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Calgary-based challenger bank Neo Financial plots move into mortgages

MONTREAL — Calgary-based challenger bank Neo Financial is preparing to expand into mortgages, a move that will allow it to capitalize on a surge in the Canadian real estate market and compete with banks in an area traditionally dominated by large incumbents.

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Calgary-based challenger bank Neo Financial plots move into mortgages

By Jon Victor
A Neo Financial card. Photo: NeoFinancial | Instagram
Sep 13, 2021
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MONTREAL — Calgary-based challenger bank Neo Financial is preparing to expand into mortgages, a move that will allow it to capitalize on a surge in the Canadian real estate market and compete with banks in an area traditionally dominated by large incumbents.

The company is hiring executives with experience in residential mortgages to oversee the new product, building on its existing savings-account and payment-card offerings in a bid to draw customers away from traditional financial institutions and toward its online-only platform.

Talking Point

Neo Financial’s foray into mortgages will add to its product offerings as the online-only bank looks to pick customers away from the Big Six.

“Neo is expanding our product offering to include innovative mortgage products backed by cutting-edge technology,” the job posting for a head of mortgages states. “In this role at Neo, you will be directing, mentoring and collaborating with a growing team of mortgage agents, as well as being the subject-matter expert to inform the mortgage product roadmap and technology.” The company is also hiring a principal broker.

Neo didn’t respond to a request for comment.

Since its creation in 2018 by two co-founders of food-delivery service SkipTheDishes, Neo has raised nearly US$40 million. Its only previous fundraising round was a Series A in December 2020, in which it received investments from Inovia Capital, Breyer Capital, Peter Thiel’s Valar Ventures and Shopify CEO Tobi Lütke. As of April, the company had grown to roughly 230 employees, according to PitchBook.

On its website, the company advertises its relative lack of fees compared with traditional banks, higher interest rates on savings and greater cash-back rewards as potential selling points for clients. Neo says it offers 1.3 per cent interest on funds held in its savings accounts, far higher than the typical rate at Canada’s largest banks, according to the company.

Deposits with the company are insured through a partnership with Concentra Bank, a chartered bank, which holds customers’ funds on behalf of Neo.

Neo’s mortgage product will add to the slew of alternatives for banking-related services that have cropped up over the last few years, including stock trading and buy now, pay later. To fight off the growing competition from fintechs, Canada’s Big Six banks have made partnerships and acquisitions in recent months, in areas such as BNPL, online enterprise payments and APIs for connecting third-party services to bank accounts.

While public details of Neo’s planned product are still scarce, there’s growing competition among fintechs for Canadians’ mortgage business. Nesto, for example, a Montreal-based fintech that counts Power Corporation affiliates Portage Ventures and Diagram Ventures among its key backers, operates an online platform that allows home buyers to obtain a loan, in some cases in as little as a day.

Because it can handle customers in bulk, Nesto is able to offer mortgage rates roughly 0.1 per cent lower than the next-best available rates, co-founder and CEO Malik Yacoubi told The Logic in an interview this summer. Nesto earns a commission on the mortgages from its lending partners, which include TD Bank and Alterna Savings.

By moving into mortgages, Neo will be tapping into a growing market for tech-enabled real estate services at a time when Canada’s housing market has been on a historic run. Nesto expects to facilitate around $1.5 billion in loans this year, up from $200 million the year before, Yacoubi said. For 2022, it’s targeting six times that amount, or $9 billion, he said. The company declined to disclose its revenue or say whether it is profitable.

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“We’re looking to continue to invest heavily in technology, bring better tools for our people, better experiences for our customers, and frankly, get known out there,” Yacoubi said. “We’ll continue to invest in marketing to build the Nesto brand as a mortgage leader in Canada.”

Though housing prices have moderated somewhat since hitting record highs in March, the flurry of deals could still be a boon for mortgage brokers. Other tech companies in the real-estate sector have raised substantial amounts of funding recently, such as Properly, a Toronto-based brokerage firm, which raised $44 million in July at a $220-million valuation.

#fintech #Inovia Capital #Neo Financial #Nesto #Peter Thiel #Power Corporation #Tobi Lütke

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Photo: NeoFinancial | Instagram

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