Special Report: CEO Clayton Howes said the result is reflective of strong execution on MME’s multi-channel lending strategy.

Fintech lending platform MoneyMe (ASX:MME) caught the market’s attention yesterday with a strong trading update for the December quarter.

Shares in the company closed almost four per cent higher, amid a broader market selloff which saw the ASX close sharply lower.

MME’s trading data was highlighted by new loan originations which rose to $69m – a gain of 52 per cent from the September quarter.

Reflecting strong operating momentum, new loan generations rose to a new record high of $25m.

And that figure is set to be immediately eclipsed in January, with loan growth set to rise by another $27m.

Product mix

Following the result, MoneyMe CEO Clayton Howes sat down with Stockhead to provide some extra context around the numbers.

He highlighted that with different lending channels and funding channels already in place, MME is positioned to drive scale and margin growth over the medium term.

“One of the key messages from our point of view is the diversification in our product set, because it means your addressable market is just bigger,” he said.

“With the balance sheet strength that we have behind us, it leads to sustainable revenue streams because average borrower numbers are increasing, and the ability to cross-sell products creates further value.”

Breaking down the Q4 numbers, the bulk of MME’s new loan growth (~90pc) came through two key channels – personal lending and its ‘Freestyle’ virtual Mastercard.

MME’s Freestyle product combines a traditional credit card service with fixed-instalment repayment plans.

The result is a modernised credit card offering that’s making headway in a sector which is ripe for disruption, Howes said.

“We’ve found the tech solution to compute data fast enough so that you’ve got this modern product where every time a customer uses it, they’ve got that financial control at their fingertips and they know how many payments they have to make.”

Margin growth

As a measure of operating efficiency, MME’s record monthly loan totals in Q4 flowed through to quarterly revenue of $11.7m.

With accelerating growth in new loan originations, Howes said MME now has a business model that can drive significant profit growth in the years ahead.

For starters (and unlike many listed fintech platforms) the company already makes money.

MME reported a statutory net profit after tax of $1.3m for FY20, up 300pc from 2019 and prior to the booming growth in new loans it generated in the second half of last year.

A key feature of MME’s profit model lies in its capacity to combine modern fintech lending services with wholesale funding from major banking players.

In that context, Howes said MME’s ~$170m warehousing facility — backed by Westpac and the Australian Office of Financial Management (AOFM) — gives it an important competitive advantage.

“As a lending business, when you get major bank funding it sets you up for 20 years of growth,” Howes said.

The company’s warehousing deal with Westpac saw its loan-asset funding costs more than halve, to less than five per cent.

However, not every company can facilitate those types of deals — particularly in the wake of the banking royal commission.

Which in turn is a reflection of MME’s underlying proposition, Howes said.

“To get to that point you’ve got to demonstrate the strength of your loan book to the highest standards, and address all regulatory risks,” he said.

“So that’s really what separates us for anyone that hasn’t got a bank deal in play.”

Looking ahead, he’s excited about what MME has the opportunity to achieve with funding locked in and loan growth accelerating.

“As an example, if that Westpac financing deal had been in place for us at the start of 2020, we would’ve have saved another $9m in bottom-line profits,” Howes said.

“And that was obviously with a smaller loan book, prior to the growth we’re seeing through Q4 2020 and into January.”

“So that’s the size of what the next year looks like for us.”

In addition, the company’s lending model means each new customer loan typically generates around two years’ worth of revenue, meaning MME isn’t left “spinning the flywheel” trying to onboard new customers and merchants.

“When you operate as a tech business, with margin in your products and a good price point – that’s when you can compete long-term,” Howes said.

“Today’s (loan) originations count for revenue that’s going to build incrementally without requiring new customers.”

“So these are big results for us, and we’re looking forward to presenting our half-year figures before the end of the March quarter.”

This article was developed in collaboration with MoneyMe, a Stockhead advertiser at the time of publishing.

This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.