Embedded Bridging Loans – Future or Fad?


embedded bridging loans

Imagine if your clients could access your bridging loan product at the checkout of any property or auction site. Using the latest machine learning and open finance technology, they could be approved for credit in a matter of seconds. Five… Four… Three… Approved already.

What’s more, borrowers could add bolt-ons like lawyers or insurance with another effortless click. Gone are the weeks of paperwork, unnecessary grey hairs and admin nightmares.

The whole idea of embedded bridging loans is just so deliciously pain-free, it feels like it could never be true. Like we are torturing ourselves at the very thought. And yet… Maybe it will happen.

Here’s how tantalisingly close we are, and what’s standing in the way.

The concept has already been proved with BNPL

In many industries, this one-click lending fantasy is already reality. Buy Now Pay Later (BNPL) has exploded across customer retail platforms. You can almost hear the fireworks and taste the dynamite when those Klarna, Splitter or Shopify icons ping up at the checkout. These deferred payments are really hitting the spot. US shoppers spent a jaw-dropping $50 billion through these platforms last year. That’s about 3.5% of total sales. And in Britain and Sweden, BNPL accounts for 7% and a jaw-dropping 28% of sales respectively.

But that’s just the beginning. According to the latest forecasting, that $50 billion in the US is expected to multiply to a staggering $265 billion by 2026. Clearly there is a lot of money to be made, and the lender that leaps first can benefit from a seriously competitive first-mover advantage. That lender will be the default option of every borrower. Imagine!

However, there’s a big jump between one-click lending for a sofa, compared to a house. Would it be possible to implement this technology on a larger scale? Excitingly, the answer is yes.

It’s already technically possible to offer embedded bridging loans

“Any lender can take advantage [of embedded lending]”, affirms Leigh Pepper, Chief Product Officer at 10x Banking. “Provided they have the technology and operating model”. Pepper is one of the brains behind building the complicated embedded finance systems. Mostly, he helps banks and BNPL companies to implant their services into retail platforms.

According to him, “at the heart of this are APIs (application programming interfaces) that enable other systems to embed the application process and product distribution into other providers channels and experiences”. Or in slightly less sophisticated terms, APIs mean that platforms can be linked together. All that’s missing from connecting a bridging lender to an online shop is simply adding the technology.

Some companies are already halfway there. Take Habito, for example, in just a few clicks this brand offers customers a mortgage in principle. That’s lightyears away from the tedious process the rest of us had to go through.

Another firm called Vontive, based in the US, creates embedded mortgages for investment properties. This company is probably the closest thing we have to offering embedded mortgages or embedded bridging loans. As of August 2022, Vontive had already processed an impressive $1.1 billion of loans, and the momentum is still going strong.

An instant loan approval embedded into the property website is revolutionary. This could be the biggest disruption the bridging industry has ever seen. Surely, it’s the future?

Regulations will hold back mortgages … Potentially giving bridging lenders a head start

BNPL and bridging lenders have something interesting in common. Traditionally, they are both unregulated. This means that, unhampered by compliance and tick-boxing, they can race ahead with innovative technology.

By contrast, mortgages will have a different set of rules. As Cameron Orcutt, founder of Onladder and demander of much faster mortgages explains to me.

“The mortgage industry is highly regulated”, he begins. “Your average home buyer needs to be protected, if a mortgage is provided to them without the proper advice, homebuyers will eventually lose confidence in the process and the mortgage providers could face significant regulatory risks”.

For him, embedded mortgages cannot go ahead if it means missing out on giving customers essential (and time-consuming) advice. “If mortgage providers do the wrong thing, people could be put in an adverse financial position, which cannot be allowed to happen. Extra care and proper product design is needed to avoid this”.

But he acknowledges that it’s not quite the same situation with bridging loans. After all, they tend to have a different client base, often made up of sophisticated investors. And, most significantly, the industry is largely unregulated. “Maybe for bridging loans or less regulated areas of the market it could happen”, he concedes.

Take a moment for that to sink in. If bridging lenders can offer one-click loans on property websites– after all, the technology is there – and mortgage providers cannot, that would mean an insane competitive advantage. Insane.

Of course, it may not be quite that simple. For example, to take advantage of open banking technology – which could be required for instant credit checks – lenders will need to be regulated. But, nevertheless, even with these slight hiccups, there is a vast universe of untapped potential for bridging lenders in the world of embedded finance.

Are embedded bridging loans the future or a fad?

You can lead a horse to water, but you can’t make it drink. Despite the incredible potential of embedded finance and bridging loans, it was difficult to find anyone from the industry to talk about it for this article. Like, really difficult. People either scheduled interviews and then later changed their minds or point-blank rejected the idea. Why? What can this tell us?

Sometimes silence speaks louder than words, and it feels like there is an iron-clad reluctance to innovate in this direction. Perhaps it’s because bridging loans are best conducted face-to-face over a desk. Or maybe the industry is so overdue a digital transformation that the idea of talking about embedded finance feels embarrassing. Alternatively, perhaps experts in bridging are not experts in embedded finance and don’t feel qualified to discuss it.

Whatever the reason, there is an incredible opportunity for any bridging lender brave enough to try it. Future or fad… It’s in your hands.