Since its launch, Tic:Toc has received over $1.3billion in value of submitted home loan applications.
The home loans originated by Tic:Toc and backed by Australia’s fifth largest retail bank, Bendigo and Adelaide Bank, are available throughout Australia at tictochomeloans.com; with the latest fixed rates advertised at www.tictochomeloans.com/instant-fix.
Australian fintech Tic:Toc, the world’s only fully digital home loan platform, today announced it has closed its Series B round, raising $11.5M in funding.
The Series B funding, led by Genworth Mortgage Insurance Australia Limited (Genworth Australia) and Blackstone group entity La Trobe Financial, includes both new and existing investors and adds significant depth to the Tic:Toc share register, which also includes Bendigo and Adelaide Bank.
The funding will allow Tic:Toc to further advance the capability of its platform as well as build greater brand awareness. It will also partially fund Tic:Toc ’s pending expansion into offering its automated assessment platform as a service to partners, as well as exploration of select international markets.
Tic:Toc founder and CEO, Anthony Baum, said the successful funding round was a key step forward for the business as it enters a new phase of growth.
“Tic:Toc has seen an overwhelmingly positive response since we launched in July last year. We’re thrilled to have closed a second successful funding round after our initial capital raise in May 2017, and bring on such high calibre institutional shareholders.
“The funds will support the organic growth we are experiencing, but also allow us to further invest in our business for strategic growth.
“We want to relentlessly pursue and embrace new technologies to ensure Tic:Toc remains the radical and smarter way to secure home finance, and this funding allows us to do that” said Baum.
Genworth Australia CEO & Managing Director, Georgette Nicholas said, “We are excited to be part of the Tic:Toc venture which aligns with us looking for innovative ways to provide lenders mortgage insurance.”
Blackstone Portfolio Company La Trobe Financial President and CEO, Greg O’Neill, stated “We’re thrilled to support Tic:Toc as they define a new category in home finance – automated home loan assessment and approval.
“At a time when lending is under scrutiny for outdated practices, Tic:Toc’s unique approach to home finance will benefit the market significantly and is deployable and scalable. We look forward to partnering with Tic:Toc on a range of opportunities.”
Genworth Australia is an ASX listed company and is the leading provider of lenders mortgage insurance in Australia.
La Trobe Financial is part of US investment giant US$450 billion Blackstone Group L.P. based out of New York.
Baum said the Series B funding was also an opportunity to continue to deliver on its promise to customers: “We firmly believe in providing our customers a faster, simpler and more transparent way to get a home loan, and to a larger extent, redefining the home finance landscape on a world stage,” said Baum.
Since its launch, Tic:Toc has amassed a loan portfolio of more than $170 million and received over $1.2 billion in value of submitted home loan applications. It has also grown its team substantially to nearly 50 people, and with new partner and growth opportunities, is looking to grow its team to 200 people by 2020.
The home loans originated by Tic:Toc and backed by Australia’s fifth largest retail bank, Bendigo and Adelaide Bank, are available throughout Australia at tictochomeloans.com; with variable comparison rates from 3.65% for live-in, principal and interest home loans
The CEO of online mortgage lender Tic:Toc Home Loans says that no human judgement need enter the equation when it comes to assessing the expenses of a mortgage applicant.
With the first weeks of the banking royal commission now behind us, Tic:Toc founder and CEO Anthony Baum believes it has become clear that there is an opportunity for the mortgage industry to reconsider how customers are assessed for finance.
“One key flaw that’s been exposed is the failure to conduct basic checks and balances on the applicants’ household expenses. This includes instances where judgement on a customer’s borrowing capacity has been handed to a raft of questionable third parties,” the CEO said.
“The truth is, no human judgement need enter the equation when it’s possible to check up to a year of personal expenses at the click of a button. There’s no grey area for the vast majority of cases.
“It really is that simple — and quick. For the exceptions, a combination of digital and human assessment is the most efficient and responsible way to assess a customer. Plus, automated assessment makes the whole approval process far cheaper, and faster, for a bank than the current process.”
Tic:Toc Home Loans is one of a growing number of new entrants aiming to simplify the mortgage process by harnessing digital technologies and online channels.
Unlike some fintech players looking to disrupt the home loan market, Mr Baum has extensive industry experience, having led Bendigo and Adelaide Bank’s third-party business for close to four years.
The threat of digital disruption has increased for brokers in recent years. However, many still believe that face-to-face contact with a mortgage professional will continue to be the preferred choice for Australian borrowers.
“My opinion is home loans are not actually as complicated as the industry makes out,” Mr Baum said. “They are really a means to an end, which is more a utility-style product.
“As the CEO of an online home loan company that bases its work on the latest financial technology, I find it hard to get behind the idea that generic reference points, such as the Household Expenditure Measure, and personal judgement are being used as an integral part of the approval process, especially now we are hearing about the true cost for those on the receiving end of the so-called ‘Liar Loans’.
“The royal commission is looking at historical banking issues. And while it is vitally important we expose nefarious practices to sunlight, my concern is that there will be no industry-wide visionary leadership and legislative framework as an outcome. This is the industry’s opportunity to create a future strategy that leverages the data and technologies available to the benefit of the customer, increases the relevance of Australian financial services globally, and protects everyday Australians in the process.”
Mr Baum believes that the onus is on industry players, banks, technology providers and the government to ensure real change is enacted.
“I may make myself deeply unpopular for saying this, but that needs to include far tighter compliance, regulation and independent oversight,” the CEO said, adding that Tic:Toc would like to see legislation around data capture, storage and usage within an institutional environment.
“Data is the new cash in a banking environment, yet, other than privacy, there’s limited regulation to guard it in the same way as we do a vault. Plenty of companies are doing the right thing, but until there’s a compliance structure in place, many players, large ones included, will continue to flaunt the guidelines for their own gain.”
The Australian Financial Review is reporting that New ‘liar loans’ data reveal borrowers more stretched than some lenders suspect.
One in five property borrowers are exaggerating their income and nearly half understating their spending, triggering new concerns about underwriting standards and vulnerability to sharp economic corrections, according to new analysis of loan applications by online property lender Tic:Toc Home Loans.
The number of ‘liar loans’ exceeds original estimates by investment bank UBS that last year found about 30 per cent of home loans, or $500 billion worth of loans could be affected.
Tic:Toc Home Loans’ founder and chief executive, Anthony Baum, said loan applications are representative of larger lenders in terms of location, borrower and loan size, which range from about $60,000 to $1.3 million.
Mr Baum, a senior banker for nearly 30 years, said in many cases applicants did not have to over-state their income for the required loan.
“Our portfolio looks like other organisations,” he said.
Analysis of their applications reveals about 20 per cent overstate their income, typically by about 30 per cent, and 50 per cent state their expenses are lower than the Household Expenditure Measure, also by about 30 per cent.
Property market experts claim the latest analysis, although based on a smaller sample than UBS’s survey, are credible and consistent with independent analysis of the lending standards.
“They do not surprise me,” said Richard Holden, professor economics at University of NSW Business School, who argues the potential problems are compounded by more than one-in-three loans being interest only.
Martin North, principal of Digital Finance Analytics, an independent consultancy, also backed the latest ‘liar loan’ numbers.
Mr North said standards had slipped because of lenders’ readiness to “jump over backwards” to increase business and commission incentives for mortgage brokers rewarding bigger loans.
“Not all lenders are the same but these numbers do not surprise me at all,” he said.
Mr North said there was strong evidence that salaries are overstated by between 15 and 20 per cent by borrowers using a range of tactics, such as over-stating bonuses or, for variable income earners, using peak rather than average income.
Australian fintech Tic:Toc, today announced their world first instant home loan platform will be made available to customers purchasing or refinancing properties in Tasmania. We featured the firm in a recent Fintech Spotlight.
The online home loan, which uses a digital decisioning system to assess and approve finance in as little as 22 minutes, launched in July 2017 and initially excluded Tasmanian and Northern Territory properties from being eligible for finance.
The expansion coincides with the latest results from CoreLogic RP Data, which shows Hobart has had the largest increase in home value year on year at 11.49%, ahead of Melbourne (10.10%) and Canberra (5.84%).
Mainlanders have accounted for 23% of sales in Tasmania to date (REIT), with gross value of sales up 22.7% on last year at the end on the September quarter, putting the Tasmanian real estate market on track to for its highest ever accumulated market value of sales.
Tic:Toc CEO Anthony Baum said while the expansion had nothing to do with the buoyant Tasmanian market, he is pleased that Tic:Toc can now help people purchase Tasmanian properties via a faster and more cost effective home loan offering.
“We have had a lot of customer enquiry about purchasing property in Hobart – particularly from investors living in NSW – and we’ve had to turn them away, until today.
“We’re so excited to now be able to assist these customers get a better home loan experience online, with all of the unnecessary costs stripped from the process.
“We wanted to bring Tic:Toc to as many Australians as possible, as soon as possible, which meant not having a solution to verify customers’ identities at settlement in Tasmania at launch. We’ve worked hard to ensure Tasmanians and those investing in Tasmanian property can now benefit from Tic:Toc too.”
The home loans originated by Tic:Toc and backed by Australia’s fifth largest retail bank, Bendigo and Adelaide Bank, are now available throughout Australia at tictochomeloans.com; with variable comparison rates from 3.59% for live-in, principal and interest home loans.
Just five months from launch, Tic:Toc has already processed more than $340M worth of loan submissions Australia wide and were one of only ten Australian companies globally recognised in the recent KPMG and H2 Venture’s Fintech 100.
This time, in our occasional series where we feature Australian Fintechs, we caught up with Anthony Baum, Founder & CEO of Tic:Toc.
Whilst there are any number of players in the market who may claim they have an online application process for home loans, the truth is, under the hood, there are still many manual processes, workflow delays and rework, which means the average time to get an approved loan is often 22 days, or more.
But Tic:Toc has cracked the problem, and can genuinely say they can approve a loan in 22 minutes. This represents a significant improvement from a customer experience perspective, but also a radical shift in the idea of home lending, moving it from a “specialised” service which requires broker or lender help, to something which can be automated and commoditised, thanks to the right smart systems and processes. Think of the cost savings which could be passed back to consumers!
But, what is it that Tic:Toc have done? Well, they have built an intelligent platform from the ground up, and have turned the loan appraisal on its head, through a five-step process.
The first step, when a potential customer is seeking a home loan, is to start with the prospective property. The applicant completes some relatively simple details about the home they want to purchase or refinance, and the system then applies, in real time, some business rules, including access to multiple automatic valuation models (AVMs) to a set confidence level, to determine whether a desktop valuation, or full valuation is required to progress, or whether the prospective deal is within parameters. If it is, the application proceeds immediately to stage 2. In the case of a refinanced loan, this is certainly more often the case.
In the second step, the business rules at Tic:Toc focus on the product. They have built in the responsible lending requirements under the credit code. This means they can apply a consistent set of parameters. This approach has been approved by ASIC, and also been subject to independent audit. Compared with the vagaries we see in some other lender and broker processes, the Tic:Toc approach is just tighter and more controlled.
Up to this point, there is no personal information captured, which makes the first two steps both quick, and smart.
In step three, the Tic:Toc platform takes the application through the eligibility assessment by capturing personal information and verifying it through an online ID check, and then makes an initial assessment, before completing a financial assessment.
In step four, for the application to progress, the information is validated. This may include uploading documents, or accessing bank transaction information using Yodlee to validate their stated financial position. Tic:Toc says their method applies a more thorough and consistent approach to the financial assessment, important given the current APRA focus on household financial assessment and spending patterns.
After this, the decisioning technology kicks in, with underwriting based on their business rules. There is also a credit underwriter available 7 days a week to deal with any exceptions, such as use of retirement savings.
The customer, in a straightforward case if approved, will receive confirmation of the mortgage offer, and an email, with the documentation attached, which they can sign, and send the documents back in the post. So, application to confirmed offer in 22 minutes is achievable.
The lender of record is Bendigo and Adelaide Bank, who will provide the loan, and Tic:Toc has a margin sharing arrangement with them, rather than receiving a commission or referral fee. Of course the subsequent settlement and funding will follow the more normal bank processes.
Since starting a few months ago, they have had around 89,000 visits from some 66,000 unique visitors and in 4 months have received around $330m of applications, with a conversion of around 17% in November. Anthony says that initially there had been quite a high rate of people applying who were declined elsewhere in the first few weeks, but this has now eased down, and the settlement rate is improving. They also had a few technical hiccups initially which are now ironed out.
In terms of the loan types, they only offer principal and interest loans (though an interest-only product is on the way), and around 50% of applications are for refinance from an existing loan. Around 75% of applications are for owner occupied loans, and 25% from investors.
The average loan size is about $433,000. However, there are significant state variations:
In the short time the business has been up and running, they have managed to build brand awareness, receive a significant pipeline of applications, and lay the foundation for future growth. The team stands at 40, and continues to grow.
The firm also has won a number of innovation awards. They have been listed in the KPMG and H2 Venture’s Fintech 100 (as one of the emerging stars); was a finalist, Best Banking Innovation in the Finder 2017 Innovation Awards; and a standout (and case study), in the Efma Accenture Distribution & Marketing Innovation Awards.
Looking ahead, Tic:Toc is looking to power up its B2B dimension, so offering access to its platform to broker groups and other lenders. Whilst the relationship with Bendigo and Adelaide Bank has been important and mutually beneficial, they are still free to explore other options.
In our view, the Tic:Toc platform and the intellectual property residing on it, have the potential to change the home lending landscape. Not only does it improve the risk management and credit assessment processes by applying consistent business rules, it improves the customer experience and coverts the mysterious and resource heavy home loan process into something more elegant, if commoditised.
Strangely, within the industry there has been significant misinformation circulating about Tic:Toc, which may be a reaction to the radical proposition it represents.
Reflecting on the conversation, I was left with some interesting thoughts.
First, in this new digital world, where as our recent Quiet Revolution Report showed, more households are wanting a better digital experience, it seems to me there will be significant demand for this type of proposition.
But it does potentially redefine the role of mortgage brokers, and it will be a disruptive force in the mortgage industry. I would not be surprised to hear of other lenders joining the platform as the momentum for quicker yet more accurate home loan underwriting grows.
As a result, some of the excessive costs in the system could be removed, making loans cheaper as well as offering a quantum improvement in customer experience.
Time is running out for the current mortgage industry!
