better-com-business-model

How Does Better.com Make Money? Better.com Business Model In A Nutshell

  • Better Mortgage Better.com is a commission and fee-free digital mortgage provider founded by Vishal Garg in 2016. Garg decided to start the company after being beaten by an all-cash buyer while trying to purchase a home.
  • Better Mortgage makes money in the secondary lending market by selling mortgage loans to end-investors for a profit. End-investors are happy to pay a price that benefits Better.com because it remains the loan guarantor and has a rigorous borrower verification process.
  • Better Mortgage also sells title and homeowners insurance through its affiliates. It can be assumed the company collects a referral fee for the borrowers it refers to affiliated insurance providers.

Origin Story

Better.com is a commission and fee-free digital mortgage provider founded by Vishal Garg in 2016.

Garg decided to launch the company after becoming frustrated at trying to buy a house and secure a mortgage with a traditional lender. In an interview, he noted that

From beginning to end, the whole ordeal was eight weeks – and three of them were spent just trying to get pre-approved. My wife and I were young professionals and very qualified, but after all of that time, we were beaten by a competing buyer who was able to move more quickly with an all-cash offer. I realized then that the entire mortgage industry was outdated and inefficient, and if it was that bad for someone like me with access to capital, I couldn’t imagine how hard it might be for others.

To disrupt the $33 trillion housing industry, Garg began assembling a team of brilliant and mission-driven partners from leading tech, marketing, and finance companies in 2013.

The team worked hard over the next few years to re-engineer and then digitize the entire mortgage application process. 

Better.com was eventually launched in January 2016 with backing from Goldman Sachs and Kleiner Perkins.

The platform allows borrowers to receive rate quotes, apply for loans, and sign important documents online.

Instead of taking three weeks, borrowers can be pre-approved in as little as three minutes – allowing them to better compete with all-cash buyers.  

In 2018 and 2019, the company began offering title insurance, homeowner insurance, and brokerage services to help borrows save money.

During the first quarter of 2021, Better.com funded over $14 billion in loans and employed over 6,000 personnel worldwide.

Better.com revenue generation

As noted in the previous section, the company offers fully digitized and commission-free mortgages to borrowers.

Better.com does employ mortgage experts, but they are not paid commissions which helps them focus on support and not sales.

Instead of earning commission revenue, the company makes money in the secondary lending market by selling mortgage loans to end-investors.

End-investors include large banking institutions, private investors, and government-sponsored enterprises.

The company currently engages with seventeen different end-investors, including Wells Fargo, Bank of America, Chase, and Fannie Mae.

Better.com essentially acts as a middleman between the borrower and the end-investor. The company holds the original mortgage for a month or so and then sells the loan to an end-investor for a profit.

Since this margin is paid for by the end-investor, Better.com can offer more attractive mortgage rates to its customers.

What’s more, end-investors are attracted to Better.com customers because the company has a robust vetting process and the company remains the loan guarantor even after the mortgage has been sold.

Since the end-investor is not liable if a borrower defaults on their mortgage, they  are happy to pay a price that is more profitable for Better.com.

Title and homeowners insurance

Better.com also offers title and homeowners insurance through affiliated companies. 

The company does not directly charge customers for either service, though it can be assumed it collects a referral fee from affiliates for sending business their way. 

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List of FinTech Business Models

Acorns

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Acorns is a fintech platform providing services related to Robo-investing and micro-investing. The company makes money primarily through three subscription tiers: Lite – ($1/month), which gives users access to Acorns Invest, Personal ($3/month) that includes Invest plus the Later (retirement) and Spend (personal checking account) suite of products, Family ($5/month) with features from both the Lite and Personal plans with the addition of Early.

Affirm

affirm-business-model
Started as a pay-later solution integrated to merchants’ checkouts, Affirm makes money from merchants’ fees as consumers pick up the pay-later solution. Affirm also makes money through interests earned from the consumer loans, when those are repurchased from the originating bank. In 2020 Affirm made 50% of its revenues from merchants’ fees, about 37% from interests, and the remaining from virtual cards and servicing fees.

Alipay

how-does-alipay-make-money
Alipay is a Chinese mobile and online payment platform created in 2004 by entrepreneur Jack Ma as the payment arm of Taobao, a major Chinese eCommerce site. Alipay, therefore, is the B2C component of Alibaba Group. Alipay makes money via escrows transaction fees, a range of value-added ancillary services, and through its Credit Pay Instalment fees.

Betterment

how-does-betterment-make-money
Betterment is an American financial advisory company founded in 2008 by MBA graduate Jon Stein and lawyer Eli Broverman. Betterment makes money via investment plans, financial advice packages, betterment for advisors, betterment for businesscash reserve, and checking accounts.

Braintree

how-does-venmo-make-money
Venmo is a peer-to-peer payments app enabling users to share and make payments with friends for a variety of services. The service is free, but a 3% fee applies to credit cards. Venmo also launched a debit card in partnership with Mastercard. Venmo got acquired in 2012 by Braintree, and Braintree got acquired in 2013 by PayPal.

Chime

how-does-chime-make-money
Chime is an American neobank (internet-only bank) company, providing fee-free financial services through its mobile banking app, thus providing personal finance services free of charge while making the majority of its money via interchange fees (paid by merchants when consumers use their debit cards) and ATM fees.

Coinbase

coinbase-business-model
Coinbase is among the most popular platforms for trading and storing crypto-assets, whose mission is “to create an open financial system for the world” by enabling customers to trade cryptocurrencies. Its platform serves both as a search and discovery engine for crypto assets. The company makes money primarily through fees earned for the transactions processed through the platform, custodial services offered, interest, and subscriptions.

Compass

how-does-compass-make-money
Compass is a licensed American real-estate broker incorporating online real estate technology as a marketing medium. The company makes money via sales commissions (collected whenever a sale is facilitated or tenants are found for a rental property) and bridge loans (a service allowing the seller to purchase a home before the revenue from the sale of their previous home is available).

Dosh

how-does-dosh-make-money
Dosh is a Fintech platform that enables automatic cash backs for consumers. Its business model connects major card providers with online and offline local businesses to develop automatic cash back programs. The company makes money by earning an affiliate commission on each eligible sale from consumers.

E-Trade

how-does-e-trade-make-money
E-Trade is a trading platform, allowing investors to trade common and preferred stocks, exchange-traded funds (ETFs), options, bonds, mutual funds, and futures contracts, acquired by Morgan Stanley in 2020 for $13 billion. E-Trade makes money through interest income, order flow, margin interests, options, future and bonds trading, and through other fees and service charges.

Klarna

how-does-klarna-make-money
Klarna is a financial technology company allowing consumers to shop with a temporary Visa card. Thus it then performs a soft credit check and pays the merchant. Klarna makes money by charging merchants. Klarna also earns a percentage of interchange fees as a commission and for interests earned on customers’ accounts.

Lemonade

how-does-lemonade-make-money
Lemonade is an insurance tech company using behavioral economics and artificial intelligence to process claims efficiently. The company leverages technology to streamline onboarding customers while also applying a financial model to reduce conflicts of interest with customers (perhaps by donating the variable premiums to charity). The company makes money by selling its core insurance products, and via its tech platform, it tries to enhance its sales.

Monzo

how-does-monzo-make-money
Monzo is an English neobank offering a mobile app and a prepaid debit card for consumers and businesses. It was one of the first app-based banks to enter the UK market, founded by Gary Dolman, Jason Bates, Jonas Huckestein, Paul Rippon, and Tom Blomfield in 2015. All were employees of Starling Bank, a similar neobank challenging the dominance of established financial institutions in England. The company enjoys many revenue streams: business and consumer subscriptions, interchange and overdraft fees, personal loans, and more.

NerdWallet

how-does-nerdwallet-make-money
NerdWallet is an online platform providing tools and tips on all matters related to personal finance. The company gained traction as a simple web application comparing credit cards. NerdWallet makes money via affiliate commissions determined according to the affiliate agreements.

Quadpay

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Quadpay was an American fintech company founded by Adam Ezra and Brad Lindenberg in 2017. Ezra and Lindenberg witnessed the rising popularity of buy-now-pay-later service Afterpay in Australia and similar service Klarna in Europe. Quadpay collects a range of fees from both the merchant and the consumer via merchandise fees, convenience fees, late payment, and interchange fees.

Revolut

how-does-revolut-make-money
Revolut an English fintech company offering banking and investment services to consumers. Founded in 2015 by Nikolay Storonsky and Vlad Yatsenko, the company initially produced a low-rate travel card. Storonsky in particular was an avid traveler who became tired of spending hundreds of pounds on currency exchange and foreign transaction fees. The Revolut app and core banking account are free to use. Instead, money is made through a combination of subscription fees, transaction fees, perks, and ancillary services.

Robinhood

how-does-robinhood-make-money
Robinhood is an app that helps to invest in stocks, ETFs, options, and cryptocurrencies, all commission-free. Robinhood earns money by offering: Robinhood Gold, a margin trading service, which starts at $6 a month, earn interests from customer cash and stocks, and rebates from market makers and trading venues.


SoFi

how-does-sofi-make-money
SoFi is an online lending platform that provides affordable education loans to students, and it expanded into financial services, including loans, credit cards, investment services, and insurance. It makes money primarily via payment processing fees and loan securitization.


Squarespace

how-does-squarespace-make-money
Squarespace is a North American hosting and website building company. Founded in 2004 by college student Anthony Casalena as a blog hosting service, it grew to become among the most successful website building companies. The company mostly makes money via its subscription plans. It also makes money via customizations on top of its subscription plans. And in part also as transaction fees for the website where it processes the sales.

Stash

how-does-stash-make-money
Stash is a FinTech platform offering a suite of financial tools for young investors, coupled with personalized investment advice and life insurance. The company primarily makes money via subscriptions, cashback, payment for order flows, and interest for cash sitting on members’ accounts.

Venmo

how-does-venmo-make-money
Venmo is a peer-to-peer payments app enabling users to share and make payments with friends for a variety of services. The service is free, but a 3% fee applies to credit cards. Venmo also launched a debit card in partnership with Mastercard. Venmo got acquired in 2012 by Braintree, and Braintree got acquired in 2013 by PayPal.

Wealthfront

how-does-wealthfront-make-money
Wealthfront is an automated Fintech investment platform providing investment, retirement, and cash management products to retail investors, mostly making money on the annual 0.25% advisory fee the company charges for assets under management. It also makes money via a line of credits and interests on the cash accounts.

Zelle

how-does-zelle-make-money
Zelle is a peer-to-peer payment network that indirectly benefits the banks’ consortium that backs it. Zelle also enables users to pay businesses for goods and services, free for users. Merchants pay a 1% fee to Visa or Mastercard, who share it with the bank that issued the card.

Read Next: Fintech Business Models, IaaS, PaaS, SaaSEnterprise AI Business ModelCloud Business Models.

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