Millennial-centric fintech lender MoneyMe has hit some impressive milestones in 2017. In addition to reaching $150 million in loans funded, the North Sydney startup received a $120 million capital injection and debuted on the coveted Fintech100 list, placing it amongst the world’s most innovative fintech companies. Despite reaching lofty heights, co-founder and CEO Clayton Howes believes MoneyMe can soar even higher next year.
The entrepreneur spoke to Dynamic Business about the pain points MoneyMe addresses for millennials, and how he and co-founder Steve Bannigan plan to build on the four-year-old company’s momentum. He also explained MoneyMe’s “orchestrated, methodical approach” to securing a $120 million capital facility – $100 million from Fortress Investment Group plus $20 million in bonds issued by corporate advisory Evans & Partners – last month.
DB: What is the elevator pitch for MoneyMe’s core service?
Howes: We provide unsecured personal loans to customers with a very broad range of risk profiles. We do this completely online, with the simplicity, speed and convenience that today’s digitally-savvy consumers demand.
DB: What motivated you and Steve to launch the startup?
Howes: Steve and I saw an opportunity to create a likeable brand for millennial consumers in circumstances where they had become increasingly disenfranchised by the way in which banks approached loans. Specifically, banks haven’t adapted to the contemporary spending and finance consumption patterns of millennials; instead, they’ve continued to base their lending decisions solely on negative credit reporting.
This problem has been compounded by the lack of transparency and flexibility around consumer credit. For instance, millennials have been penalised for being discerning. By that, I mean that shopping around for credit online is, in some cases, negatively affecting their credit worthiness. You might look for a credit card with American Express, move on to Visa, then visit MoneyMe’s website. Well, the credit reporting bureaus have access to this data and they will penalise you for excessive credit enquiries. Rather than understanding that you’re simply shopping around for the right credit instrument, a bureau would look at this journey and simply think everyone is saying ‘no’ to you. Consequently, there is a whole class of consumers who have lower scores from higher enquiries but who are otherwise strong when it comes to the fundamentals.
With MoneyMe, Steve and I resolved to develop a more nuanced approach where lending decisions are based on a consumer’s true risk profile, not a one-size-first-all model. In other words, we don’t just consider an applicant’s credit score, we also take into account their past history with us, their income and their spending patterns.
DB: How are you marketing MoneyMe to your target audience?
Howes: We use style, language, media that is relevant to tech-savvy millennials who don’t like the idea of being sold to. We want to be stylish, fresh and relevant without trying too hard because they can spot that a mile off.
DB: What’s the significance of your deal with Fortress?
Howes: Striking a $100 million deal with a single investor, let alone the right investor, is by no means an easy feat for a four-year-old business like MoneyMe. The deal with Fortress came together over the space of nine months. In them, we’ve found a like-minded partner who has scale and can support us as we grow.
The $100 million facility provided by Fortress is the first part of a tranched-investment, with the next will likely be a $250 million facility. The initial $100 million will enable us to continue growing our loan book and serving more customers. It provides bandwidth for putting more products to market to meet more of the market’s needs.
Just like banks, we need to fund the loans we lend out. Banks fund the loans they write through a combination of customer deposits, as well as borrowing from the wholesale capital markets. We do not take deposits, so we also borrow from wholesale capital markets to fund our loans.
Fortress provides certainty to us, giving us around 18 months of runway. It means that we have the confidence and headroom to continue writing loans, growing our portfolio size, building more products and services, and meeting more of the market’s needs.
DB: How do Evans & Partners fit into the picture?
Howes: Our $120 million facility is structured as a mezzanine facility, common in the debt capital markets. In this structure, there is a senior lender (Fortress @ $100m), junior lender(s) (bonds issued by Evans & Partners @$20m) and MoneyMe’s own contribution. The structure spreads the risks and returns for participants according to their risk appetite and capital contribution.
The senior lender holds the lowest amount of risk (they are paid first) in return for a higher contribution and lower return. The junior lender accepts higher risk. The $20m junior debt through Evans & Partners is a mandatory component of the facility and critical for it going ahead.
DB: With so much funding at stake, was it a tense raise?
Howes: There wasn’t any massive emotional tension because we laid out – and we’re sticking to – a very clear plan for where MoneyMe is heading. The $120 million capital facility is just one of many milestones we’ve accounted for. Had we attempted to lock in investor support sooner, that might not have been the case, it might have been uncomfortable… but we took a very orchestrated, methodical approach.
By that I mean that we went to market with a clear strategy to land the right investors – this involved having a well-crafted information memorandum (IM), having our investment-grade data room which investors are familiar with on hand, and completing our audits well ahead of time to provide investors with confidence. Also, our message was clear, our loan book was trading positively, and we understood the sensitivity points of the investors we were seeking to attract.
DB: How does it feel to be named one of the world’s Top 100 fintechs?
Howes: When I heard the news, it sent chills down my spine. Making it into the Fintech100 report was a proud moment for not just Steve and myself but also our entire team because it’s a very credible acknowledgment of all our hard work. The report also prompted the CEOs of large organisations, across a variety of industries, to contact us and they will be valuable connections moving forward. Of course, now that we’ve made it into the Top 100, we have our sights on entering the Top 50 in 2018.
DB: What strategies will MoneyMe employ to break into the Top 50?
Howes: We’ll continue to expand our brand proposition through the creation of bespoke products that reach consumers banks are incapable of reaching. We’re also making arrangements to assist us with getting our products to market at scale. Now that we’ve got the runway to put money in the market, it’s just a matter of sticking to our plan as it plays out over time. Based on where we are today, and our results for the 2017 calendar year, I think we’re well-positioned to make it into the Top 50 next year.
DB: What are some of the other key milestones reached in 2017?
Howes: In March, we surpassed $100m in loans but today, having serviced 70,000 loans, its somewhere closer to $150 million. We also refreshed our brand, launched our IOS and Android apps and introduced a $15,000 loan product – $15k is a meaningful sweet spot for borrowers who are looking for more substantial spending (e.g. second-hand vehicles, debt consolidation, kitchen renovations, life events).
There are other milestones, which are less exciting to the public but no less significant for us. These include the roll-out of our employee share option plan, enhancing out cybersecurity infrastructure, partnering with a US-based artificial intelligence (AI) provider to bolster our decision making and shifting to a Tier 1 accounting firm (KPMG). All these things demonstrate that we’re moving out of a startup phase and becoming more robust and governance-focused.
See also: Australia has ten Fintechs inside the top 100, Let’s Talk… Fintech and So, you want to become an entrepreneur… Prepare to say goodbye to these five things.