P2P mortgage marketplace raises $5 million, as fintechs leave old-school banking in the dust

Another Aussie alternative mortgage lending startup has secured a significant chunk of funding, nabbing $5 million for its peer-to-peer mortgage marketplace.

Funding.com.au has secured the backing from existing investor Equity Venture Partners, with EVP investment director Daniel Szekely also joining the startup’s board.

The lender is focused on short-term, high-value mortgages, and also offers access to mortgage investments, which are typically out of the reach of retail investors.

Founded in 2015, and launched three years later, the startup set out to disrupt the traditional mortgage experience, founder and chief Jack O’Reilly tells SmartCompany.

“The typical borrower experience is a lot of paperwork, and it’s quite a stressful transaction,” he says.

For a lot of people, this is the biggest transaction they will ever complete, he says.

“We’re trying to make it stress-free, hassle-free and really enhance the experience.”

However, the business is also tailored to meet the needs of a new breed of investors.

Banks, family offices and credit funds have typically been able to access mortgage investments, he notes.

“We’ve made the ability for everyday Australians to invest into a mortgage from as little as $5,000, and get the interest on that mortgage,” he explains.

“We went full steam”

Since it launched, Funding.com.au has issued approximately $100 million in loans, to more than 200 borrowers. It also has more than 2,500 registered investors.

O’Reilly is tight-lipped about the revenue growth he’s seen, but he does hint at “multiple million”.

Even amid the COVID-19 pandemic, and the economic upheaval that’s come with it, business is still going strong, says the founder.

March was the startup’s strongest month on record, O’Reilly says, although the jury is out as to whether the virus had anything to do with that.

After securing $3.5 million funding last year, the team “kicked off the year with a big growth path and hiring spree”, the founder says.

“We went full steam … and geared up to March.”

Things did slow down in the first week of April, but the dip didn’t last for long.

“There was a lot of confusion about what was going on,” O’Reilly recalls.

“But after a little bit of settling, we saw a lot of really credit-worthy borrowers being turned away by major banks.”

As banks went into “panic mode”, trying to figure out what the economy might look like in six or 12 months’ time, they started being extra cautious about who they would lend to. Those borrowers were turning to platforms like Funding.com.au.

“We’ve started to see the quality of borrowers picking up,” he says.

“On the other side … the stock market just went up and down like a yoyo,” he adds.

That meant investors were seeing the startup as “a conservative place to park your money”, O’Reilly says.

Les Szekely, chair of EVP, suggested the outbreak of COVID-19 has boosted both sides of the market in which the startup operates.

“Post-COVID it has become harder than ever for investors to secure good yields with good security,” he tells SmartCompany.

“At the same time, borrowers face tough times as lenders have become massively more conservative.

“As a result of these forces we anticipate a big increase in the demand for the type of finance which Funding.com.au can provide.”

Out with the old

Of course, COVID-19 has seemingly driven everything, and everyone, online. That includes investors who may previously have been a tad more traditional with their activity.

Whereas people would usually go into banks to make their mortgage applications, that’s no longer an attractive proposition. Investors are also likely less keen to sit down with a financial advisor or investment fund.

“That old-school touch isn’t there anymore,” O’Reilly suggests.

“I think it will give us a big push into the digital space.”

The industry was moving down that path already, but the virus has “bought it forward two or three years”, he says.

“I’ve had two mortgages, and I think the paperwork is still in a box somewhere — it’s about two inches thick,” he adds.

“It hasn’t traditionally been a pleasant experience.”

Other fintech lenders have already been trying to digitise the process and improve the user experience. Athena Home Loans raised $70 million in October last year for its own solution, and earlier this month Verteva raised $33 million.

We’re very comfortable with other aspects of our lives being online, says O’Reilly. We order food and groceries online, and even apply for credit cards.

“Why is a mortgage any different?” he asks.

“There’s no reason it has to be so painful and stressful.”

There will be fintech players that stand to meet this growing demand, O’Reilly says, and they may well be the leaders in this sector in the future.

The founder predicts that in 10 years or so, the industry will look completely different. Borrowers will be able to secure a mortgage on the same day. Perhaps even within the hour, or within minutes, at the click of a button.

“It will just be completely automated,” he says.

He’s also been considering the possibility of a mortgage that is adaptable to the individual customer, and changes as that person’s life changes.

“Instead of getting one mortgage on a property and then moving on and refinancing because there’s a better rate … [you would have] one mortgage that changes and caters to your needs, as your life changes,” he says.

“It doesn’t make sense that you get a client or a customer as a mortgage lender, only to lose out because another lender is offering a better rate, that you might be offering your new clients.”

A ten-year plan

Funding.com.au will be riding this wave of change, O’Reilly says.

Within the next two to three years, he sees the startup being the market leader in short-term mortgages. The five-to-ten year plan involves expanding into longer-term products, and other underserved areas of the market.

“We champion the borrower that can’t go to the banks,” he says.

“There’s a whole demographic of self-employed borrowers, probably like myself, that need a mortgage that’s outside of the banks, that’s hassle free, and that doesn’t have two inches of paperwork.”

On the investor side, the founder is setting out to make the investment platform “the place for online savings”, he says.

The vision is to make the very concept of investment more accessible, he says.

“It comes down to education and also access.”

Many regular Aussies aren’t across the different investment options that may be open to them, he notes. Even helping them understand the concepts, and the options available to them, is a big part of the value add for Funding.com.au.

It’s also about making the process accessible. Opening an account takes about two minutes, O’Reilly says, and if you want to, you can invest in about five minutes.

“It’s about accessibility for everyone, not just the big banks and the wealthy high-net-worth individuals,” he says.

While there are aspects of the business that could apply overseas, global domination isn’t on the cards just yet; O’Reilly is playing it by ear, he says.

“It’s on the cards, but whether it’s from an investment perspective or a mortgage perspective depends on what the product roadmap looks like, and how it changes over the coming years,” he says.

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