Athena enters the pantheon
Where many new lenders are seeking growth in areas they believe are under-served by the banks, Athena is going head to head with established players in the prime mortgage space. The company’s Sydney-based cofounder and chief operating officer, Michael Starkey, tells KangaNews how it is winning business through a true fintech offering – and how it will fund its book.
What can you tell us about Athena’s lending journey since its official platform launch in February 2019?
There has been lots to keep us busy since February. One of the advantages of having a highly flexible platform is that we can respond quickly to customer feedback. Since launch we have already implemented dozens of changes, from credit policy to website design and amendments to our application flow.
In the meantime, the Reserve Bank of Australia cut the official cash rate twice. There have also been changes to Australian Prudential Regulation Authority (APRA) parameters as well as focus on Australian Securities and Investments Commission (ASIC) responsible-lending guidelines. In short, we are responding to a lot of flux in the industry.
We received very good publicity from passing on the rate cuts so quickly. The APRA buffers and some of the ASIC dialogue have also been helpful in shining a spotlight on the unintended consequences of tightened lending criteria. For example, people that already have a loan are finding it more challenging to switch to a better rate because they are having to jump through the same hurdles as applicants for new credit.
Athena is competing with the major banks on cost as well as service. How has the process of communicating the value proposition to customers been?
Mortgage customers tend to be the most dissatisfied with major banks – with net promoter scores (NPS) of minus 20 per cent. At Athena we have consistently achieved an NPS north of 60 per cent.
Our hypothesis was that if we were to engineer a very good online application process, able to handle all the responsible-lending steps including assessment of mortgage serviceability, we would attract more people willing to apply for a digital mortgage. This hypothesis has proven correct. We are receiving a large number of applications after hours, for instance – as customers are able to complete the end-to-end process online.
It is also interesting that the vast majority of our applications are not from tech-savvy millennials but from customers who used a broker and borrowed from a major bank for their last loan.
In May 2019, Athena’s target was to originate A$500-700 million (US$336.5-471 million) of loans by the end of the year. How are you tracking?
We have had more than A$2.4 billion of completed applications come through and an additional A$1 billion in draft format. We have now settled more than A$300 million and will continue to settle around A$20-30 million per week for the next little while.
What are the funding implications of this growth and what sort of warehouse capacity does Athena have?
We are also finding a real resurgence of appetite for the Australian market from international banks. We have been engaged with around six or seven foreign banks and have a shortlist of two that we think will come on board either later this year or during the first half of 2020.
We are writing prime and super-prime mortgages. This is good credit to get comfortable with for an international bank that is taking a foray into a relatively new market.
The next stage, presumably, is to term out into securitisation markets?
If we were engaging in nonconforming lending we would be talking about years of track record to be able to get a rating. In the prime space, we believe we can achieve a rating in around three years from launch.
We are observing very strong appetite for securitisation at the moment – such that we think it will be possible to consider privately placing a term securitisation in 2020. We will start working on this in early 2020.
Would this type of private placement be a term structure funded by two or three large institutional investors?
How much further away is a public securitisation deal?
One of our key strengths will be how transparent we can be with our data. We envisage being able to provide wholesale investors with access to real-time portfolio-performance data on a daily basis.
Although we are an early-stage business, we have very experienced people as well as good data and system capabilities – and we are playing in a part of the market that is safe to begin with. These factors should provide comfort to investors.
Athena is also contemplating adding a mortgage fund and direct loan sales to the options in its funding suite. What is the importance of having several different forms of complementary funding in the toolkit even as a relatively small book?
It won’t be necessary to diversify beyond traditional funding channels in the first 3-4 years. However, we have taken the view that doing so gives us capacity and extra protection against dislocation in credit markets.
As part of our long-term strategy, we are already starting this journey by designing alternative funding structures – like our unit trust – and by thinking about what whole-of-loan sale arrangements would look like for different types of investors.
Our advantage is that we collect the data we need to allow us to tailor a debt offering to the needs of the wholesale investor right the way through from the application stage, because we have configured the platform for funding awareness. In other words, we are flexible enough to meet the individual investor’s needs whether they prefer to buy residential mortgage-backed securities, a unitised structure or a whole-loan sale.
How much interaction has Athena had with different types of investors?
From what we have learned, there are a number of natural potential buyers of loans, including super funds and insurers as well as authorised deposit-taking institutions which are long deposits and are seeking diverse high-quality mortgage assets to fill a gap in the balance sheet.
Concerns about longevity are among the biggest question marks critics have about new lenders. Do you think the diversity in funding options Athena is putting in place also signals intent to be here for the long haul?
It is absolutely not about flipping the business – and we won’t be carrying out an initial public offering in the near term. Nathan Walsh and I, as cofounders of the Athena business, are both very aligned to the notion of Athena being a long-term play.