Clock ticking on ‘broken’ mortgage market: Tic:Toc boss warns

Anyone who has taken out a home loan or refinanced recently can attest to the fact that it is a tedious and time-consuming process.

To get a detailed picture on your finances, banks require detailed information about your income and expenses, which sometimes gets manually inspected, line by line. It can drag on for weeks in a complex case.

Anthony Baum, founder and chief executive of fintech Tic:Toc.Credit: Ben Searcy

Anthony Baum, founder and chief executive of fintech Tic:Toc, had an up-close view of just how cumbersome this process could be in a former job as an executive at Bendigo and Adelaide Bank, where he worked in the 2000s. “It’s where I saw how broken the process was,” he says. “Home loans were the worst process, the most expensive process, and that’s kind of how we got here.”

After moving to a fintech, Baum says he realised how much big data and automation could speed things up, saving customers time and slashing the lender’s costs.

The result is Tic:Toc, one of several digital lenders such as Athena Home Loans and Nano that are trying to take a bite out of the biggest profit pool in Australian banking: the $1.9 trillion home loan market.

It is an ambitious goal, and these small players have a fight on their hands in taking on the powerful incumbents of the Australian banking sector.

But if Baum is right, the biggest source of Australian bank profits is on the cusp of a major shake-up.

Currently, he says only 3 to 6 per cent of new loans are approved digitally, compared with more than 35 per cent in the United States. He is betting the disruption in mortgages will follow the dramatic pattern seen in the US, where digital home loans went from 6 to 7 per cent of the market in 2012, to 33 per cent in 2017.

“Over five years it went bang,” Baum says. “I think it’s going to happen here. I think it has started here.”

Of course, plenty of non-bank lenders and foreign banking giants have sought to challenge the might of the big four’s in retail banking before, with limited success.

Tic:Toc is different in that it is not trying to manage the balance sheet risk. Instead, it provides software that approves loans that are then held by Bendigo and Adelaide Bank. It makes most of its revenue by receiving a margin on top of the cost of funds it receives from Bendigo.

‘Over five years it went bang [in the US] I think it’s going to happen here. I think it has started here.’

Anthony Baum, Tic:Toc founder

Evans and Partners analyst Matthew Wilson says the disruption facing Australia’s mortgage market from the likes of Tic:Toc will be slower than the US, but it is still likely to occur over the next five to 10 years.

“If you can do something really efficiently, and it’s all on your handset, that’s going to really appeal to generation Z and generation Y,” Wilson says.

“Tic:Toc is a very efficient factory,” he says. “That very efficient factory could be used by multiple players to distribute home loans.”

The company is also notable for the financial institutions it counts as shareholders, including Bendigo and Adelaide Bank, Insurance Australia Group, Genworth Mortgage Insurance, alongside Baum and the management team. The fintech expects to be profitable this financial year, and Baum says it is eyeing a sharemarket float in the next two to three years.

Born and bred in Adelaide, Baum launched Tic:Toc after a career that included stints in investment banking in London, as an executive at Adelaide Bank, and at a fintech called ThinkSmart. A keen surfer, he has been married to Vicki for almost 30 years, and has two young adult daughters.

After training as an economist, Baum got a taste of the risks in banking as a graduate, when he joined the State Bank of South Australia the same year it collapsed.

Former ME Bank chief executive Jamie McPhee, a friend and former colleague who is also from Adelaide, has known Baum for at least 20 years. “He’s got a good head on his shoulders, he really understands risk, he’s got quite an entrepreneurial spirit,” McPhee says.

McPhee, who is also an investor in Tic:Toc, says there is a big opportunity to improve the customer experience in mortgage lending, and recent gains in market share have gone to lenders that can approve loans quickly.

Baum says Tic:Toc’s fastest full loan approval was in 58 minutes, and quick approvals like this will become much more common once a data regime known as open banking is more widely used.

”As open banking evolves, and as our data enrichment and automation models get better and better, then absolutely we will be at the point where the majority of Australians can do a paperless home loan in real time in an hour,” he says.

So far, Tic:Toc has a market share of about 0.5 per cent of loans issued each month, roughly on par with the share of flows going to foreign banks such as Citi or HSBC. Baum is confident it can double that share to 1 per cent of flows within a year, after it recently signed a $25 billion funding deal with Bendigo.

While 1 per cent of a market may not sound like much, Baum argues that it is between 7.5 and 10 per cent of new lending flows in the fast-growing digital home loan market.

Of course the established banks will not cede ground in their most lucrative market without a fight, and the Commonwealth Bank will launch its own digital mortgage in the coming months.

‘He’s got a good head on his shoulders, he really understands risk, he’s got quite an entrepreneurial spirit.’

Jamie McPhee, former ME Bank CEO

But despite this competition, with more to come, Baum argues Tic:Toc will benefit as more big banks promote digital home loans because it is already an established digital lender. “A rising tide carries all boats,” he says.

What about its name, Tic:Toc, and its similarity to the social media platform TikTok? Baum prefers not to discuss this in detail but says it is not a problem for the fintech and plays down the possibility it could lead to confusion among customers.

“Our growth and the fact that a third of our customers are via recommendations from existing customers, so word of mouth, tells us that what we’re doing overall is working,” he says.

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