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Better.com’s Vishal Garg talks the future of banking, tech stacks and a customer-friendly IPO

In a one-on-one conversation with FinLedger's Mary Ann Azevedo, Garg also revealed how much business the digital lender is doing these days

Though he wouldn’t comment on recent reports that he is raising $100 million in capital at a $4 billion valuation, Better.com CEO Vishal Garg had no qualms on Thursday in outlining his vision for an eventual public debut.

Garg, a serial entrepreneur who founded the digital-only lender in 2014, revealed at LendIt Fintech’s USA 2020 virtual event that his company is now profitable.

“I can’t comment about any other fundraising, other than to say Better today is actually fundamentally profitable, with enviable profit margins and profit, not like startup-fuzzy-math-profit but actually like, the cash balance in your bank account goes up every month profit,” Garg said. “So, I’m proud to say that Better’s customers are funding our growth.”

He added that Better, which is backed by funding from Goldman Sachs, Kleiner Perkins, Ping An Insurance, Citi and American Express, among others, wouldn’t be edging out customers when it eventually IPO’s.

“We’ll do it when it’s right,” he told the moderator, FinLedger Managing Editor Mary Ann Azevedo. “One of the core tenets of American capitalism is the ability for your customers to buy your stock. If I like Coca Cola, I can buy Coca Cola stock. If I use Microsoft products or Apple products, I can buy Apple stock. I think that trend of startups holding out ’til the growth slows and the consumer can’t participate in disruption is actually a bad one, and I think it leads to bad outcomes.”

The one-on-one conversation with Azevedo touched upon the structure of Better’s strategic partnerships, the future of retail banking, how COVID-19 has changed the fundamentals of business, and the proper integration of a tech stack.

Garg told Azevedo that before the pandemic, Better was processing about $1.2 billion a month in loans. “We are now funding over two-and-a-half billion a month of loans,” he said, adding that Better has gone from 1,500 staffers to about 4,000 across the globe. “When the pandemic started we were doing less than sort of like $50 million a month of revenue. We’re two-and-a half times that now.”

During the discussion, Garg offered his take on the future of retail banks, and where he sees the strongest market opportunity.

He took a shot at some of the traditional large banks that he maintains haven’t innovated and aren’t prepared for a digital economy.

“A lot of them are just like old school like grocery or department stores –they have branches on streets, like no one’s going into those branches!” he said. “They’ve got the deposit but their loan books are running off, and they’ve got to decide whether they’re going to be the JC Penney or Kmart or Sears, of banking.”

Though he said challenger banks are intriguing, “the problem is that the bulk of their customer base isn’t developed yet, they are using those as easy deposit tools, and spending tools. So the challenger banks have a terrific business collecting that one-and-a-half percent interchange and providing a whole bunch of banking services for free. But those customers are not yet progressed enough in seeking to purchase a home and having the downpayment and the savings and all that stuff for it. So we haven’t seen a lot of partnerships there. What we’ve seen is partnerships with large-scale financial institutions that are away from the traditional like Big Five banks, away from the Citi, Chase, Wells, BoA.”

He told Azevedo that they’re looking to do business with banks “number five through number 50,” largely because the largest banks have not invested in the mortgage space in the last decade. By contrast, the next tier have upsized and a “sizable customer base who need now, considering that the spread on under deposits versus their loans has come down so substantially, the net interest margin. They need to be able to sell more products to their customers to be able to offer the goods and services.”

As for the tech stack, he said, “We basically tell the bank, you can do this as long as you touch nothing.”

According to Garg, the customer ports over his/her data via API, which allows Better to get the data out of various loans the customer has across various banking systems that don’t talk to one another.

“And for most of our bank partners, we are the one place where they have a unified customer record,” he said. “So we take that data, we’re able to use it to help the customer access homeownership in a much faster, more affordable, far superior, far more accessible way. And then, we’re able to, if the bank wants to onboard those loans onto their balance sheet, let the bank buy those loans from our platform, or if the bank wants us to deliver those loans to Fannie Mae, Freddie Mac or the institutional market, we’re able to let them do that.”

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