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.
Business Model ElementAnalysisImplicationsExamples
Value PropositionBetter.com’s value proposition centers around simplifying the mortgage application and approval process. For Homebuyers, Better.com offers: – Digital Experience: An entirely online mortgage application process. – Faster Approvals: Streamlined underwriting for quicker approvals. – Transparent Pricing: Clear and competitive mortgage rates and fees. – Mortgage Savings: Potential cost savings through efficiency. – Convenience: Accessible from anywhere, anytime. Better.com aims to make obtaining a mortgage more accessible and efficient for homebuyers.Simplifies the mortgage application and approval process through a digital platform. Offers faster underwriting for quicker approvals. Provides transparency in pricing with competitive rates and fees. Promises potential cost savings for homebuyers. Enhances convenience through an entirely online process. Attracts customers looking for a more efficient and user-friendly mortgage experience.– Entirely online mortgage application process. – Streamlined underwriting for quicker approvals. – Transparent pricing with competitive rates and fees. – Potential cost savings for homebuyers. – Convenience accessible from anywhere. – Appeals to customers seeking an efficient mortgage experience.
Customer SegmentsBetter.com serves multiple customer segments, including: 1. Homebuyers: Individuals and families seeking mortgages to purchase homes. 2. Refinancers: Homeowners looking to refinance their existing mortgages for better terms. 3. Real Estate Agents: Professionals assisting clients with mortgage-related needs. 4. Mortgage Brokers: Mortgage brokers collaborating with Better.com for lending solutions. 5. Builders and Developers: Partnerships with builders and developers for financing. Better.com caters to a range of users with different mortgage requirements.Focuses on diverse customer segments with varying mortgage needs. Customizes the mortgage process based on individual and professional requirements. Provides a platform for homebuyers, refinancers, real estate agents, mortgage brokers, builders, and developers. Offers versatile mortgage solutions and partnerships.– Serving diverse customer segments broadens the user base. – Customized mortgage solutions cater to individual and professional needs. – Provides a platform for a wide range of users. – Offers versatile mortgage solutions and partnerships.
Distribution StrategyBetter.com’s distribution strategy relies on its website and mobile app. Users can access Better.com’s mortgage application and approval platform directly through its website and mobile applications, making it accessible across devices. The company also partners with real estate agents and mortgage brokers to extend its reach and provide customers with personalized assistance.Utilizes its website and mobile apps for direct access to its mortgage application and approval platform, catering to users’ device preferences. Collaborates with real estate agents and mortgage brokers to expand its reach and offer personalized assistance. Provides users with convenient access across various devices. Leverages partnerships to increase its market presence and serve a broader audience. Maintains a multi-channel distribution strategy for accessibility and convenience.– Website and mobile apps cater to users’ device preferences. – Partnerships with real estate agents and mortgage brokers expand its reach. – Provides convenient access to Better.com’s mortgage platform. – Leverages partnerships to reach a broader audience. – Multi-channel distribution enhances accessibility and convenience for users.
Revenue StreamsBetter.com generates revenue primarily through loan origination fees and interest income. Its primary revenue streams include: 1. Loan Origination Fees: Fees charged for processing and originating mortgage loans. 2. Interest Income: Revenue generated from the interest paid by borrowers on the mortgages it services. Loan origination fees and interest income are significant sources of revenue for the company.Relies on loan origination fees and interest income as primary sources of income. Earns revenue from fees charged for processing and originating mortgage loans. Gains revenue from interest paid by borrowers on serviced mortgages. Prioritizes these revenue streams for sustaining operations and supporting its business model. Utilizes a traditional mortgage lending revenue model.– Loan origination fees provide a steady income stream. – Interest income generates revenue from mortgage servicing. – Prioritizes these revenue streams for its business model. – Utilizes a traditional mortgage lending revenue model.
Marketing StrategyBetter.com’s marketing strategy includes online advertising, partnerships with real estate agents, educational resources, and word-of-mouth referrals. The company advertises its platform through online channels and social media platforms to reach a broad audience of homebuyers and refinancers. Partnerships with real estate agents enhance its presence in the real estate industry. Educational resources, such as articles and guides, educate customers about the mortgage process. Positive customer experiences lead to word-of-mouth referrals.Utilizes online advertising and social media to reach a wide audience interested in mortgages. Collaborates with real estate agents to establish a strong presence in the real estate industry. Provides educational materials and resources to empower customers with mortgage knowledge. Encourages word-of-mouth referrals through positive customer experiences. Leverages partnerships and educational content for customer acquisition.– Online advertising and social media reach a wide audience interested in mortgages. – Partnerships with real estate agents enhance industry presence. – Educational materials empower customers with mortgage knowledge. – Word-of-mouth referrals result from positive customer experiences. – Leverages partnerships and educational content for customer acquisition.
Organization StructureBetter.com’s organizational structure includes teams dedicated to technology development, underwriting, customer support, partnerships, marketing, and compliance. Technology development teams focus on platform enhancements. Underwriting teams handle the evaluation of mortgage applications. Customer support teams assist customers with inquiries and transactions. Partnerships teams collaborate with real estate agents. Marketing teams manage promotional efforts. Compliance teams ensure adherence to regulations. This structure supports platform excellence, efficient underwriting, customer satisfaction, collaborations, marketing effectiveness, and regulatory compliance.Employs specialized teams for technology development, underwriting, customer support, partnerships, marketing, and compliance. Prioritizes platform enhancements and feature development through technology teams. Ensures efficient and accurate underwriting processes. Assists customers with inquiries and transactions through customer support teams. Collaborates with real estate agents through partnerships teams. Manages promotional efforts effectively through marketing teams. Ensures compliance with regulations through compliance teams. Supports platform excellence, efficient underwriting, customer satisfaction, collaborations, marketing effectiveness, and regulatory compliance.– Specialized teams drive platform excellence and innovation. – Efficient underwriting processes ensure accuracy and speed. – Assists customers with inquiries and transactions for enhanced satisfaction. – Collaborates with real estate agents to expand reach and partnerships. – Manages promotional efforts effectively. – Ensures compliance with regulations for a secure and trustworthy platform.
Competitive AdvantageBetter.com’s competitive advantage stems from its digital-first approach, streamlined mortgage process, transparency, and partnerships with real estate professionals. Digital-First Approach: Offers an entirely online mortgage application and approval process. Streamlined Mortgage Process: Provides a simplified and efficient mortgage process for quicker approvals. Transparency: Offers clear and competitive mortgage rates and fees. Partnerships: Collaborates with real estate agents for personalized assistance and industry presence. Better.com stands out as a digital mortgage lender that simplifies the homebuying and refinancing experience.Derives a competitive advantage from: – A fully digital mortgage application process. – Streamlined and efficient mortgage processing for speed. – Transparent pricing with clear rates and fees. – Collaborations with real estate professionals for personalized assistance. Stands out as a digital-first mortgage lender that simplifies the homebuying and refinancing process.– Offers an entirely online mortgage application and approval process. – Provides a simplified and efficient mortgage process for quicker approvals. – Offers clear and competitive mortgage rates and fees. – Collaborates with real estate agents for personalized assistance. – Stands out as a digital-first mortgage lender simplifying the process.

 

 

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. 

Key Highlights

  • Founding Story: Better.com is a commission and fee-free digital mortgage provider founded by Vishal Garg in 2016. Garg’s frustration with the traditional mortgage application process led him to create a more efficient and streamlined platform.
  • Digital Mortgage Platform: Better.com re-engineered and digitized the entire mortgage application process, allowing borrowers to receive rate quotes, apply for loans, and sign important documents online. The platform significantly reduces the time for pre-approval, from weeks to as little as three minutes.
  • Backed by Prominent Investors: Better.com received backing from notable investors, including Goldman Sachs and Kleiner Perkins, enabling it to scale and grow rapidly.
  • Secondary Lending Market: Instead of earning commissions, Better.com makes money by selling mortgage loans to end-investors in the secondary lending market. These end-investors include large banking institutions, private investors, and government-sponsored enterprises.
  • Loan Guarantor Advantage: Better.com remains the loan guarantor even after selling the mortgage loans to end-investors. This robust vetting process and continued responsibility for the loans attract end-investors and enable Better.com to offer competitive mortgage rates to its customers.
  • Partnerships with End-Investors: Better.com engages with seventeen different end-investors, including well-known institutions such as Wells Fargo, Bank of America, Chase, and Fannie Mae.
  • Title and Homeowners Insurance: In addition to mortgages, Better.com also offers title and homeowners insurance through affiliated companies. The company does not directly charge customers for these services but likely collects referral fees from the affiliates.
  • Significant Loan Volume: As of the first quarter of 2021, Better.com funded over $14 billion in loans and employed over 6,000 personnel worldwide, showcasing its substantial presence in the digital mortgage market.
  • Mission-Driven Team: To disrupt the housing industry, Better.com assembled a team of brilliant and mission-driven partners from leading tech, marketing, and finance companies, reflecting the company’s dedication to innovation and efficiency.
  • Customer-Centric Approach: Better.com’s commission-free model and fast application process aim to provide a more customer-friendly experience, empowering borrowers to compete more effectively in the housing market.

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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

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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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Revolut

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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

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SoFi

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Squarespace

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Stash

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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

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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

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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

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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.

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