2020 is the wildest downward ride in the market since 1929, which, one would think, is taking its toll on the fintech ecosystem serving banks and credit unions.
GonzoBanker mothership Cornerstone Advisors’ recent stress test of the market estimates that 52% of banks and credit unions under $50 billion in assets will have negative ROA in the coming fourth quarter. And the industry’s two largest fintech providers, FIS and Fiserv, reported organic revenue declines largely due to economic impact to the payments market.
It was into this world that the much celebrated digital lending fintech OnDeck recently sold to Enova for $90 million, a virtual fire sale at way under 1X OnDeck’s revenue. As American Banker’s Kevin Wack pointed out, the sale price was 10% of OnDeck’s market value height in 2015, the same year that yours truly was pointing to OnDeck as an example of slick process and marketing focus.
While one might think fintech fire sales are the norm for 2020, a string of other recent lending fintech deals proves otherwise:
nCino recently announced an initial public offering that started with valuation below $3.5B or 26X revenue but quickly doubled in the market. As of this writing, it sits at a $7B valuation, over 50X revenue – its historic height. This is an unprecedented high valuation in any year, so expectations are high. Congrats to Pierre Naude and the team at nCino!
Black Knight along with Cannae Holdings, Inc. and Thomas H. Lee Partners recently announced the acquisition of mortgage pricing analytics provider Optimal Blue for $1.8B or 16X revenue. At $12.7B or 11X revenue, Black Knight’s valuation has risen since the announcement and is at its historic height. Congrats to Black Knight CEO Anthony Jabbour, Optimal Blue CEO Scott Happ and the teams at both firms.
Ellie Mae recently announced a planned sale by private equity firm Thoma Bravo to Intercontinental Exchange (ICE) for $11B or ~12X revenue. Among ICE’s assets are the New York Stock Exchange. ICE’s market valuation has increased since the announcement and is at its historic height. Congrats to Orlando Bravo and team at Thoma Bravo for a rapid increase in valuation in a short 18 months after its February 2019 purchase of Ellie Mae at 7X revenue (reminiscent of Bravo’s 2013 flip of Digital Insight from Intuit to NCR). And congrats to Jonathan Corr and the team at Ellie Mae for what appears to be a doubling of revenue for a mature company in that same period. While historic refinance volume had to be juicing Ellie Mae’s revenue some, it’s hard to argue with that kind of growth.
Following on Goldman Sachs Marcus and Apple Pay entrants to the fintech market, now we have ICE, NYSE and Nasdaq. For anyone thinking that Wall Street investment banking was separate from Main Street retail banking, commercial banking and fintech, 2020 is clearing that up. It’s one big sandbox.
How are the nCino, Black Knight and Ellie Mae deals different from OnDeck’s grueling sell-off?
Through an initial (ultimately temporary) deal with Chase to be its lending fintech vendor and trying to build upon that pivot, OnDeck’s bank strategy had slowed and the company was primarily a challenger, not an enabler, to banks. On the other hand, nCino, Black Knight and Ellie Mae are among the strongest go-to lending automation brands for banks and credit unions with automation both for employees and, increasingly, their end consumers.
While nCino initially focused on commercial lending origination, it has expanded into treasury origination and other loan origination types, deposit origination, and – through 2019 Visible Equity and FinSuite acquisitions – related data analytics and how that can improve the lending process.
Black Knight’s acquisition of Compass Analytics (2019) and Motivity Solutions (2016) already had it strongly in the analytics camp prior to the Optimal Blue acquisition. Optimal Blue has been the go-to stand-alone mortgage pricing solution in the market. And pricing is a unique area of analysis where there aren’t dozens of competitors.
Ellie Mae had pricing and other analytics and brought more into underwriting with the 2019 acquisition of Capsilon. More importantly, Ellie Mae has thousands of financial institutions originating over a third of the mortgage loans in the U.S. market on its platform with all the data that goes along with it.
My colleague and Cornerstone Advisors Research Director Ron Shevlin rightly points out that, beyond its UX, OnDeck got very good reviews for incorporating real-time lending decisions into that UX using a proprietary credit scoring system. But, analytics was not how it was primarily (or even secondarily) known, and if that proprietary scoring system was so uniquely good and difficult to replicate, its sale price would have been much higher. OnDeck is not bringing the analytical muscle to hundreds of financial institutions, their customers and an entire marketplace like nCino, Black Knight and Ellie Mae are.
Demonstrating how much market coverage these analytical solutions have, the timing of the Ellie Mae and Optimal Blue deals cannot be an accident. Just weeks after Optimal Blue announced its mortgage market indices on Nasdaq’s platform to “bring transparency throughout the financial ecosystem,” Intercontinental leadership told The Wall Street Journal that it plans to “profit from the [Ellie Mae acquisition] by amassing a huge trove of mortgage data” that it would sell alongside the financial data it already sells with an aim to be the de facto source of information for the U.S. mortgage market.
As I pointed out on other lending/analytics developments from Q2, Abrigo, CU Direct, Finastra, MeridianLink, FICO, ARM Insights (now Facteus) and Moody’s, lending is the hottest proven area of applied data analytics in banking.
All in, these read like exciting developments and a shot in the arm of a market where optimism is needed.
-Sam