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In this deep dive of Blend I will cover:
- What is Blend’s Mission?
- What is the current process for getting products in Blend’s Industry?
- What are the current trends/expectations in Blend’s Industry?
- How do the current Industry Incumbents Lack Innovation and what are their Limitations?
- What does Blend do?
- What are Blend’s Products?
- How does Blend make money?
- How did Blend evolve its platform and products in its current state?
- What is Blend’s Market Opportunity?
- What is Blend’s Growth Strategy to capture this market opportunity?
- What is Blend’s Competitive Advantage and why is it a durable long-term investment?
- What are Blend’s People and Culture like?
- Who are Blend’s Customers?
- What is Blend’s customer value proposition?
- What are some successful Customer Case Studies?
- What does Blend’s Management and Board look like now?
- How are the executives being paid currently?
- What is Blend’s current Insider Ownership for Executives and the Board?
- What do Blend’s current Financials look like?
- What are my final thoughts on Blend AKA TL;DR;?
What is Blend’s Mission?
Our vision is to bring simplicity and transparency to financial services
Blend wants to empower customers by making complex financial services like mortgages simple and easily accessible to everyone. They also want to remove untrustworthy practices from financial products making them easy to access and simple to use for everyone. From this mission, we can see that Blend genuinely cares about their customers
What is the current process for getting products in Blend’s Industry?
Blend’s core business is a part of the mortgage industry and banking software. They enable banks, credit unions, etc. to easily give mortgages and other services in an awesome customer experience.
Both mortgage industry and banking software industries have been historically dominated by businesses with poor customer experience and outcomes. Due to this the current process for getting mortgages and interacting with banks is riddled with a process that is complex, inefficient, and highly stressful.
From the above image we can see that the current process involves manual work, redundant paper information, complex and messy approval system, manually work on all the documents, use many systems to very things manually and stress about a lot of things at the last minute.
What are the current trends/expectations in Blend’s Industry?
The pains associated with the mortgage and banking industry that we discussed above have led to a few trends that Blend is capitalizing on.
- Consumer expectations for digital experiences are rising - Consumers increasingly expect their banks to provide data-driven, personalized, digital experiences. The COVID-19 pandemic has accelerated a shift in consumer behavior away from traditional branches and toward digital channels for banking services, resulting in a 30% increase in the use of mobile banking worldwide.
- Consumers increasingly want one-stop shopping experiences for financial services - Consumers prefer simplicity and convenience when it comes to shopping for financial services. Fifty-three percent of consumers would like to be offered bundled products, such as real estate services with a home loan or car deals with a pre-approved auto loan. To retain consumers and drive incremental revenue, financial services firms need to provide end-to-end consumer journeys that include these elements.
- Competition among financial services firms is becoming more intense - Fintechs, neobanks, and other innovators are launching digital-first offerings that draw consumers away from traditional financial services firms. Forty-two percent of U.S. consumers use at least one fintech provider. In addition, consumers are switching financial services providers at a faster rate than in previous years. Traditional financial services firms must invest in seamless, technology-driven, and consumer-friendly offerings that lead to higher consumer satisfaction in order to preserve and grow their market share.
- The pace of change is accelerating - Financial services firms are increasingly seeking partners to help them manage consumer experiences with more agility as they wrestle with changes caused by fluctuating rate environments, government stimulus programs, and evolving regulatory requirements. In an effort to remain competitive, 48% of banks and 42% of credit unions have partnered with fintech startups over the past three years to address specific technology needs. Among banks planning to partner with fintechs, 86% cite that improving the consumer experience is the top priority, followed by 42% and 38% for reducing operating expenses and reducing fraud, respectively.
- Low-code development tools are shortening product development cycles - The advent of no-code and low-code development tools is enabling product teams to build, deploy, and modify new products and deliver superior consumer experiences with greater speed and flexibility. Adoption of these tools will be essential for financial services firms to innovate rapidly in the face of changing consumer expectations and fluctuating market conditions.
- Better access to data is powering higher levels of automation - As banking becomes more open, financial services firms are seeking to leverage the best data in the market to improve verification of consumer assets, income, employment, identity, and credit history. The aggregate potential cost savings for financial services firms from automated workflows is estimated to be at $447 billion by 2030, with back-office credit underwriting accounting for $31 billion of that total. By leveraging data and software to make more informed decisions automatically, financial services firms will be able to provide a frictionless consumer experience, reduce time to close and reduce fraud.
How do the current Industry Incumbents Lack Innovation and what are their Limitations?
Lack of Innovation
- Financial services firms have been shifting for years to a digital-first approach to acquiring customers and deepening existing relationships.
- Few financial services firms can afford to build best-in-class digital consumer journeys on their own, and those that can typically prefer to accelerate time to market by working with partners that provide flexible, off-the-shelf components.
- In addition, few financial services firms have built their own captive insurance agencies or developed their own service provider marketplaces to streamline the consumer journey due to the cost and complexity of managing these initiatives.
- Many financial services firms are unable to offer consumers personalized product offerings, offers for third-party services, multi-product shopping experiences, or even the opportunity to continue applying for a single product across more than one channel.
- Many financial services firms find it difficult to use the customer data they have already collected to pre-populate an application form or cross-sell a product.
- Due to the above, digital transformation has never been more imperative for financial services firms. However, these efforts are often hampered by aging infrastructure.
- Financial services firms typically use separate technology stacks for mortgages, consumer lending products, and deposit accounts, making it difficult to drive rapid improvements. This architecture is inflexible, costly to maintain, and produces data silos that result in poor consumer experiences.
What does Blend do?
Blend’s vision is to bring simplicity and transparency to financial services, so everyone can gain access to the capital they need to lead better lives. To realize this vision, Blend has built a market-leading cloud-based software platform for financial services firms that is designed to power the end-to-end consumer journey for any banking product. From the moment a consumer starts an application for a loan or a deposit account to the moment they digitally sign the final documents, Blend’s software platform streamlines the process, so financial services firms can deliver superior consumer experiences, drive growth, and increase operational efficiency.
Consumers expect modern banking experiences to be as simple as other online shopping experiences. However, financial services firms may not have the resources and in-house software expertise to fulfill consumer demands for intuitive, digital, and easy-to-use products. In addition, most financial services firms are burdened by antiquated, inflexible systems and use separate technology stacks for different product lines, making it difficult to drive rapid improvements. Consequently, a broad range of financial services firms including banks, credit unions, fintechs, and non-bank lenders have turned to Blend to help them accelerate their digital transformation initiatives and position themselves for future growth.
Blend’s software platform powers the mission-critical interface between financial services firms and consumers. Blend’s growing suite of out-of-the-box, white-label products currently powers digital-first consumer journeys for mortgages, home equity loans and lines of credit, vehicle loans, personal loans, credit cards, and deposit accounts. Each out-of-the-box product is built from an extensive library of modular components assembled into consumer journeys that typically include data collection, verification checks, product selection, pricing, pre-approvals, disclosures, addressing stipulations, and signing closing documents. Through low-code, drag-and-drop design tools, Blend also enables the creation and deployment of new product offerings. Blend currently offers products for consumer banking but plans to extend its software platform over time to add support for commercial banking products.
In 2020, Blend’s software platform helped financial services firms process nearly $1.4 trillion in loan applications.
Blend has an extensive ecosystem of more than 2,200 currently active technology, data, and service providers through their software platform, enabling financial services firms to collaborate with third parties to provide best-in-class experiences to consumers.
As consumers use Blend software platform to apply for financial services products, they can shop for realtors, insurance carriers, and other service providers through integrated marketplaces that are introduced at the precise moment these third parties are needed. As more consumers use Blend software platform, Blend is able to attract a broader range of ecosystem partners, which allows them to deliver more value to consumers and attract more financial services firms as customers. This creates a powerful network effect and differentiator for their business. As of March 31, 2021, the number of participants in Blend’s ecosystem has grown by more than 1,300% year-over-year.
Blend has established itself as a critical and long-term strategic partner to customers by powering essential revenue-generating experiences, integrating software into back-office systems, and staffing teams chartered with increasing the value delivered over time. Customers typically complete an initial deployment for one or two products and then add more products over time, building toward a unified consumer experience that supports multi-product shopping journeys. Blend’s dollar-based net retention rate was 162% as of December 31, 2020.
Blend’s success-based business model is designed to align growth with the interests of customers. Blend offers its products through software-as-a-service agreements, where fees are assessed based on completed transactions, such as a funded loan, new account opening, or closing transaction. Blend does not charge for abandoned or rejected applications, even though they cause Blend to incur costs. Completed transaction fees are determined by the number and type of software platform components that are needed to support each product offering. Blend has generated an immaterial amount of revenue through commissions or service fees when consumers use Blend’s marketplaces to select a real estate agent, property and casualty insurance carrier, or title and settlement services entity in 2020, Blend expects this will become a significant part of the business in the future. In 2020, financial services firms used Blend software platform to process 1.4 million completed banking transactions, a 190% year-over-year increase relative to the 0.48 million completed banking transactions in 2019.
To accelerate the adoption of innovations in their mortgage and home equity products, on March 12, 2021, Blend signed a definitive agreement to acquire Title365, a leading title insurance agency, from Mr. Cooper Group Inc. Title365 will be integrated with Blend’s software platform, which enables financial services firms to automate title commitments and streamline communication with consumers and settlement teams. Together Blend will enable customers to accelerate the title, settlement, and closing process at scale for mortgages, home equity lines of credit, and home equity loans.
What are Blend’s Products?
Blend has created a flexible cloud-based software platform for financial services firms that is designed to power the end-to-end consumer journey for any banking product. From the moment a consumer starts an application to the moment they close a loan or open a deposit account, Blend’s software platform streamlines the process, so financial services firms can deliver superior consumer experiences, drive growth, and increase operational efficiency.
Blend is well-positioned to benefit from the acceleration in digital transformation investment taking place across the financial services sector. Their software simplifies complex origination processes that can include hundreds of tasks and require interactions with dozens of external technology, data, and services providers. By automating these tasks and developing pre-built integrations, Blend helps customers potentially avoid years of expensive in-house software development and free up resources for other initiatives.
Blend’s cloud-based software platform powers the mission-critical interface between financial services firms and consumers. Financial services firms can rapidly deploy their growing number of out-of-the-box, white-labeled products for:
- Mortgage - provides an end-to-end digital mortgage experience from application to close that puts financial services firms at the center of the broader homeownership journey.
- Home Equity - modernizes home equity line of credit and home equity loan origination experiences, delivering higher application submission rates and faster closings.
- Vehicle Loan - enables rapid financing that helps consumers get into their car, boat, RV, or powersport vehicle faster.
- Credit Card - increases application conversions through a configurable product selection experience, streamlined data collection, and instant approvals.
- Personal Loan - drives faster pre-approvals for unsecured and secured personal loans, lines of credit, and overdraft protection lines.
- Deposit Account - increases application conversion rates and reduces fraud risk with features that support financial services firms’ Bank Secrecy Act and anti-money laundering policies.
In addition, they have developed a product called Blend Close that streamlines traditional, hybrid, and fully digital closing experiences for mortgages, home equity lines of credit, and home equity loans.
Each of Blend’s products is built from an extensive library of modular components that typically include data collection, verification checks, product selection, pricing, pre-approvals, disclosures, addressing stipulations, and signing closing documents. Blend’s customers can rapidly create new product offerings by assembling modular components into workflows using Journey Builder, which includes tools for experience design, process orchestration, and persona-based workspaces.
The modular components that make up their products generally fall under the categories of verification, decisioning, workflow intelligence, and marketplaces.
Verification components automate confirmation tasks that are needed to underwrite a loan or approve the opening of a new deposit account. Blend has pre-built integrations with providers of technology and services to address requirements for identity verification, asset verification, income, and employment verification, and credit.
Decisioning components reduce the need for human intervention by automatically applying business rules throughout an application workflow configured by a financial services firm. Examples include pre-approvals, cross-selling, and adverse actions.
Workflow Intelligence Components
Workflow intelligence components manage data collection and automate tasks throughout the origination process. Blend creates applications with branching logic to streamline initial data collection. Wherever possible, Blend eliminates the need for document uploads by integrating with authoritative data sources. They also automate key processing tasks so consumers can begin to address stipulations immediately after a loan application is submitted.
Blend’s curated marketplace components enable consumers to shop for products and services presented at the precise moment of need during an application for a loan or a deposit account. They currently offer marketplaces that enable consumers to find real estate agents, insurance carriers, and automobiles for sale online. These marketplaces help consumers quickly locate service providers with competitive rates and enable financial services firms to increase operational efficiency by providing a one-stop shopping experience. Their acquisition of Title365, once closed, will enable them to integrate the title, settlement, and escrow process further into their platform and develop a marketplace that provides consumers and financial services firms with the flexibility to choose title insurance partners that provide services at competitive rates.
APIs and Integrations
Through Blend’s open APIs they are able to seamlessly integrate the capabilities of technology, data, and service providers into their software platform. As they develop integrations with new partners, customers can quickly experience the benefits across their product suite. In addition, financial services firms can use their APIs to develop integrations with the back-office systems in their tech stack, creating a unified, agile architecture for powering superior consumer journeys.
The Blend Ecosystem
Blend brings together an extensive partner ecosystem through their software platform, consisting of more than 2,200 currently active technology, data, and service providers that have grown by more than 1,300% year-over-year as of March 31, 2021. They provide the central hub through which these partners collaborate to deliver best-in-class consumer journeys in highly efficient ways. In addition, they provide their ecosystem partners with a critical distribution channel to reach consumers at the precise moment they are looking for products and services through the financial services firms Blend serves.
By providing the software that powers consumer journeys at financial services firms across digital, contact center, and branch channels, they are able to benefit from a substantial volume of high-intent consumer traffic with no incremental acquisition costs. As more financial services firms become Blend customers or deploy additional products through their software platform, the number of consumers using their software platform grows, which attracts more service providers to their ecosystem to serve those consumers. As a result, consumers benefit from more opportunities to save time and money, financial services firms benefit from increased operational efficiency, their partners benefit from increased distribution, and Blend generates additional revenue. This win-win-win-win model creates a powerful network effect that will continue to expand their serviceable addressable market over time.
Key elements of Blend’s partner ecosystem include (i) more than 45 technology partners, (ii) 29 data partners, (iii) more than 1,200 marketplace partners, and (iv) more than 900 settlement services partners.
To provide consumers with optimal end-to-end journeys through their software platform, they have created their own property and casualty insurance agency and their own title insurance agency. Consistent with this strategy, on March 12, 2021, they signed a definitive agreement to acquire Title365, a leading title insurance agency, from Mr. Cooper Group Inc. Title365 will be integrated with their platform, which enables financial services firms to automate title commitments and streamline communication with consumers and settlement teams. Title365 will also expand its partner ecosystem through its network of more than 7,000 notaries.
How does Blend make money?
Blend offers products through software-as-a-service agreements where fees are assessed based on completed transactions, such as a funded loan, new account opening, or closing transaction. Blend does not charge for abandoned applications or rejected applications, even though they cause them to incur costs related to these applications. Completed transaction fees are determined by the number and type of software platform components that are needed to support each product offering. Completed transaction fees are not impacted by the dollar size of transactions; however, Blend provides volume-based discounts to customers as they complete a higher volume of transactions on their software platform. Customers also have the opportunity to secure discounts by agreeing to contractual minimums. Blend is focused on driving revenue growth by enabling customers to more efficiently process and complete transactions.
Blend focuses on customer success to drive transaction volumes and opportunities for follow-on sales. Their products are sold through a direct sales force that continues to manage customer relationships on an ongoing basis post-sale. Customers often complete an initial deployment for one or two products and then add more products over time. The length of the sales cycle for Blend’s products generally declines for the second and subsequent products they sell to a financial services firm, highlighting their high customer satisfaction.
Customer Cohort Analysis
Blend’s success depends on increasing the volume of transactions that take place on their software platform. This occurs as they add new customers and complete more transactions with existing customers, including when their existing customers adopt additional products. As highlighted below, the aggregate revenue associated with customers acquired in any year has expanded since they first began using Blend.
These customer cohorts reflect the success of Blend’s “land and expand” approach to growing customer relationships.
Blend’s business model KPI’s
The following tables set forth their key business metrics for each of the five quarters in the period ended March 31, 2021:
Dollar-based net retention rate is used as a measure of customer churn, retention, and expansion of Blend’s products and services. As we can see from the above image this metric has grown at a rapid pace recently and is a reflection that their land and expand approach is working.
Total banking transactions are the completed transactions on their platform. As we can see from the above image, this metric is also growing at a rapid rate indicating that customers are using the platform more incrementally.
Ability to Increase Transaction Volume
Blend’s success-based business model results in their revenue growth as they increase transaction volume. They increase transaction volume by attracting new customers and growing their relationships with existing customers. They need to address the evolving needs of customers and increase their usage of Blend. Under Blend’s “Customer First” model, they focus on building successful long-term relationships and aligning revenue growth with value delivery. They invest in customers’ success, beginning with an initial onboarding and rollout plan for each customer. They also monitor utilization rates by customers on their software platform to manage expanded use over time. Their proven ability to grow transaction volume has been a function of product depth, technological excellence, and the ability of their sales and marketing teams to match their solutions with the strategic objectives of their customers.
How did Blend evolve its platform and products in its current state?
From the above image, we can see how Blend initially started out by building out products for the mortgage industry, then added products for consumer banking and homeownership. Later in 2020, they converted the entire product line into a platform that would enable them to build more products faster. While doing this they were able to achieve a simultaneous increase in the number of banking transactions powered by their platform. The image below gives an overview of this burst in banking transaction volume.
What is Blend’s Market Opportunity?
Blend competes in several large markets, including IT spend for banking software and commissions for home insurance policies, title insurance policies, and real estate transactions. Blend’s software platform can address a significant share of the massive total addressable market that these opportunities represent:
- Gartner estimates that global enterprise IT spending for software within the banking industry was approximately $72.4 billion in 2020, which is expected to grow annually at approximately 13% through 2025.
- The American Land Title Association estimates that, in the United States, more than $19.2 billion was spent on title insurance premiums in 2020.
- IBISWorld estimates that, in the United States, more than $105.7 billion was spent on home insurance premiums in 2020.
- Blend estimates that, in the United States, a total of $123.5 billion was spent on realtor commissions in 2020 based on data from the National Association of Realtors, EffectiveAgents.com, and the St. Louis Federal Reserve. According to the National Association of Realtors, the number of total existing-home sales in the United States for 2020 was 5.64 million and the average home sale price in 2020 was approximately $387,000, according to the St. Louis Federal Reserve. The average realtor commission rate for 2020, according to EffectiveAgents.com, was 5.656%. Blend’s estimate of realtor commission spend for 2020 was calculated by multiplying the number of total existing-home sales by the average home sale price and then multiplying that product by the average realtor commission rate.
Blend currently estimates the serviceable addressable market for Blend to be greater than $33 billion, based on the number of home financing and consumer banking transactions in the United States in 2020 multiplied by Blend’s average revenue per transaction in each respective subsector in which they are currently active. These subsectors include (i) core mortgage products, such as mortgage funded loans and digital closings, (ii) homebuying ecosystem products, such as home insurance, realty, title and settlement, and notarization, and (iii) consumer banking products, such as credit cards, vehicle loans, personal loans, and deposit accounts. Blend first estimated the size of each market subsector in which they are currently active by compiling a comprehensive set of market size data and identifying a low and high estimate for the number of transactions per subsector. They then multiplied the revenue per transaction for each of their currently available products by the low estimate number of transactions for the applicable subsector. They then added each of these subsector estimates together to arrive at an estimated serviceable addressable market figure of greater than $33 billion. Blend believes the serviceable addressable market for their offerings will continue to grow over time as they add more products to their software platform, grow their partner ecosystem, and expand internationally. They believe that their software platform is well-positioned to address the critical requirements of and capture a meaningful portion of these markets.
What is Blend’s Growth Strategy to capture this market opportunity?
Blend’s focused on driving growth through the following strategies, while always maintaining a laser focus on the success of customers:
- Increase the volume of banking transactions Blend powers for customers - Blend’s revenue grows as they increase their transaction volume by attracting new customers and by growing their relationships with existing customers. Blend’s customers include less than 5% of the top 100 financial services firms in the world, and there is a large, untapped opportunity to provide additional product offerings to the financial services firms Blend currently serves. For example, in 2020 Blend launched a new product for traditional and digital closings that was purchased by more than 70 customers over the span of eight months. As of March 31, 2021, Blend’s product portfolio consisted of seven primary software products, and 61% of customers were using two or more products or marketplaces.
- Continue to invest in new product offerings - There are numerous opportunities to expand Blend’s product suite both horizontally and vertically over time in ways that help Blend increase the volume of transactions they power and increase their revenue per banking transaction. Through their deep customer relationships, they gain insights that help them align their roadmap and strategy with the most pressing needs of financial services firms. Blend can rapidly expand its library of modular components to support commercial banking products as well. In addition to developing products in-house, Blend will pursue selective acquisitions and partnerships to accelerate its growth.
- Integrate more marketplaces into Blend’s end-to-end consumer journeys - Blend generates commissions as consumers use their integrated marketplaces to select a realtor, purchase insurance, and shop online for used cars, which helps them increase their revenue per banking transaction. As they integrate more shopping experiences into their products, they can generate additional commissions with zero incremental consumer acquisition costs, while enabling financial services firms to deliver better consumer experiences.
What is Blend’s Competitive Advantage and why is it a durable long-term investment?
Counter positioning is a competitive advantage in which a new entrant adopts a business model which incumbents find hard to replicate without compromising/affecting their own business model. Blend achieves this by doing two things:
- Vertical integration by building their own property and casualty insurance agency with licensing in all 50 states to facilitate transactions in their home insurance marketplace, and they have signed a definitive agreement to acquire Title365, one of the largest title insurance agencies in the United States, with licenses and partnerships covering all 50 states in order to deliver the benefits of their software platform to financial services firms at greater scale. They believe the complexity, cost, and level of effort to duplicate this operational scale is difficult for others to replicate.
- They provide a seamless consumer experience in a configurable software platform for accelerating innovation which no one else provides. Blend enables financial services firms to rapidly build and launch new product offerings by leveraging Their low-code design tools and an extensive library of modular components purpose-built for loan origination, account opening, and consumer onboarding. Through their software platform, they deliver product updates on a weekly basis. Their products are highly complex and require advanced knowledge of modern software development techniques as well as deep industry expertise, including in-depth knowledge of financial services regulations, product offerings, and operational workflows for approving loans and opening accounts.
Switching costs are a competitive advantage in which a business offers products that are deeply integrated into customer’s business are difficult to switch/remove and move to other products. The switching costs are even more intense as the customers adopt more products. Blend benefits from this due to their platform, generic/flexible/modular architecture underlying the platform, and a high dollar-based net retention ratio of 162% which indicates customers not only keep using Blend’s current products but also expand the number of products they use rapidly.
Blend provides a single software platform designed for any banking product. As a leading cloud-based software provider that streamlines the end-to-end consumer journey for mortgages, consumer loans, and deposit accounts through a single, unified software platform. Blend supports multi-product shopping experiences and enables consumers to move seamlessly across digital devices, contact centers, and branches throughout the origination process, providing additional benefits and incentives for customers to standardize on their software platform across products and channels. Since 2015, Blend has invested more than $165 million in research and development to build their software platform and grow their business. Blend believes the time, cost, and effort to replicate the breadth of their products and the depth of their capabilities is difficult for others to match.
Blend has become a supplier of mission-critical software to hundreds of financial services firms, including 31 of the top 100 financial services firms in the United States by assets under management and 24 of the top 100 non-bank mortgage lenders by loan volume, and they have a proven track record of delivering their products securely, at scale, and in a way that meets their demanding needs. Once deployed, they become deeply embedded in business processes and integrated with back-office systems, which makes Blend difficult to replace. This gives Blend a strong vantage point to be able to cross-sell additional offerings to their customers. In addition, the scale and diversity of their customer base provides them with extensive data and deep insights that helps them strengthen their software platform, enhancing their ability to serve existing and future customers.
Network effects are a competitive advantage in which certain parts of the business promote and grow other parts of the business which in turn do the same to other parts of the business and this goes on in a loop forever increasing the total value created in the entire business. Blend builds this advantage with their customers(banking and financial services), their consumers, and their partners who provide incredible value to the consumers. This flywheel shown in the picture above can be thought of as more customers adopt more Blend products and power more transactions through the Blend platform, more partners are attracted to the ecosystem to provide value to the consumers, and more consumers keeping using this Blend’s products with higher engagement and a better experience which in turn leads to more transactions being powered through Blend’s platform.
Ever-Increasing Value for Blend’s customers like banking and financial institutions
Blend does this by providing the software that powers consumer journeys at financial services firms across digital, contact center, and branch channels, Blend is able to benefit from a substantial volume of high-intent consumer traffic with zero incremental consumer acquisition costs. As more consumers use their software platform to apply for financial services products, they attract more partners to their ecosystem. This allows Blend to deliver more value to consumers, attract more financial services firms as customers, expand their existing relationships with financial services firms, and generate increased revenue from completed transactions, creating a powerful network effect and differentiator for their business. Their aim is to become the distribution platform of choice for technology, data, and service providers to efficiently reach and serve consumers undertaking major financial transactions.
Ever-Increasing Value for Blend’s partners
Blend achieves this through its integrations and marketplaces Blend enables more than 2,200 currently active technology, data, and service providers to collaborate through their software platform and provide superior consumer experiences. The scale of their partner ecosystem has grown by more than 1,300% year-over-year as of March 31, 2021, and they have signed a definitive agreement to acquire Title365, which will further add more than 7,000 notaries. By aggregating transaction volume across multiple financial services firms, they are able to negotiate competitive rates for technology and data services they bundle into their products. They believe it would take competitors substantial time, effort, and cost to replicate the scale and benefits of their rapidly growing partner ecosystem.
Ever-Increasing Value for Blend’s consumers
Customers get more value due to more awesome experiences provided by their banks/financial institutions through Blend. More partners also provide more options for the consumers in terms of selection and availability of more products and services. The current consumers also engage with the product at a higher rate and generally have higher satisfaction with their banking/financial services providers.
What are Blend’s People and Culture like?
Blend has built a unique culture around their beliefs and their people which they call “The Blend Way”. The key elements of this culture are:
1. Create Long Term Customer Value - Consistently improve every day by integrating four key sources of customer value: increased growth, reduced friction, reduced complexity, and reduced risk and cost. I love their long term focus on all aspects affecting a customer though their product and services.
2. Be a Dream Team - Blend wants to hire the best people, catalyze their professional performance and growth, and build a collaborative culture where highly diverse talent will thrive. Having great motivated thriving talent shows a focus on achieving long term outcomes.
3. Act with Urgency - Act quickly, learn and move on. Blend is on a decades-long journey, where every second counts. We can see they are not afraid to make mistakes, learn from them, try out new things, take risks, and so I think they will be differentiated and innovative over the long term.
4. Focus on Inputs Over Outcomes - Improve decision-making quality rather than focusing on near-term results, believing that intelligent decision-making will yield the best outcomes over time. I like their focus on strategy and decision making, again a good long term indicator.
5. Be Bold and Take Action - Be agile and courageous in the pursuit of a big vision, nimbly leaning into the next tough challenge or ambiguous problem that’s yet to be solved. This one, same as act with urgency, leads to long term innovation and differentitation.
6. Create Unique Advantages - Build competitive edge by delivering unique value, and maintain that edge through a perpetual innovator’s mindset. Here, “Perpetual innovator’s mindset” and creating advantages gives us a hint that they are targeting long term durable growth backed by a defensible business with strong barriers to entry.
7. Distribute Ownership - Ensure developers have the authority, autonomy, and ownership to quickly and freely create. Here we see delegation or decentralization, which is generally linked to highly performant organizations.
8. Lead with Candor and Context - Recognize the inherent power in all of us, knowing that access to straightforward information shared openly is the best catalyst to manifest that power. Blend believes in openness for information access across their company, leading to a lot of transparency. I believe this fosters a deep belief and motivation in the company from the perspective of the employees.
As of December 31, 2020, Blend had a total of 577 employees.
Who are Blend’s Customers?
Customers typically complete an initial deployment for one or two products and then add more products over time, building toward a unified consumer experience that supports multi-product shopping journeys. Blend’s dollar-based net retention rate was 162% as of December 31, 2020, which tells us that Blend is constantly expanding A LOT with their customers.
Their customers are currently based in the United States and range in size from the largest banks, credit unions, fintechs, and non-bank mortgage lenders in the nation to smaller community lenders with less than $1 billion in assets under management. Representative customers include Wells Fargo, U.S. Bank, M&T Bank, Truist, BMO Harris Bank, Elements Financial Federal Credit Union, Mountain America Credit Union, Lennar Mortgage, PennyMac, Primary Residential Mortgage, Inc., and Opendoor.
Blend focuses its go-to-market strategy on large financial services firms. As of December 31, 2020, they had 291 customers, including 31 of the top 100 financial services firms in the United States by assets under management and 24 of the top 100 non-bank mortgage lenders by loan volume. In 2020, 18 customers each generated more than $1 million in revenue, which represented 53% of their revenue in 2020.
What is Blend’s customer value proposition?
Blend helps customers increase their revenue by powering best-in-class customer experiences that result in:
- Increased consumer acquisition(look at the increase in load volume in the above image)
- Deeper consumer relationships(look at the increase in submitted applications in the above image)
- Increased consumer satisfaction(look at the NPS in the above image)
Blend also positions customers for long-term success by helping them streamline operations and increase efficiency through:
- Faster innovation cycles(look at the hours saved in the above image)
- Lower operating costs(look at the time saved by loan officers in the above image)
- Lower development costs(look at the hours saved in the above image)
- Reduced risk of fraud and human errors(look at the financial impact in the above image)
It is their goal to help banks, credit unions, fintechs, and non-bank lenders proactively improve financial opportunities for consumers. By removing friction, increasing transparency, and bringing greater personalization to consumer acquisition workflows, they see the potential for their software platform to help financial services firms improve the lives of millions of consumers.
What are some successful Customer Case Studies?
With more than $550 billion in assets, U.S. Bank is the fifth largest commercial bank in the United States. As part of their strategy to become more central to the financial lives of their customers, the bank selected Blend in 2016 to modernize their mortgage experience. They expanded the use of Blend to include home equity loans and lines of credit in 2018, Blend’s home insurance marketplace in 2019, and Blend’s digital closings product in 2021. As a result of the partnership, U.S. Bank indicated they experienced:
- On average, a 10 day reduction in purchase cycle times with some mortgage loan cycles as short as 7 days
- Home equity loan cycles reduced from 40 days to 21 days
“We understand their customers’ focus is owning a home. Important in our selection process was choosing a technology partner who understood our vision for taking the hassle out of the mortgage process, allowing our team of mortgage professionals to focus on understanding and meeting our customers’ needs while advancing our mission of sustainable homeownership.” - Tom Wind, Executive Vice President, Consumer Lending.
BMO Harris Bank
BMO Harris Bank is part of BMO Financial Group, a highly diversified financial services provider and the eighth largest bank, by assets, in North America with total assets of $973 billion as of January 31, 2021. In 2018, the bank selected Blend to help increase market share for their mortgage and home equity products, and in 2020 the decision was made to expand use of Blend to also cover personal loans. Blend has supplemented the bank’s strong branch presence and online banking experience by further enhancing its home financing digital capabilities. According to BMO Harris Bank, Blend helped to drive results in the following areas:
- 253% year-over-year increase in digital home equity applications from 2018 to 2019
- Over 100,000 hours of processing time saved for home equity applications in a single year
“Blend has been an important part of the profitable growth across our mortgage and home equity lending products.” - Mark Shulman, Head of Consumer Lending.
Elements Financial Federal Credit Union
Elements Financial Federal Credit Union has more than 100,000 members and over $2 billion in assets. The credit union deployed Blend’s mortgage product in 2017 to improve their member experience and competitive position. In 2019, Elements Financial Federal Credit Union expanded its portfolio of Blend products to include home equity loans and lines of credit, vehicle loans, personal loans, credit cards, and deposit accounts. Key changes in average monthly results noted by Elements Financial Federal Credit Union after deploying Blend include:
- 105% average increase in application submission rate for deposit accounts
- 11% average increase in approved applications for vehicle loans, personal loans, and credit cards
- 60% average reduction in application submission times from 11.2 minutes to 4.4 minutes for vehicle loans, personal loans, and credit cards
“We want a consumer solution for all products because we don’t want our members to have different experiences on different platforms.” - Ron Senci, Executive Vice President of Sales and Lending.
Lennar Mortgage is a subsidiary of Lennar Corporation, a Fortune 500 company and the nation’s largest homebuilder. Lennar Mortgage selected Blend in 2017 to simplify the process for consumers to get a mortgage and added Blend’s home insurance marketplace in 2020. In 2018, Lennar Mortgage reported the following key benefits from their partnership with Blend:
- 2 hours average time saved by loan officers per loan
- 42% higher consumer NPS score
- Mortgage loan cycles as short as 10 days
“The thing that we like about Blend is that they’re forward-thinking.” - Tom Moreno, CIO Lennar Financial Services.
Primary Residential Mortgage, Inc.
Primary Residential Mortgage, Inc., or PRMI, is a nationwide, multibillion-dollar mortgage lender with over 250 branches, licensed in 49 states and more than 1,800 employees. Blend was selected in 2017 to improve the PRMI customer experience and maximize each loan officer’s productivity. In 2020, PRMI reported key results from their use of Blend including:
- 33% loan volume growth in 2019
- 53% of applications are submitted on mobile devices
- Mortgage applications submitted in as little as 9 minutes
“Organizations like ours are looking for solutions that allow us to transact business more effectively, remove potential defects and stumbling blocks out of the process, and help us to create a better customer experience at a lower cost.” - Chris Jones, President of Retail.
Opendoor is a leading digital platform for residential real estate that has enabled more than 90,000 customers to buy and sell homes. In 2018, Opendoor selected Blend to accelerate their ability to bring a mortgage product to market. The relationship further expanded in 2021 when Opendoor began using Blend’s integrated marketplace for property and casualty insurance. Key results from using Blend for the quarter ending March 31, 2021 include:
- 40% of applications submitted via mobile devices on average
- 66.2 average consumer Net Promoter Score
“Blend helped us meet our goals of delivering a digital experience to our customers, while accelerating our time to market.” - Eric Wu, Co-Founder and CEO.
What does Blends Management and Board look like now?
Blend’s executive officers and directors as of March 31, 2021 are listed below:
I will highlight some key insights from the management
Mr. Ghamsari is one of the co-founders of Blend and a member of the board of directors since May 2012. He previously worked at Palantir Technologies, a software company. Mr. Ghamsari holds a B.S. in Computer Science from Stanford University.
Nima brings his expertise and experience from the highly innovative and differentiated culture of Palantir.
Timothy J. Mayopoulos
Timothy Mayopoulos is the President since January 2019 and as a member of the board of directors since April 2019. Mr. Mayopoulos served as the President and Chief Executive Officer of Fannie Mae, a government-sponsored enterprise, from June 2012 to October 2018. Mr. Mayopoulos also previously held senior roles at various financial institutions, including Bank of America, Deutsche Bank, Credit Suisse First Boston, and Donaldson, Lufkin & Jenrette.
Timothy Mayopoulos brings financial expertise and experience in financial services and the banking industry to Blend.
Marc Greenberg is Head of Finance since September 2018, and as Head of People since March 2020. Marc Greenberg led the finance operations and most recently served as Vice President of Finance and Strategy at Pixar Animation Studios, a computer animation film studio, or Pixar, from November 2002 to August 2018.
Gerald Chen has served as a member of their board of directors since July 2017. He has been a General Partner at Greylock Partners, a venture capital firm, since June 2013.
Gerald Chen brings his extensive experience with technology companies and in the venture capital industry.
Erin James Collard
Erin Collard is one of the co-founders of Blend and has served as a member of the board of directors since August 2015. Previously, Mr. Collard served as their Chief Financial Officer from January 2013 to September 2018.
Roger Ferguson, Jr.
Roger Ferguson has served as a member of the board of directors since March 2021. Mr. Ferguson served as the President and Chief Executive Officer of TIAA, a major financial services company, from April 2008 to April 2021.
Roger Ferguson brings his financial expertise and extensive experience in financial services and the banking industry.
Ann Mather has served on their board of directors since June 2019. Ann Mather served as Executive Vice President and Chief Financial Officer of Pixar from September 1999 to April 2004. Ann Mather has served as a member of the board of directors of Alphabet Inc., a global technology company, since November 2005, Netflix, Inc., a streaming media company, since July 2013, Airbnb, Inc., a vacation rental online marketplace company, since August 2018, and Bumble Inc., an online dating app, since March 2020.
Ann Mather brings her background serving as a finance executive at a number of technology companies and her experience serving as a director of various private and public companies.
How are the executives being paid currently?
The following table sets forth information regarding outstanding equity awards held by their named executive officers as of December 31, 2020:
Founder and Head of Blend Long-Term Performance Award
The Founder and Head of Blend Long-Term Performance Award is meant to support Blend’s transition to a public company while providing a meaningful incentive to Mr. Ghamsari with sustained long-term value creation for their stockholders, and minimize dilution if returns are lower than contemplated.
The Founder and Head of Blend Long-Term Performance Award are divided into five tranches. If an initial public offering (or other listings) of their common stock is not completed within 15 months of the award’s date of grant, the Founder and Head of Blend Long-Term Performance Award will terminate in full. If an initial public offering (or certain other listings) of their common stock is completed within 15 months of the date of grant, then the shares in tranche one will vest upon the initial public offering and the shares in tranches two through five will have a “Company Stock Price Hurdle” associated with the vesting of such tranche. The applicable performance goal must be achieved by the “Tranche Expiration Date” set forth below for any shares subject to a particular tranche to the vest.
Vested shares (including shares acquired pursuant to the exercise of the option not used to pay the associated exercise price and tax withholding in connection with the exercise of the option) generally must be held for two years from the vesting date, or if earlier, until there is a change in control of the company or termination of service due to death or disability.
Blend’s executive officers, as of December 31, 2020, were:
- Nima Ghamsari, Head of Blend, Co-Founder, and a member of their board of directors;
- Timothy J. Mayopoulos, their President and a member of their board of directors; and
- Crystal Sumner, their Head of Legal, Compliance, and Risk and Corporate Secretary.
The amounts below represent the compensation awarded to or earned by or paid to their executive officers in 2020:
The compensation structure seems reasonable and coupled with their insider ownership and Nima’s performance awards, seems fit for long-term value creation.
What is Blend’s current Insider Ownership for Executives and the Board?
After the IPO, Blend had 213,084,607 shares of Class A common stock and 12,883,331 shares of Class B common stock outstanding. Using these numbers we get to a ballpark of 8% ownership for Blend’s CEO Nima and 8% for the rest of the board and management, bringing us to a total of 16% insider ownership.
This 8% ownership translates to an ownership interest of approximately $300 million. This amount indicates a significant insider ownership commitment from the Nima.
Another thing to note is the Dual Class common stock for Blend. Nima owns primarily class B shares of Blend, which entitles him to an astounding 80% of voting power for all the decisions made by Blend. I believe this structure lays the foundation for long-term decision-making from Nima.
What do Blend’s current Financials look like?
Following is the income statement for June 2021.
Following is the balance sheet for June 2021.
Following is the cash flow statement for June 2021.
Following the combined(Blend labs and title365) income statement for 2020:
Following the combined(Blend labs and title365) income statement for Q2 2021:
- Revenue - $32M Q2 2021, $96M Blend labs, $308M 2020(combined with Title365 acquisition) and $226M guidance for full-year 2021 for blend labs, $365M guidance for combined company for full-year 2021
- Revenue Growth - 46% Q2 2021(just blend)
- Transaction volume - 520k Q2 2021 at 51% growth
- Gross Margin - 61% Q2 2021 for Blend, 40% for combined company Q2 2021, 63% 2020 for Blend, 38% 2020 for the combined company
- Earnings Margin - 17.8% Q2 2021(just blend)
- Total Debt/Equity - 1.04 Q2 2021(just blend)(Okayish balance sheet for a company at this stage)
- Net Cash - $369M Q2 2021(just blend)
- EV - $2.9B (Assuming $2.76B market cap, $0.51B total debt and $0.369B cash)
- EV/Revenue 2020 - 9.4x for combined
- EV/Revenue 2021 from Guidance - 12.83x for blend and ~8x for combined(Still pricey for 40% gross margins)
- Dollar Based Net Retention Ratio - 162% for 2020
Watch out for
Blend’s acquisition of Title365 has led to depressed overall gross margins. Currently, the Q2 2021 gross margins for the combined company are at 40% and improvement from 38% in 2020. I believe in a few years they will hit a gross margin of 50%+ and an operating margin of 10%+(if they optimize for profitability). This acquisition was pivotal for Blend as they can sell their title and closing product across all states in the US and would be a fully vertically integrated technology company in that domain. Next quarter’s financials would give us a good understanding of how the combined financials will look like.
What are my final thoughts on Blend AKA TL;DR;?
Overall Blend is a highly differentiated and innovative consumer fintech platform that is vertically integrated, has a significant competitive advantage with a long runway for growth empowering consumers and financial services and institutions with simplicity, transparency, and equal access for everyone. I have a feeling they have just entered a hypergrowth mode and we should buckle up and hold on to Blend for a long-term ride.
Note: A lot of information in this article is compiled from Blend’s website, SEC filings, and recent presentations/conferences.
We are at the end of the deep dive. By now you should have a thorough understanding of everything that Blend is doing to achieve durable long-term growth. Please let me know if you want to see more details to be incorporated into these deep dives.
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Modern Growth Investing