The Anglo File: The eXchange Beats E-Loan to First Online Mortgage Business

The eXchange's new mortgage arm, emfinance, is one more step in its plan to become the U.K.'s largest online personal finance infomediary.
Publish date:

LONDON -- When French businessman

Bernard Arnault

announced in May a joint venture with



to offer mortgages over the Internet in Europe, he praised his partner for being "an early leader in developing the online mortgage marketplace in the U.S." If Arnault wants the same to be true of E-Loan Europe, he had better hurry up and get the joint venture started because on Monday,

The eXchange

became Europe's first operational online mortgage brokerage.

The eXchange's new mortgage arm


is a further step in its plan to become the U.K.'s largest online personal finance infomediary for both the business-to-business and business-to-consumer markets. Emfinance will, according to the eXchange, provide a quote on a mortgage in minutes and, assuming the user is not too credit-challenged, a full mortgage loan approval within 20 minutes on average.

The eXchange will offer its own mortgages as well as those from building societies, similar to U.S. savings and loans, such as

The Woolwich


Bristol & West

and the

Bank of Scotland's The Mortgage Business


After the announcement, The eXchange closed Monday up 22% at 181.5 pence ($2.94). This provides a bit of relief to investors who have seen The eXchange languish below its August IPO price of 195 pence. Although much of the decline in the price can be attributed to a general malaise in British Internet stocks over the summer, The eXchange has suffered in particular from concerns over the level of competition in its core markets.

Until now, The eXchange has concentrated on the online insurance market for independent financial advisers, or IFAs, and consumers in the U.K. Yet on Nov. 4 the financial software applications provider


outlined in detail its plans to go head-to-head with The eXchange in the business-to-business and business-to-consumer online insurance market.

Misys has the biggest IFA network in the U.K., with 3,700 registered IFAs and a 17% market share measured by total IFA business. This established presence, combined with the considerable financial resources at its disposal, prompted a 3.6% rise in its share price the day after the announcement. Investors in The eXchange, on the other hand, began "discounting the fact that it is about to suffer a full frontal attack by Misys," according to Nainish Bapna, an analyst at

Nomura International


Bapna has a buy rating on Misys but no rating on The eXchange. Nomura has no investment banking relationship with either company.

Paul Lindsey, chief executive officer of The eXchange, told


on Friday that Misys' Internet strategy was "well thought out." Grudging admiration from a competitor? Not a bit of it: "It's well thought because it's the same as ours," he says.

Feelings of pique aside, Lindsey also pointed out that while Misys can lay claim to having the largest IFA network in the U.K., that is not the same as saying it services the largest number of IFAs. A network offers support services to its members, and within Misys' network, there are some 3,700 individuals. Yet there are about 22,000 registered IFAs in the U.K. and Lindsey says in terms of IFA customers and firms, The eXchange has 87% of this base.

There is also the small matter of being first to market. "Misys will have to overcome a substantial 'late-mover' disadvantage, it will need to develop its insurer relationships and, crucially, it's aiming to develop this businesses from scratch," says Will Wallis, analyst at

Warburg Dillon Read


Wallis has a strong buy rating on The eXchange, and Warburg has had an investment banking relationship with the company.

Undoubtedly, the business-to-business online insurance market will be a hard slog between Misys and The eXchange, yet that makes The eXchange's moves into other business-to-consumer markets with products such as emfinance and


, the group's online general insurance intermediary expected to be launched next year, all the more important.

Indeed, it is the potential of such ventures that have prompted Warburg's Wallis to significantly raise his revenue projections for The eXchange through 2002 to around 60% per year. Admittedly, these forecasts may not actually be realized, but Monsieur Arnault would do well to consider that his E-Loan Europe doesn't even have any projections yet.