Blend Expands Beyond Mortgage Banking | Fintech Focus

Blend's Expansion into New Financial Markets

Established in 2012, Blend has successfully partnered with major banking institutions nationwide, including prominent names like Wells Fargo and U.S. Bank, alongside numerous smaller, conventional financial organizations throughout the United States.

The company is now focusing its efforts on the startup and fintech sector, aiming to facilitate lending and banking operations for emerging, rapidly expanding digital lending companies.

Initial Focus on Mortgage Digitization

Blend initially became a public company a short time ago, and its original offering centered around software engineered to streamline and digitize the mortgage lending experience for both applicants and lenders.

Over time, the company has broadened its offerings in two significant areas. First, it has extended its reach within the homeownership process.

Expanding the Homeownership Experience

Blend now provides resources for applicants to secure homeowners insurance, title insurance, and even connect with real estate agents directly through its mortgage application process.

Diversification Beyond Mortgages

The second key expansion involves a new range of services that extends beyond mortgages, encompassing deposit accounts, credit cards, and support for various loan types such as personal, home equity, and auto loans.

According to Blend founder Nima Ghamsari, this diversification is intended to deliver a unified platform for its clientele.

“While the underlying principles for these products are similar, traditional institutions often maintain separate and isolated organizational structures and technology systems,” Ghamsari explained.

“Over the past four years, we’ve developed our platform to serve as a central hub for consumers interacting with a financial institution across all its products. Currently, customers can access up to five different products through Blend, a capability that wasn’t previously possible within a single system.”

Accelerated Onboarding and Customization

By leveraging existing components from mortgage origination, including KYC (Know Your Customer) and AML (Anti-Money Laundering) checks, as well as identity, income, and employment verification, Blend’s consumer banking suite accelerates the onboarding and application procedures for banking, credit card, and loan products.

Furthermore, the company has introduced “Blend Builder,” a tool enabling customers to personalize the components they utilize through a user-friendly drag-and-drop interface.

Expanding Customer Reach Through Innovative Platforms

Banks can benefit from new capabilities that integrate their mortgage origination systems with essential banking services and other record-keeping systems. This integration streamlines back-end management and delivers a more fluid experience for users.

For fintech companies, the Blend platform facilitates the rapid development and launch of new products and services, shortening development cycles and accelerating market entry. Blend has already gained adoption among both emerging startups and established fintech competitors, even without directly targeting these companies with its mortgage and banking solutions.

Ghamsari noted that while these components are highly valuable to traditional financial institutions, an increasing number of fintechs are seeking a flexible platform to quickly establish operations, rather than constructing everything from scratch.

Among Blend’s proptech clients are publicly traded companies like OpenDoor and Zillow, alongside a growing number of startups that have secured substantial funding in the past year. These include Homeward ($371 million), Reali ($250 million), Accept ($90 million), Bilt ($60 million), and UpEquity ($50 million).

Considering Blend’s origins, it’s unsurprising that many of these companies concentrate on mortgage loan origination. UpEquity, for example, provides cash offers for homes on behalf of borrowers and expedites mortgage closing times, utilizing Blend for both the customer-facing application and back-end data gathering.

UpEquity CEO Tim Herman stated that Blend delivers a smooth user experience and a readily deployable front end for their customers. He further emphasized Blend’s success in developing the asset and income verification tools crucial to UpEquity’s decision-making and underwriting processes.

However, fintechs aren't limited to the mortgage sector to leverage Blend’s technology, particularly its consumer banking and credit card offerings. Bilt, which offers a rewards program for renters using its credit card for rent payments, initially adopted Blend to streamline its card application process.

Ankur Jain, Bilt’s founder, explained that his company was simultaneously developing a loyalty program and a payment processing platform for rent payments across numerous apartments nationwide.

“Having to recreate integrations with credit bureaus for credit checks or identity verification would have been incredibly demanding,” Jain said. “These tasks aren’t central to our business, so collaborating with a partner like Blend for the card component significantly accelerated our progress.”

While Blend doesn’t position itself within the banking-as-a-service category, its comprehensive product suite positions it to potentially capture a portion of that market, especially among startups focused on mortgages or lending.

Advantages of Targeting the Fintech Sector

Blend has consistently demonstrated success in attracting banks and mortgage lenders to utilize its offerings. According to the company’s second-quarter earnings, they currently serve 32 of the 100 largest U.S. financial institutions based on assets under management, alongside 28 of the top 100 non-bank mortgage lenders in the country.

However, a strategic shift towards startups is now evident. What motivates this change in focus?

Primarily, the fintech startup landscape represents a substantial and rapidly expanding market. Data from CB Insights indicates that investors committed $31.3 billion to fintech startups during the third quarter alone. Fintech funding in 2021 has already surpassed the total investment from the previous year, with no indication of a slowdown in private market investment.

Crucially, the fintech sector is poised to drive significant future expansion within the financial services industry. Establishing a presence with emerging fintech companies provides Blend with a pathway to long-term business growth. Ghamsari emphasizes that even a high failure rate – anticipating that 90% of current fintech clients may not endure – the remaining 10% are likely to become a dominant force in their business.

“Undoubtedly, some fintech companies will cease operations,” Ghamsari acknowledged. However, he further stated, “It would be imprudent to avoid investing in a sector or withholding our product simply due to potential impacts on churn rates.”

Furthermore, the increasing digitization of banking, lending, and payments is expected to accelerate industry consolidation and the blending of service offerings. For example, a neobank currently providing banking and debit card services may broaden its portfolio to encompass credit and lending products over time.

Conversely, an online mortgage lender could potentially integrate banking or digital wallet functionalities into its business model. “Our objective is to function as a comprehensive platform for the entire financial industry,” Ghamsari explained. “The structure and composition of this industry will inevitably evolve over the next decade.”

Strategic Implications for Blend

• Market Growth: The fintech market offers substantial opportunities for expansion.
• Future-Proofing: Investing in startups positions Blend for long-term success.
• Industry Consolidation: Blend aims to be a central platform as services converge.

Blend’s strategy reflects a forward-looking approach, anticipating the dynamic changes within the financial services ecosystem and positioning itself to capitalize on emerging trends.