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 I realized then that the entire mortgage industry was outdated and inefficient, and if it was that bad for someone like me with access to capital, I couldn’t imagine how hard it might be for others.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. 

Connected FinTech Business Models

Affirm Business Model

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.

Afterpay Business Model

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Afterpay is a FinTech company providing as a core service the “buy now pay later” solution. When a consumer purchases a product, Afterpay pays the seller and asks the consumer to pay 25%. The remaining 75% is paid in three, fortnightly installments that are also interest-free. Afterpay, in turn, makes money via merchant and late fees.

Quadpay Business Model

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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.

Klarna Business Model

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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.

SoFi Business Model

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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.

Chime Business Model

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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.

How Does Venmo Make Money

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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.

FinTech Business Models

fintech-business-models
Fintech business models leverage tech and digital to enhance the financial service industry. Fintech business models, therefore, apply tech to various financial service use cases. Fintech business model examples comprise Affirm, Chime, Coinbase, Klarna, Paypal, Stripe, Robinhood, and many others whose mission is to digitize the financial services industry.

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Published by

Gennaro Cuofano

Gennaro is the creator of FourWeekMBA which reached over a million business students, executives, and aspiring entrepreneurs in 2020 alone | He is also Head of Business Development for a high-tech startup, which he helped grow at double-digit rate | Gennaro earned an International MBA with emphasis on Corporate Finance and Business Strategy | Visit The FourWeekMBA BizSchool | Or Get The FourWeekMBA Flagship Book "100+ Business Models"