Financial technology companies, or fintech, see themselves as disruptive forces bent on teaching traditional banks a painful lesson in how to appeal to younger consumers with online services. The stock market isn't so sure.
Vancouver-based Mogo Finance Technology Inc., whose share price has fallen sharply since its debut on the Toronto Stock Exchange a year ago, offers a clear example of how an ambitious long-term strategy is facing indifference from investors.
On Monday, Mogo officially launched its new account and app, a $120-million undertaking that pushes its digital banking presence by combining a quick online sign-up process with a free credit score and prepaid Visa card.
The launch came with plenty of trash talk directed at the incumbent players on Bay Street: "We believe that we're the leading challenger brand to the banks," Greg Feller, Mogo's chief financial officer, said in a statement. "In fact, we're growing faster than any of the top six banks in Canada, and faster than the top credit unions."
Trouble is, Mogo's share price is not reflecting that success. It has fallen more than 80 per cent from an initial public offering of $10, even as bank stocks cruise near record highs, suggesting that the market isn't buying the fintech bravado just yet.
Perhaps more troublesome, other publicly traded fintechs are suffering similar setbacks, reflecting skepticism that is hanging over the entire sector. U.S.-based LendingClub Corp., for example, has seen its share price tumble more than 50 per cent so far this year.
To be fair, U.S. online lenders are beset with conditions that may be unique to the American market. Concerns about loan quality, disclosure and returns on loans have walloped a sector that is trying to appeal to consumers who can't get loans from banks. LendingClub, Avant Inc. and Prosper Marketplace Inc. have all cut a significant number of their employees, making investors wonder which industry is being disrupted here.
Though caught in the downdraft, Mogo is sticking to its plans of disruption. It maintains that young consumers who sign up for an online loan or prepaid credit card today could soon be turning to Mogo for additional financial services as their financial needs mature. The company hopes to offer mortgages and wealth-management products, such as a robo-adviser, within the next 12 months.
"This is all about re-imagining what banking should be in a digital world," David Feller, Mogo's chief executive officer, said in an interview.
Right now, Mogo needs to share its customers with traditional banks, given that its services are limited. It is content, therefore, to take a relatively small space within the consumer's wallet – say, with a loan that might appeal to some consumers who have been rejected by traditional banks because of their risk profile.
But Mogo harbours bigger ambitions.
"Over time, as we launch new financial products and new features, we expect to get more and more share of the customer's financial wallet," said Mr. Feller, who is Greg's brother. "And then maybe one day, someone can completely move away from their bank account because they have their mortgage, wealth management, all of that stuff, completely handled by Mogo."
It is showing some success. Revenue in the second quarter, ended June 30, rose 23 per cent year-over-year. Gross loans increased 88 per cent over the same period and its customer base expanded by 81 per cent, which is the sort of growth that banks can only dream of.
But with quarterly revenue at just $12.7-million, the absolute numbers are still tiny, making the threat of disruption look distant.
"Now, it's really about execution," Mr. Feller said. "We think that when people try this new digital banking experience, they'll get a sense of 'Wow, look at what Mogo has actually created.' I can tell you that there is no bank platform in Canada today that is even close to that."
David Berman