Henry Ford once said, “For most purposes, a man with a machine is better than a man without a machine.” The U.S. financial sector seems to agree. Over the past four years, U.S. funding for fintech companies has more than quintupled, from $3.39 billion in 2014 to more than $14 billion in just the first two quarters of 2018. More than 50 fintech companies globally have reached the $1 billion “unicorn” valuation. Fintech is transforming everything from payment processing to capital formation to investment management. Amidst all this change, we believe the most exciting growth opportunity for fintech is at the intersection of finance and real estate, where entrepreneurs can revolutionize how the world’s largest asset class is financed, traded, managed, and insured.
Progress is underway. The first wave of realty fintech, which dates back to as early as 2006, focused on the massive U.S. residential housing market. The housing market is a logical entry point: it is enormous ($33.3 billion), dominated by expensive intermediaries, and rife with hidden costs and long delays. Entrepreneurs are slowly but surely knocking down those barriers and offering new consumer financial products (or old products at new speeds) at every point in the lifecycle of home ownership. Today, you can get qualified for a mortgage in a matter of minutes (Morty, Better Mortgage), make a cash offer without actually having cash (Ribbon), finance a renovation without resorting to a credit card (Greensky), and get a cash offer on a home online (https://www.zillow.com/).
These companies are forcing incumbents to finally move into the digital age. Take mortgage brokers, for example. Most “digital” mortgage brokers are just old mortgage brokers with a website. A potential customer still sends endless documents to a broker, gets quotes back and has multiple conversations by phone. Uploading is faster than mail, but the process is essentially the same – and possibly less secure. Better Mortgage changes the equation. They take two pieces of data – income and credit – and qualify an applicant for a mortgage within three minutes, with a “verified pre-approval letter” available within 24 hours. Better Mortgage doesn’t originate the loans themselves – yet! They’ve simply figured out a faster way to approve a potential borrower and reduce friction in the market.