Despite the level of innovation in fintech, startups in many sectors of the industry — from digital wealth management to alt lending — have been discovering that finding the right business model to attain profitability is a major, and for some insurmountable, challenge.
Now, this hurdle seems to have struck a relatively nascent, and to all appearances, booming sector — mortgage tech — as news this week showed. Burrow, a UK-based mortgage tech startup, told TechCrunch that it’s pivoting from a B2C to a B2B model in the face of high customer acquisition costs.
Burrow attributed its pivot to a customer acquisition speed bump. Burrow started out as a consumer-facing business in 2016, offering features like a mortgage eligibility checker, an aggregation platform to help users compare mortgage options, a dashboard for submitting applications and managing repayments, and a mortgage advice service. However, the company said it will now provide its technology to lenders, mortgage networks, and brokers to help them streamline the mortgage experience for clients instead. The company said it was spending too much to acquire a single customer without being able to recoup the outlays, due to long sales cycles.
Mortgage tech isn’t the first fintech segment to fall victim to this hurdle. We’ve seen many startups in the digital wealth management and alt lending segments make similar pivots, or decide to run a B2B and B2C model in parallel to diversify revenue.
What all these startups have in common is their newcomer status, and thus a lack of customer awareness and trust, regardless of the value of their propositions. Moreover, many fintechs sell their services very cheaply or even for free, meaning that they depend on amassing large user bases to turn a profit. This contradiction has raised doubts as to the sustainability of many fintech startups’ business models.
We may start seeing consolidation in the mortgage tech space, especially in the UK.The UK has been a hotbed for much of the activity in the B2C mortgage tech sector, with players including Trussle, Habito, and Morty all piling into the space over the past few years. Given that one of their number has now turned away from this model suggests others may be up against the same challenge, exacerbated by the amount of competition they face. As such, we may see this fintech sector going the way of its older counterparts, like alt lending, with smaller players dropping out of the race altogether or being acquired.
- Explains why the profitability question is increasingly being raised.
- Outlines why fintechs in different segments are failing to turn a profit.
- Gives examples of just how large some fintechs’ losses are.
- Explores how fintechs are striving to solve the profitability problem.
- Outlines vital considerations for fintechs and their investors.
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