Prospectus Summary
PROSPECTUS SUMMARY This summary highlights selected information that is presented in greater detail elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our Class A common stock. You should read this entire prospectus carefully, including the sections titled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, and “Unaudited Pro Forma Condensed Combined Financial Information” and our consolidated financial statements and the related notes included elsewhere in this prospectus, before making an investment decision. Unless the context otherwise requires, the terms “Blend,” “the company,” “we,” “us,” and “our” in this prospectus refer to Blend Labs, Inc. and its consolidated subsidiaries, and references to our “common stock” include our Class A common stock, Class B common stock, and Class C common stock.BLEND LABS, INC.
Company Overview
It’s our vision to bring simplicity and transparency to financial services, so everyone can gain access to the capital they need to lead better lives. To realize this vision, we have built a market-leading cloud-based software platform for financial services firms that is designed to power the end-to-end consumer journey for any banking product. From the moment a consumer starts an application for a loan or a deposit account to the moment they digitally sign the final documents, our software platform streamlines the process, so financial services firms can deliver superior consumer experiences, drive growth, and increase operational efficiency.
Consumers expect modern banking experiences to be as simple as other online shopping experiences. However, financial services firms may not have the resources and in-house software expertise to fulfill consumer demands for intuitive, digital, and easy-to-use products. In addition, most financial services firms are burdened by antiquated, inflexible systems and use separate technology stacks for different product lines, making it difficult to drive rapid improvements. Consequently, a broad range of financial services firms including banks, credit unions, fintechs, and non-bank lenders have turned to Blend to help them accelerate their digital transformation initiatives and position themselves for future growth.
Our software platform powers the mission-critical interface between financial services firms and consumers. Our growing suite of out-of-the-box, white-label products currently powers digital-first consumer journeys for mortgages, home equity loans and lines of credit, vehicle loans, personal loans, credit cards, and deposit accounts. Each of our out-of-the-box products is built from an extensive library of modular components assembled into consumer journeys that typically include data collection, verification checks, product selection, pricing, pre-approvals, disclosures, addressing stipulations, and signing closing documents. Through our low-code, drag-and-drop design tools, we also enable the creation and deployment of new product offerings. While we currently offer products for consumer banking, we plan to extend our modular software platform over time to add support for commercial banking products. In 2020, our software platform helped financial services firms process nearly $1.4 trillion in loan applications.
We also bring together an extensive ecosystem of more than 2,200 currently active technology, data, and service providers through our software platform, enabling financial services firms to collaborate with third parties to provide best-in-class experiences to consumers. As consumers use our software platform to apply for financial services products, they can shop for realtors, insurance carriers, and other service providers through integrated marketplaces that are introduced at the precise moment these third parties are needed. As more consumers use our software platform, we are able to attract a broader range of ecosystem partners, which allows us to deliver more value to consumers and attract more financial services firms as customers. This creates a powerful network effect and differentiator for our business. As of March 31, 2021, the number of participants in our ecosystem has grown by more than 1,300% year-over-year.1 Strong customer relationships are a cornerstone of our success. We establish ourselves as a critical and long-term strategic partner to our customers by powering essential revenue-generating experiences, integrating our software into back office systems, and by staffing teams chartered with increasing the value we deliver over time. Our customer relationships grow as our platform is used for a broader range of products. Customers typically complete an initial deployment for one or two products and then add more products over time, building toward a unified consumer experience that supports multi-product shopping journeys. Our dollar-based net retention rate was 162% as of December 31, 2020.
Our success-based business model is designed to align our growth with the interests of our customers. We offer our products through software-as-a-service agreements, where fees are assessed based on completed transactions, such as a funded loan, new account opening, or closing transaction. We do not charge for abandoned or rejected applications, even though they cause us to incur costs. Completed transaction fees are determined by the number and type of software platform components that are needed to support each product offering. Although we have generated an immaterial amount of revenue through commissions or service fees when consumers use our marketplaces to select a real estate agent, property and casualty insurance carrier, or title and settlement services entity in 2020, we expect this will become a significant part of our business in the future. In 2020, financial services firms used our software platform to process 1.4 million completed banking transactions, a 190% year-over-year increase relative to the 0.48 million completed banking transactions we helped our customers process in 2019.
Our customers are currently based in the United States and range in size from the largest banks, credit unions, fintechs, and non-bank mortgage lenders in the nation to smaller community lenders with less than $1 billion in assets under management. Representative customers include Wells Fargo, U.S. Bank, M&T Bank, Truist, BMO Harris Bank, Elements Financial Federal Credit Union, Mountain America Credit Union, Lennar Mortgage, PennyMac, Primary Residential Mortgage, Inc., and Opendoor.
As of December 31, 2020, we had 291 customers, including 31 of the top 100 financial services firms in the United States by assets under management and 24 of the top 100 non-bank mortgage lenders by loan volume. In 2020, 18 customers each generated more than $1 million in revenue for us, which represented 53% of our revenue in 2020.
We have achieved significant growth in recent years. For 2019 and 2020, our revenue was $50.7 million and $96.0 million, respectively, representing a 90% year-over-year growth rate. We incurred net losses of $81.5 million and $74.6 million for 2019 and 2020, respectively, as we have continued to invest in growth to capture the large market opportunity available to us.
We continually seek to enhance the end-to-end banking journeys powered by our software platform. To accelerate the adoption of innovations in our mortgage and home equity products, on March 12, 2021,
we signed a definitive agreement to acquire Title365, a leading title insurance agency, from Mr. Cooper Group Inc. Title365 will be integrated with our software platform, which enables financial services firms to automate title commitments and streamline communication with consumers and settlement teams. Together we will enable our customers to accelerate the title, settlement, and closing process at scale for mortgages, home equity lines of credit, and home equity loans. For 2019 and 2020, Title365 revenue was $105.3 million and $212.1 million, respectively. The acquisition is subject to regulatory approvals and is expected to close in the second or third quarter of 2021.
Trends in Our Favor
Key trends supporting our growth include:
Consumer expectations for digital experiences are rising
Consumers increasingly expect their banks to provide data-driven, personalized, digital experiences. The COVID-19 pandemic has accelerated a shift in consumer behavior away from traditional branches and toward digital channels for banking services, resulting in a 30% increase in the use of mobile banking worldwide.2 The vast majority of Millennials and Gen Z now use a mobile banking app, signifying the importance of the availability of mobile offerings to future generations.
Consumers increasingly want one-stop shopping experiences for financial services
Consumers prefer simplicity and convenience when it comes to shopping for financial services. Fifty-three percent of consumers would like to be offered bundled products, such as real estate services with a home loan or car deals with a pre-approved auto loan.3 To retain consumers and drive incremental revenue, financial services firms need to provide end-to-end consumer journeys that include these elements.
Competition among financial services firms is becoming more intense
Fintechs, neobanks, and other innovators are launching digital-first offerings that draw consumers away from traditional financial services firms. Forty-two percent of U.S. consumers use at least one fintech provider.4 In addition, consumers are switching financial services providers at a faster rate than previous years. Traditional financial services firms must invest in seamless, technology-driven, and consumer-friendly offerings that lead to higher consumer satisfaction in order to preserve and grow their market share.
The pace of change is accelerating
Financial services firms are increasingly seeking partners to help them manage consumer experiences with more agility as they wrestle with changes caused by fluctuating rate environments, government stimulus programs, and evolving regulatory requirements. In an effort to remain competitive, 48% of banks and 42% of credit unions have partnered with fintech startups over the past three years to
address specific technology needs.5 Among banks planning to partner with fintechs, 86% cite that improving the consumer experience is the top priority, followed by 42% and 38% for reducing operating expenses and reducing fraud, respectively.6
Low-code development tools are shortening product development cycles
The advent of no-code and low-code development tools is enabling product teams to build, deploy, and modify new products and deliver superior consumer experiences with greater speed and flexibility.
Most large organizations will have adopted multiple low-code tools in some form by year-end 2021.7 Adoption of these tools will be essential for financial services firms to innovate rapidly in the face of changing consumer expectations and fluctuating market conditions.
Better access to data is powering higher levels of automation
As banking becomes more open, financial services firms are seeking to leverage the best data in the market to improve verification of consumer assets, income, employment, identity, and credit history. In addition, financial services firms are investing in technology to help them harness this data to drive automated workflows that reduce the number of manual tasks they need to perform in order to approve an application for a loan or deposit account. The aggregate potential cost savings for financial services firms from automated workflows is estimated to be at $447 billion by 2030, with back office credit underwriting accounting for $31 billion of that total.8 By leveraging data and software to make more informed decisions automatically, financial services firms will be able to provide a frictionless consumer experience, reduce time to close, and reduce fraud.
Our Opportunity
Financial services firms have been shifting for years to a digital-first approach to acquiring customers and deepening existing relationships. This imperative to compete through digital-first consumer experiences creates a compelling opportunity for Blend. Few financial services firms can afford to build best-in-class digital consumer journeys on their own, and those that can typically prefer to accelerate time to market by working with partners that provide flexible, off-the-shelf components. In addition, few financial services firms have built their own captive insurance agencies or developed their own service provider marketplaces to streamline the consumer journey due to the cost and complexity of managing these initiatives.
Blend competes in several large markets, including IT spend for banking software and commissions for home insurance policies, title insurance policies, and real estate transactions. We believe that our software platform can address a significant share of the massive total addressable market that these opportunities represent:
We currently estimate the serviceable addressable market for Blend to be greater than $33 billion, based on the number of home financing and consumer banking transactions in the United States in 2020 multiplied by our average revenue per transaction in each respective subsector in which we are currently active. These subsectors include (i) core mortgage products, such as mortgage funded loans and digital closings, (ii) homebuying ecosystem products, such as home insurance, realty, title and settlement, and notarization, and (iii) consumer banking products, such as credit cards, vehicle loans, personal loans, and deposit accounts. We first estimated the size of each market subsector in which we are currently active by compiling a comprehensive set of market size data and identifying a low and high estimate for the number of transactions per subsector. We then multiplied the revenue per transaction for each of our currently available products by the low estimate number of transactions for the applicable subsector. We then added each of these subsector estimates together to arrive at our estimate serviceable addressable market figure of greater than $33 billion. We believe the serviceable addressable market for our offerings will continue to grow over time as we add more products to our software platform, grow our partner ecosystem, and expand internationally. We believe that our software platform is well positioned to address the critical requirements of and capture a meaningful portion of these markets.
Limitations of Alternative Approaches
Consumers expect modern banking experiences to be as simple as other online shopping experiences. To thrive in an increasingly competitive market, financial services firms need to deliver personalized, high quality consumer experiences to grow revenue, while simultaneously lowering costs, so they can offer more competitive rates and invest in faster innovation cycles.
Financial services firms may not have the resources and in-house software expertise to meet rising consumer expectations. Most organizations are unable to offer consumers personalized product offerings, offers for third-party services, multi-product shopping experiences, or even the opportunity to continue applying for a single product across more than one channel. Many financial services firms find it difficult to use the customer data they have already collected to pre-populate an application form or cross-sell a product.
Due to the above, we believe digital transformation has never been more imperative for financial services firms. However, these efforts are often hampered by aging infrastructure. In addition, financial services firms typically use separate technology stacks for mortgages, consumer lending products, and deposit accounts, making it difficult to drive rapid improvements. This architecture is inflexible, costly to maintain, and produces data silos that result in poor consumer experiences.
Our Solutions
We have created a flexible cloud-based software platform for financial services firms that is designed to power the end-to-end consumer journey for any banking product. From the moment a consumer starts an application to the moment they close a loan or open a deposit account, our software platform streamlines the process, so financial services firms can deliver superior consumer experiences, drive growth, and increase operational efficiency.
We believe we are well positioned to benefit from the acceleration in digital transformation investment taking place across the financial services sector. Our software simplifies complex origination processes that can include hundreds of tasks and require interactions with dozens of external technology, data, and services providers. By automating these tasks and developing pre-built integrations, we help our customers potentially avoid years of expensive in-house software development and free up resources for other initiatives.
Blend’s Cloud-Based Software Platform Mortgage Home Equity Deposit Accounts Vehicle Loan Personal Loan Credit Card Custom Product JOURNEY BUILDER Experience Design Process Orchestration Persona-based Workspaces Verification Decisioning Workflow Intelligence Marketplaces APIs & INTEGRATIONS PARTNER ECOSYSTEM
Product Offerings
Blend’s cloud-based software platform powers the mission-critical interface between financial services firms and consumers. Financial services firms can rapidly deploy our growing number of out-of-the-box, white-labeled products for:
In addition, we have developed a product called Blend Close that streamlines traditional, hybrid, and fully digital closing experiences for mortgages, home equity lines of credit, and home equity loans.
Journey Builder
Each of our products is built from an extensive library of modular components that typically include data collection, verification checks, product selection, pricing, pre-approvals, disclosures, addressing stipulations, and signing closing documents. Blend and our customers can rapidly create new product offerings by assembling our modular components into workflows using our Journey Builder, which includes tools for experience design, process orchestration, and persona-based workspaces.
The modular components that make up our products generally fall under the categories of verification, decisioning, workflow intelligence, and marketplaces.
Verification Components
Our verification components automate confirmation tasks that are needed to underwrite a loan or approve the opening of a new deposit account. We have pre-built integrations with providers of technology and services to address requirements for identity verification, asset verification, income and employment verification, and credit.
Decisioning Components
Our decisioning components reduce the need for human intervention by automatically applying business rules throughout an application workflow configured by a financial services firm. Examples include pre-approvals, cross-selling, and adverse actions.
Workflow Intelligence Components
Our workflow intelligence components manage data collection and automate tasks throughout the origination process. We create applications with branching logic to streamline initial data collection. Wherever possible, our software eliminates the need for document uploads by integrating with authoritative data sources. We also automate key processing tasks so consumers can begin to address stipulations immediately after a loan application is submitted.
Marketplace Components
Our curated marketplace components enable consumers to shop for products and services presented at the precise moment of need during an application for a loan or a deposit account. We currently offer marketplaces that enable consumers to find real estate agents, insurance carriers, and automobiles for sale online. These marketplaces help consumers quickly locate service providers with competitive rates and enable financial services firms to increase operational efficiency by providing a one-stop shopping experience. Our acquisition of Title365, once closed, will enable us to integrate the title, settlement, and escrow process further into our platform and develop a marketplace that provides consumers and financial services firms with the flexibility to choose title insurance partners that provide services at competitive rates.
APIs and Integrations
Through our open APIs we are able to seamlessly integrate the capabilities of technology, data, and service providers into our software platform. As we develop integrations with new partners, our customers can quickly experience the benefits across their product suite. In addition, financial services firms can use our APIs to develop integrations with the back office systems in their tech stack, creating a unified, agile architecture for powering superior consumer journeys.
The Blend Ecosystem
We bring together an extensive partner ecosystem through our software platform, consisting of more than 2,200 currently active technology, data, and service providers that has grown by more than 1,300% year-over-year as of March 31, 2021. We provide the central hub through which these partners collaborate to deliver best-in-class consumer journeys in highly efficient ways. In addition, we provide our ecosystem partners with a critical distribution channel to reach consumers at the precise moment they are looking for products and services through the financial services firms we serve.
By providing the software that powers consumer journeys at financial services firms across digital, contact center, and branch channels, we are able to benefit from a substantial volume of high-intent consumer traffic with no incremental acquisition costs. As more financial services firms become Blend customers or deploy additional products through our software platform, the number of consumers using our software platform grows, which attracts more service providers to our ecosystem to serve those consumers. As a result, consumers benefit from more opportunities to save time and money, financial services firms benefit from increased operational efficiency, our partners benefit from increased distribution, and Blend generates additional revenue. We believe this win-win-win-win model creates a powerful network effect that will continue to expand our serviceable addressable market over time.