From BAI: Doug Lebda from Tree.com

These are run notes from a conversation with Doug Lebda, Chairman and CEO of lendingtree.com and Tom Brown of Bankstocks.com from BAI’s Mavericks in Banking Conference.

Tom: Start by talking about the founding through IPO

Doug

I’m not a banker.  I came at it from the standpoint of a frustrated consumer. I was attriting.  The rates were never what people said they were.  You had to go to the back of the bank and sit and apply.

I wasn’t the best bank customer.  Why can’t we consumers turn the tables?  Why is this so inefficient for the bank?

Customers want to comparison shop.  They want to know the real price that they can close with.

For bankers, this can’t be efficient.  You put an ad out there and you get all comers.  So we created a filtering mechanism.  We created a marketplace.  The pitch to the lenders: I’m going to put you in competition with your competitors.  They didn’t like that.  We said we’d only charge when we closed.  And we would cut your marketing costs in half.

Tom.  The company came public right before tech bubble popped.

We came public in Feb of 2000.  We knew we needed to spend . . . we went to banks and talked about our business.  They said come back when you can move the needle.  We knew we needed money to spend on advertising.  We raised $100mm and spent $60mm.

We built our brand.  We did it very differently than everyone at that time. Everyone was spending online.  We didn’t get the economics of that.  We went offline but thought about it like a direct marketing company.  We hired someone from Coke and did a direct marketing spin. “When banks compete, you win.”

Tom:  You needed to raise more money.

We were an unprofitable dot.com.  Fortune Magazine had an article about companies being sucked into the sun.  We were one of them.  We paid attention to metrics, staid heads down, cut the costs, and grew the business.

Tom:  You said yes to Barry Diller.

IAC was an internet conglomerate.  They wanted a financial services play and wanted us.  We got to the point that we had to do the right thing for our shareholders.  It was 1983.  People didn’t know how long this would go on.  It was a big premium.

For me personally, it was a great thing.  We got a lot of capital.  I got to be President and work with Jack Welch.  Ultimately we gave up the dream of a conglomerate and broke it up again.

Trying to move LendingTree from being a transaction business and be a relationship business.   You want to make smart decisions about everything. We want to be that place that you trust.  Consumers want an unbiased, objective source for all types of information about all types of products.  We want to be that place.

We’re pulling back from mortgages to all types of products.

Tom:  You spun out in August.  Losing money.  The stock came out at $8 a share with a lot of cash.  Stock came down to about $2 a share.  That’s when we bought.  Stock is up.  Your bank partners, some of them get it, some don’t.

Separate banks from alternative finance companies.  One, this is tactical. It is the ability to do outbound marketing.  Most banks are set up to do inbound.  If you get a lead on your website and get back to them in 30 seconds . . . banks can’t do that. Commissioned sales people who can close and internet lead is a bit of a craft.  Not easy to do.

Banks don’t like to pay on commission.  Not very responsive.  Many times their pricing sucks.  We’ll tell them that.

I had a conversation with Angelo at Countrywide. He said,  “We don’t want to find a way to work with you, we want to find a way to sink you.”  I said, we can cut your costs and drive business directly to you.  They couldn’t do it because of channel conflict.

We know we need to change, so we’re working on new products.  We’ll have a call center.  We’ll do the front end work.  We’ll get them to a lender if they want you.

We’ll have a direct connect page on all our lender partners.

We’re going to do a “low rate for life” program.  Customers can put in a bid for what they want.  When there’s a program that fits, we’ll get it to you.

Loan Coach.  You enter in the offer you’re getting, you can enter it, and we’ll give you real time coaching on how to negotiate better.  Another type of lead (Will you give us a chance?)

A lot of banks don’t want to be in our thing competing (even if that’s the real world).  So if someone is on our site and is your customer, we’ll give you a first look.

We’re asking banks to change and we’re changing as well.  Changing large companies . . . we’re better off trying to change ourselves.

Tom: How are you getting paid today?

We get paid a transmit fee and a closing fee.  $20 up front for a lead.  $400 or $500 when it closes.  We’ve raised prices over time.

The second way we make money, we bought a correspondent lender.  We wanted a way to play with wholesale lenders.   About 20% of our consumers do that.  They want multiple lenders, but one point of contact.  There we make money on gain on sales.

The lack of competition is causing consumers to pay more for loans than they should.  Small shops have had their horns cut.  People who can lend are killing it and making big margins.

I worry about in the future that with more regulation, smaller guys won’t be able to play and prices will go up.

Tom: The company has been driven by diversification.  Where next?

Insurance, deposit products, credit cards when they come back. Higher transaction, higher frequency.  We have something called “my account.”  The next thing we’re going to do . . . we bought www.justthrive.com.  Rebrand it lendingtree.  Does account aggregation, shows you where to save more, does behavioral budgeting.

The problem is we’re in big ticket, infrequent markets.  So we want to get into higher frequency businesses.  Help you make smart decisions in every financial area of your life.

Again, why is that good for the bank?  We’ll cut your costs and then we’ll give you all the data back.  That’s valuable.

Tom:  If I go online, go through the process, and abandon before I get all the way there.

We have a really long form.  It’s why banks love us.  We have the best quality leads.

Now, if you fall short of finishing, we’ll sell those “quick match” leads and sell them at a lower price.  We also try to get you to come back and finish.  When you finish that form, you should never have to fill out an application form again.  Just click if you want another product.

We think of our lenders like an advertising business.  You can buy the second spot in the first pod on some show.  Then there’s remnants and spot buys.  We do it the same way.

We’re building an automated lender set-up tool.  It has been very difficult for someone to get set up with us.  Make it more like Google adwords.

Tom:  You signed up 50 new lenders, and you lost 50.

They’re not leaving the network.  They go inactive.  Whenever we have tons of leads, it’s when lenders are busy as well.  Why buy our leads when they can’t get to their own?  We’ll do our first ads in Q3.

Tom:  What does a banker do to convince a CEO of their company to work with Tree.com

We have lender advisory counsel.  They tell us, “You’re our highest quality leads, best performing loans, lower costs, and control volume flow.”  You don’t have to put a rate out there until you have a committed buyer. We’ll teach you how to do the business.

It’s literally a no-risk proposition. If you’re not good at it, you’ll learn and get better.  If you’re good at it, you’ll make a lot of money.  A great way for midsized guys to compete with the big guys who are spending massive amounts of money on brand.  You can go head to head.

We did the first customer research on lending tree . . . the loan officer was nice to me.  The best person is that nice relationship, generally female, willing to listen and talk to you.  Our best people are in Ohio and Michigan, nice Mid-Western folks who do a kick ass job.

We’ve been around 12 years.  We can’t build a business at the expense of our partners.

Tom:  Is the secret to success when I get you the lead, respond quickly?

It hasn’t changed in 12 years. Price matters, but it’s responsiveness. Our best lender sells at a high price.  They sell relationship and responsiveness.

Good call center technology too.  A problem we’ve always had, people come to us first to see what they can qualify for.  They’re not closing for 45 days or longer.  We have to find ways to stay in touch with them.  They’d take our price to their loan broker who would flip their 30 year into a 5/1 ARM.  We want to be the first and last place you look.

Unless you’re a huge scale bank, you can’t succeed at online advertising.  The ad has to relate to a landing page, which relates to a form, which generates enough volume in the state you want.  It’s insanity.  Most people can’t do it.  Too hard.

Question:  Private labeling.  Why?

If we don’t cannibalize ourselves, someone else will.  We won’t just give you the software, we’ll give you a revenue stream.  We don’t just want to get licensing revenue.  If you don’t offer a product, I want to do it and revenue share with you.

Question:  Leading with loans to develop full relationships.

It doesn’t yet work to get leads to a branch.  It works better to get them to call centers.

Question: Challenge on private label working with legacy systems.

We don’t have a secret sauce for that.  We interface with every legacy loan system.  We’ve had to build custom interfaces with every decent sized company in the country.  How it will work o the account side, not sure.  Looking for a customer to work with.

It was a lot harder a few years ago before XML and APIs.  You tell us how you want the data, and we’ll build it for you.  We do this all the time.

Question:  Online ads and marketing.  How do you track?

Up until recently, 90% of our customers come through paid advertising.  We know to a hyper degree what we’re making.  We manage to an incremental contribution.  We use a pixel tracking system.  What we don’t have today is an automated enough system to run it all.  The next think we’ll build in marketing is a “brain” that not only tracks it all but matches up the ads to the demand . . . without a human doing it.  Expedia can do this.

Question: Financial advice for the masses. What is your advice for bankers?

You may not like this answer.  I think it’s quite simple.  Consumers want to compare multiple options.  They want to see things when it saves them money.  The problem you have in your business is that this runs counter to how you make money.

If you want to stop attrition, you need to do what’s right for your consumer, even if it’s at the expense of your P&L.  If you called customers and told them that you were going to cut their price, they’d love it.  But you won’t do it.

If you don’t cannibalize yourself, someone else will.

I’ve been saying for years that some bank should offer the Progressive model.  Show them what the competition does.  They’ll love you for life.

Tom:  Research was done on who was winning with Mass Affluent.  Fidelity was.  They offered an online capability that allowed customers to ask questions and get answers.  They’re afraid to ask and be stupid.

You don’t need to offer all the products.  People who use these products, like Mint.com, save more, and spend less.  At the end of the day, that’s good.

We have something called the financial health score. Tell you where you are and what you can do to improve.

Tags: DougLebda, Tom Brown, BAI, LendingTree, When Banks Compete You Win, Bankstocks.com, Second Curve Capital, just thrive, Mavericks in Banking, Progressive Insurance, IAC, Barry Diller, Expedia, Jack Welch