No, Quicken Loans has no plans to start selling mortgages in Canada.
But it does want a piece of our mortgage technology market. That’s why its parent company, Rock Holdings Inc., has acquired a majority stake in Vancouver-based Lendesk.
Lendesk is a mortgage fintech company that connects borrowers and mortgage brokers to lenders online. It started discussions with Rock Holdings just over a year ago.
Lendesk makes money mainly by fees it earns from lenders (it earns basis points or flat fees for routing loan applications to them), fees it charges brokers to use its origination platform, licensing fees for private and MIC lenders, and custom development fees (e.g., for lenders or brokers who want to build an online origination system).
Its #1 future revenue driver is its point-of-sale (POS) system for mortgage brokers, says Lendesk CEO Alex Conconi. That’s what Rock Holdings liked the most, he says, because it epitomizes the “three E’s: more efficiency, better experience and fewer errors,” as well as being highly secure. (Lendesk is SOC2-type 2 compliant, meaning it meets rigorous security standards, which is essential to major financial institutions.)
Brokers and Lenders on Alert
Upon hearing the news, some mortgage professionals started speculating whether Quicken, which leads the U.S. online mortgage market, would start lending in Canada. This perceived threat has been in the back of many brokers’ minds since Rocket Mortgage launched three and a half years ago.
Rock Holdings CEO Jay Farner dispelled that Wednesday, telling me, “From a mortgage perspective, no. We’re not talking about entering the Canadian mortgage market [to lend].”
Quicken Loans controls just over 6% of the retail mortgage market south of the border. “Our thought is that we have 92-94% market share to grow into [in the U.S.]…,” he says, so that’s where it’s focusing its lending energies.
“The opportunity here was really in the technology that connects the lender and broker.” Farner says the deal leverages several mortgage technology synergies and that Quicken and Lendesk can both learn best practices from each other.
“As Lendesk is building a better product for brokers in Canada, our thought was….the learning that they developed there, [could] build a better experience for customers here in the states,” added Farner.
Conconi says it was a logical fit. “Quicken digitized the mortgage process in the states and we’re digitizing the mortgage origination process in Canada.” He says Quicken has had interest from Canadian lenders who want to use its technology. Eventually, elements of Rocket Mortgage technology could be incorporated in Lendesk’s platform and sold here. “They’re a [future] source of business for us,” Conconi says of Quicken.
Farner notes that Rock was attracted to Lendesk because it’s a “neutral platform.” That’s in contrast to fast-growing competitors Newton Connectivity Systems and MortgageBoss, which are owned by the two largest Canadian brokerage firms (DLC Group and M3 Group respectively).
“Some of our competitors are using their point-of-sale technology not necessarily to make brokers’ lives better, but to control their brokers and potentially use the data for other purposes,” Conconi opined.
He says brokers who sign up with Lendesk typically have serious concerns about being able to port their businesses to other brokerages if they leave their firm. And brokers also worry about the brokerages contacting their clients, he adds, which potentially affects their client relationship. (In our past discussions with Lendesk’s competitors, they’ve generally rejected such assertions. But we’re not privy to their user agreements for verification.)
In terms of volume and user count, however, Lendesk is well behind the three biggest broker technology providers, including the current leader in the space (Finastra). Newton, for example, just hit $1 billion in monthly originations and plans to have half of DLC Group’s annual originations running through its system by year-end, says CEO Geoff Willis. Lendesk has but a fraction of that volume.
Lendesk is also missing connections to several lenders. As we’ve written about before, this is its main Achilles heel because brokers don’t want to use two different platforms to route deals to lenders. As good a platform as it is, this is a problem that it’s simply not addressing fast enough. And that’s largely due to the costs and delays in coding to lenders. (Perhaps Quicken can help in that regard. It could be essential to making Lendesk a truly viable option for brokers who prefer an independent POS software provider.)
Note: Conconi does say that, “By August we should have eight of the top 10 broker channel lenders.” And they’re in multiple discussions to add others.
“We understand Lendesk is a distant fourth today, but they are so focused on the needs of their clients,” Farner said. “I’ve seen it play out time and time again. They have the ability to build the gold standard in Canada and if they do, both brokers and lenders will want to leverage it.”
And it doesn’t hurt your creditability to have the world’s #1 online mortgage lender backing you.
“I hope it will send a message to Lendesk’s partners that they have a strong partner with staying power, willing to invest time and capital,” says Farner. “Lendesk has got the financial backing of the Quicken family of companies. That usually bodes well for clients who use such technology.”
Lendesk wouldn’t disclose if it’s profitable, but Rock is in it for the long haul either way. “We don’t focus our investments on short-term returns,” Farner said. When reviewing acquisitions, “We think about, can you improve or disrupt the marketplace to make it better?”
Quicken’s Future Strategies
When asked if Quicken might someday look to link online consumers directly to lenders using Lendesk technology, Farner replied: “I haven’t really looked at the lead gen side…Could there be an opportunity to generate leads [from rate comparison sites] and offer them to the brokers across Canada? That is a possibility for sure.”
“You’ve got strong brokers in Canada,” he adds. “In the U.S., as we’ve gone direct-to-consumer we’ve found how important it is to have a broker or someone with [the mortgage client] to guide them through the process.”
Sidebar: Conconi will remain in charge following this acquisition. No financial terms were announced but he says, “It was a good result for early employees and the entire team.” Lendesk has 45 employees and was founded in 2014.