Tic:Toc founder Anthony Baum warns against housing pain

As interest rates rise sharply, these newer borrowers are what Baum is most concerned about.

“We will see potentially bad outcomes on a human level on a scale that I think most Australians have forgotten because we haven’t had a recession in 30 years,” he says from Tic:Toc’s headquarters in Adelaide.

“We should have been more responsible five years ago. Because guess what? We would have had a 10 per cent increase, not a 25 per cent increase in house prices. And the inconvenience we are now navigating would be much more manageable.”

Baum says the gradual easing of lending rules over many years has allowed household debt to build up, giving politicians and central bankers limited flexibility as they try to steer the economy through a world of higher inflation and slowing growth.

“A sound financial system is not only sound from a loss perspective for the banks. It is actually what is prudent for society as a whole.”

The worrisome backdrop for lending is compounded by a tough environment for the fintech community, where recent years of abundant funding and rising valuations have been replaced by a bearish environment.

Baum sees a reckoning to come for the local fintech sector, as rising interest rates, weaker economic conditions and a funding drought take their toll.

“I think good business models in a year will start to get access to capital again, when everyone sees how the landscape is being washed away. And then there will be a bunch of the 570 fintechs in Australia that were here at the start of all this that aren’t going to be.”

Banking to divide into three

But he is sure that Tic:Toc will not be among the victims. Baum’s experience in banking led him to the conclusion that the banking sector would increasingly be divided into three parts: balance sheet, brand and technology.

Given what he knew about the power and scale of banks’ balance sheets and their endless technology challenges, Baum decided that the opportunity to create a business that could ride out various economic cycles lay in the technology piece.

“I think that’s a much more sustainable and hopefully successful strategy than trying to disrupt the natural capital base of the banking industry in Australia.”

Crucially, the model does not require the regulatory capital that many fintechs need to take on the traditional financial services model. Baum has raised $50 million over the life of Tic:Toc, but says it doesn’t need additional capital at the moment and could quickly become profitable as needed. The firm’s funding position is supported by solid revenue growth; revenue was $25 million in fiscal 2022, and Baum says it’s on track to reach $40 million in 2023.

“This market is exciting for us because we’re going into it with enough scale, momentum and a model that I think is sustainable, and has some really good growth opportunities ahead of it.”

Baum says the pressure on the fintech sector is likely to see market power shift back towards the big banks and their large balance sheets. But he says that the “componentized” banking model he envisioned when he established Tic:Toc will be realised. Bendigo Bank’s digital bank Up, which uses Tic:Toc’s technology, Bendigo’s balance sheet and its own brand, is aimed at younger consumers.

The most likely competitive challenge for the big banks, says Baum, will be big external financial services brands that adopt this component model – and use Tic:Toc’s technology to get there.

“We definitely have one and probably two very, very large brands entering the mortgage market for the first time this year, using our technology and a third-party balance sheet.”

Baum is also starting preliminary discussions with the beleaguered buy-now-pay-later sector about using Tic:Toc’s digital verification technology to meet increased regulatory requirements to make an assessment of their creditworthiness to their customers.

He argues (perhaps talking a bit about his own book) that requiring BNPL players to use credit checks from credit bureaus would be a step too far, and Tic:Toc’s assessment using a BNPL customer’s bank statements would provide a cost-effective and efficient way to meet the sector’s likely regulatory requirements.

“The bottom line is there’s no technology or cost inhibitor to them being regulated. And I don’t think the impact of that regulation, if they take advantage of those technologies, is as big as I think a lot of people think.”