Michael Starkey, the firm’s co-founder and chief operating officer, says A$500-700 million of loan volume is a “very realistic” target for the end of 2019 – adding that such volume will already be sufficient for Athena to contemplate private-placement-style RMBS issuance.

It has already progressed from seed-capital funding to use of loan warehouses. Starkey says that, in partnership with Resimac, Athena has a warehouse at National Australia Bank (NAB) and is “actively discussing” adding capacity with NAB and others – including domestic and international providers.

Moving into capital markets will follow in relatively short order. Nathan Walsh, co-founder and chief executive at Athena in Sydney, says: “We will be active in traditional wholesale markets straight away but we also think it is very important to be able to target different types of institutional funds, especially those that might not typically be active in the RMBS market.”

Unlike most nonbank mortgage lenders, Athena is not targeting an area of the market that is under-served by major banks but instead wants to compete – on price and service – for prime loans. It is looking to lend to owner occupiers and investors but not for construction, at less than 80 per cent loan-to-value ratio and in capital cities.

The primary source of lending-cost advantage lies in superior systems, according to Walsh. Its model is direct to borrower via online interface – thus removing broker fees from the equation – and Athena also believes the degree of automation its platform offers combined with the granularity of data it captures gives it an edge that translates into better lending rates for borrowers.

While Athena acknowledges that the major banks will have the edge when it comes to cost of funds, it is also aware that competing in the prime space means the startup business will have to fund as efficiently as possible. The scale of its ambition means it is also already planning for a time when it pushes up against securitisation-market capacity.

Steve Lambert, capital markets adviser at Athena in Sydney, admits that RMBS capacity is likely to be “a 2025 problem” rather than something the lender has to confront now. But the nature of its target business and a long-term strategy mean it makes sense to add the mortgage fund and direct mortgage investment to Athena’s suite of wholesale funding options.

“The fact that we are already looking at three separate funding avenues – and hope to add more as we identify them – is, to my mind, what makes this business unique,” says Lambert.

The company’s pitch is that allocating some portion of the superannuation pool to direct mortgage investment will unlock value from assets that are already heavily exposed to the domestic mortgage space. Lambert says 25 per cent of all superannuation exposures are to the Australian banking sector – via equity, additional capital, wholesale debt, securitisation and deposits – and the banks have more than doubled their exposure to residential mortgages since the 1990s, to become around two-thirds of total balance-sheet assets.

“When you take an exposure to the banks you are also effectively buying into the banks’ lending approached and cost structures,” Lambert tells KangaNews. “If there is an alternative, good business model out there it makes sense to take direct exposure to its assets.”

Athena plans to offer direct-loan investors the option to tailor bespoke asset packages including by credit level and geographical distribution. This would allow, for instance, mutual banks to add diversification to regionally concentrated books via high-quality assets.

Another option Athena is exploring involves a closer alignment with superannuation funds. This could in theory even involve the funds which ultimately own Athena mortgages also helping distribute the product to their members. Walsh says this would benefit the member at both ends of the lending chain: a cheaper home-loan cost at the front end and a better return than lending to banks on the investment side.

The most obvious precedent is in the Dutch market, where direct investment in mortgages by pension funds has become much more prominent in the past decade. This has helped reduce the share of the mortgage market held by banks to barely half, from more than 80 per cent around the time of the financial crisis.

Athena’s founders acknowledge the hill their business has to climb to start making an impact in Australia’s bank-dominated market. Walsh says: “There is a chasm to cross and we are aware than not all the challengers will be able to deliver what is needed to get there. But it is undeniable that the Australian lending market is unusually concentrated.”

Competition within the Australian nonbank space is limited as most of the established players focus on noncomforming lending to a greater or lesser extent while the main area of focus for challenger lenders appears to be nonmortgage lending. The entity with the most similar profile to Athena – but much larger scale – is likely Firstmac. It too targets prime loans and originates primarily through a web platform.

Athena backs its cost efficiency to deliver a competitive product with any lender. For instance, Walsh says it wants to run its loan-processing platform at less than half the cost of traditional lenders.

But direct competition with other nonbank lenders is not the main game. “We are actually encouraged by what the likes of Firstmac have achieved – we don’t see it as direct competition because the goal is not to fight for share of a fixed size of digital market. We want to see that component of the overall mortgage market grow,” Starkey comments.

The same kind of thinking led to Athena’s decision not to use broker distribution at all. “Brokers are a huge part of the market today and will continue to be so tomorrow,” Walsh admits. “But we also think the section of the borrower market that goes to digital will grow. We want to be best in class at what we do, and that means providing Australia’s best home-loan experience in the digital space.”