All right. Welcome back, everyone. Next up we have Macrina Kgil, CFO of Figure Technology Solutions. Figure is the largest non-bank originator of home equity lines in the country, with its origination marketplace, asset transfer technology all built on the Provenance blockchain. Since going public last fall, Figure and its 380+ partners have originated around $10 billion in loans with a marketplace volume up triple digits year-over-year. I think today you reported that volumes in the month of May were up 5% month-over-month, consumer loan marketplace volumes.
Yes.
if I'm not mistaken. They just delivered their first AAA-rated blockchain native securitization from both S&P and Moody's. Macrina brings real public markets pedigree, having led OneMain's IPO and serving as CFO of Blockchain.com. Macrina, thanks for joining us.
Thank you for having me, Patrick. I had my whole spiel laid out for what Figure does, and you've already done it.
Well, I think, why don't we start with maybe just on the environment then. It's been a busy period. Can you walk us through how Figure is performing today? Where origination loans are tracking, volumes are tracking, what the funding environment looks like, and maybe how the macro setup is kind of shaping demand?
Sure. As Patrick mentioned earlier, we've been doing tremendously well. Our May volumes came out last night, $1.4 billion. Month-over-month, it's been 5%, but really, we look at year-over-year, because we do have some seasonality as well. It's over 100%. We have been hitting three months in a row in terms of $1 billion-plus funding volume business and partners that we have been adding overall from a foundational perspective. We've reached 380 partners. That has been performing very well. If you look at the macro landscape and how that has been impacting or actually less impacting Figure, is that we have been growing through these volumes, across the board, through higher rate markets, lower rate markets, with the whole geopolitical macro economy being more unstable.
We have been continuously in the market with our capital market vehicle since Q1, and Q1 was a tough market for everybody. I do want to repeat that we have been very stable, being able to use our capital markets infrastructure that Patrick had mentioned. That is who we are, Figure Connect as a capital market infrastructure. We have been able to see that whole loan buyers are coming into our marketplace and also that we are continuing to use our securitization vehicle. Before I go deeper into what we do, and I know you mentioned we are more of a non-bank HELOC originator, I do want to start with how we view Figure, is that Figure is a blockchain-based capital marketplace infrastructure.
What that means is, yes, in the past we had been originating HELOCs ourselves, selling them into the marketplace through forward flow agreements that we developed ourselves, and also placed a securitization vehicle in place. Since June of 2024, before we went public in September of 2023 , we built out a marketplace called Figure Connect. What that essentially does is we are connecting loan holders, loan originators, to be able to utilize our marketplace to get capital in return. In essence, it's really an asset and capital exchange marketplace, and that's what we view as Figure Connect.
Where Figure is benefiting from that is we receive a revenue for volume that goes through the marketplace, and we call that more of an ecosystem fee to be able to use our marketplace, which includes a loan origination system for HELOC, and we've been doing this for a very long time. We base all of our assets on blockchain technology, which is amazing because it is very efficient. Blockchain technology provides you with immutable information, where if you change any information, you can see it right away. Because we've been around since 2018, we do have the whole loan buyers that are very used to understanding Figure's standard and homogenous loans coming onto the marketplace. We have been AAA-rated, as you have said, from S&P and Moody's, since the summer of last year.
So-
Hopefully I touched on everything you asked.
No, I think you did.
Yes.
No. Yeah. I do want to touch on the blockchain aspect and the lending aspect of the business still. I think sometimes people have a hard time fully comprehending what it is that really differentiates the platform. You mentioned you've been growing loans by over 100% year-over-year. You've been aggressively taking market share in HELOC and you're entering into other products. What are maybe the one or two things that have allowed you to grow so quickly into this market, whether it's the technology stack, the funding cost advantage, the speed at which you can originate loans because of the blockchain. Just talk a little bit about what those factors are.
Yeah, I would say it's really a mix of everything that you just mentioned. We started out the company by being able to build out a technology stack that originates loans in as fast as five days, or on average nine to 10 days. I think that's something that has not really been around before. Traditional mortgage markets, I know many people in this room have experience getting a mortgage. It would take you about 45 days to be able to originate a loan. The technology stack that we built has been very efficient to be able to replace humans who are part of the origination process with technology.
The other part that I would say is because we're using technology, the cost to originate a loan is less than $1,000. Which I think is a huge benefit and a huge motivator for many of the loans that we originate using the Figure ecosystem. As an example, if you are a borrower going to a credit union and you're looking to borrow $50,000, many of the credit unions may say, "No, this really doesn't make sense because it costs around $11,000 to originate the mortgage." In our case, it's $1,000, we wouldn't turn you away, or our partners would not turn you away because they're using our ecosystem and the tech stack. They are able to enter into greenfield markets where the borrower now can access funding, and they're able to get the mortgage, where previously they would've just ignored and moved on.
Figure works with our partners behind the scenes because of the cost advantage and also the speed in terms of the technical advantage as well. That's how we are able to bring more customers and borrowers and partners into our ecosystem. Where blockchain technology is really critical and very helpful is that it adds speed, and it also cuts down cost in terms of how the transaction moves through the ecosystem. I'll give an example of when a borrower borrows through a partner. Our partner name is actually recorded onto the blockchain technology together with the characteristics of the loan onto the blockchain. As I mentioned earlier, if you're on the blockchain, the loan is native to the blockchain. It will say it's $100,000 loan that is borrowed by Macrina, that's me.
It'll have the rate, and it'll have the term, all of that information onto the blockchain, and you can read it, if you are the loan holder and the loan buyer at the end of the day. When the loan moves through our structure and it goes to a third-party buyer, a whole loan buyer on the other side or the securitization vehicle, usually there is a lot of third parties that come in and review all of the information that's on the loans. I'm sure many of you have experienced it. It could take weeks at a time. It does cost a lot of money to be able to do that as well.
If you're in the capital markets often enough, this trade happens multiple times throughout the life of the loan, and it does take a lot of time and cost to be able to do that. Where blockchain technology is so efficient is that you can see the information right away, and blockchain, whenever there is a change in the information, can also have a record of who changed it and what changed. There is a lot more trust, and there's less review by third party intermediaries into the blockchain technology. Just wanted to give you that context of why there's efficiency in terms of speed and cost.
The other thing, if I'm the loan buyer on the other side of the capital market infrastructure, what works really well is that if I wanted to see the information on the loans, I could literally pull down the information on a daily basis or live. In a normal loan world, for you to be able to see the loan information, if it's defaulting, if it's prepaid, what the interest rates are, et cetera, you would need to wait 30-45 days. That immediate impact from a portfolio management perspective of the risk management that they can take, I think is a huge benefit if you use blockchain technology.
Your core competency up to this point with the underwriting model and the loans that are on your platform is in HELOC. You are launching what you would call HELOC or mortgage-adjacent products. Can you talk about what those are and what the pace of growth there could look like in the next couple quarters?
Sure. I think, everyone's used to what a HELOC is, and you think of a HELOC as more of a second junior lien to your main mortgage that you have in your home. What Figure has been doing in the past several years is that we've introduced the concept of a mortgage, so home-based product, where it could be a first lien because there's $35 trillion of home equity out there. You can use your home equity to be able to borrow into these types of loans. We've also introduced different types of loans using home as your collateral base. We have SMB products or business loans that we give to business owners who have equity in their home. We're taking the home as the collateral, but then we're actually giving you the cash onto the business itself.
It's a hybrid to what you understand as a mortgage or a HELOC-based product, but it is really going out to the business side. We're also thinking through investment property loans, which is called DSCR. We're also looking at construction-related loans, which is an RTL loan as well. I think the opportunity within a HELOC set or a home-based mortgage product is quite huge. As I mentioned earlier, because of the cost advantage that we have as a company, and the tech stack that we offer to all of our partners, we are seeing that there are more borrowers, more volume coming through and dare I say, HELOCs are becoming more trendy, because there's just more originators and banks entering into the overall ecosystem, which I think is very beneficial because people continue to understand what the loan product offers.
On HELOC specifically, I don't know the exact stat, but I think your market share, and you don't have to share this if you don't want to disclose it, but I think it's sub 5%, is my guess. There's a lot of runway there. How do you think about prioritizing the white space and the growth that you have in front of you in HELOC? Then, I'll follow up. I have some questions on some other product categories that you're going into. In terms of just HELOC, how much runway is there?
I would say I would really look at the $35 trillion of home equity that's in the overall market out there, rather than looking at the HELOC loan category in a narrow way. Because as I mentioned earlier, HELOCs were larger loans. It took many days to be able to close on a loan, and a lot of money from the borrower and the bank perspective to be able to originate these types of loans. What we are introducing is a whole new greenfield of products where it can be used for home improvement, which is what traditionally HELOCs were used for, but you can also use it for debt consolidation, where if you're thinking about asking for a $50,000 loan on a personal loan, it could actually have many times multiples in terms of the rate that you need to pay.
If you're using our product, you can think of a 30-year amortizing loan at a high single digits or 7%-9% rate is how we think about our type of product. We think the market opportunity is very large, not just as part of the smaller HELOC ecosystem, is how we really think about it.
Sure. Okay, moving on. Other product categories, as you think about the longer term product roadmap, which other lending verticals do you think are the most natural fit for Figure's technology and underwriting capabilities?
Sure. How we think about our capital market infrastructure, that I mentioned earlier, Figure Connect, and we also have a short-term marketplace infrastructure as well called Democratized Prime. What would be a great fit is you're thinking about giving an asset or a collateral into an asset in exchange for liquidity. If you have a loan category that has tangible collateral behind the scenes that can be validated and placed onto the blockchain technology platform that we offer, we think that is a really great asset class to continue onto our ecosystem. Auto loan is a great example. We announced a partnership with a company called Agora Data in February of this year.
That meets a lot of the characteristics of what I just explained, being able to place the loan on blockchain technology, having a car behind the scenes so that you can sell it. There is already a very active market of liquidity buyers, loan buyers on the other side. Securitization market is well built out. Whole loan buyers actually understand the loan characteristics. We do think those types of loans, auto, SMB, small medium business loans, receivables, and many other different types of asset categories along that line will be extremely beneficial for the borrower, the originator who is providing these loans, and also for the loan buyers on the other side.
Taking all these different pieces together, the originations that you do, the third parties like Agora, secondary market liquidity that's being generated from these loans, what do you view as the next phase of the Figure story? Where do we go from here? What are you most excited about?
Well, we have a lot of things to be excited about. We've been talking about the Figure Connect journey, where it took us about eight years to build out the marketplace from a lender and a borrower side of the house. I would say the next phase of where we think we're going to be really great at is Democratized Prime. What that infrastructure does is it's really a short-term warehouse facility. If you are a loan originator, as a company, and you want to be able to have a forward flow agreement to sell your loans or be able to place your loans into a securitization vehicle, many of these companies spend a lot of time, legal fees, hire people to be able to go out and get a warehouse facility.
I'm sure many of you have had that experience where if you are working with a bank to get a warehouse facility in place, even a renewal takes several months, and the underwriting is a lot of work. What Figure is offering is a decentralized, blockchain-based finance network, called Democratized Prime, and you can plug and play and bring your loans, like Agora Data did, into the ecosystem and be able to get a short-term warehouse facility through third parties that are coming into the marketplace. As an example, the lender supply is really coming from blockchain real-world asset technologies, like Solana. They have their own curators and a group of companies that come together to be able to lend to certain types of yielding assets.
Where Figure is really unique is, in the past, if you're lending on a blockchain DeFi ecosystem, you're lending to Bitcoin or you're lending to Ethereum, and the assets are not really self-yielding. In Figure's case, we are providing a platform where auto loan lenders or HELOC loan lenders or any types of yielding asset could come into Democratized Prime, takes a few weeks for them to be able to get through our validation tool and be able to be recorded onto the blockchain technology with the asset information, and they can start using Democratized Prime. If you're an originator coming into Figure, you have the option to, one, originate loans, be able to get the warehouse facility in place without too much effort.
These are all homogeneous and standardized. Then over time, once there is a securitization market that's built for your asset class, auto being a great example of it's already there, and there's loan buyers on the other side, you can also tap into a longer-term facility, which is where you're selling your loans to a third party. We're very excited about, long story short, bringing on Democratized Prime to be more of a big marketplace infrastructure that continues on from what we have on Figure Connect. You have the whole set of suite of possible financing that could come. The other thing that we're really excited about is our stablecoin security, which is YLDS.
Because we're on blockchain technology to be dependent on more of the banking system, where it takes about two to three days to settle your funds, we actually want to make sure that there is a stablecoin on the other side that can atomically settle all of these transactions that are taking place. We're really excited to see that Democratized Prime and YLDS are pairing up together, to be able to work on our ecosystem quite well. Lastly, I'm going to touch on briefly is we also have started tokenizing asset equity on the blockchain natively, starting with Figure's own equity on the blockchain. We call that system OPEN. That was launched in February. We think we have the capability as a holistic marketplace where equity can be native to the blockchain, traded 24 seven.
If you want to be able to lend out your equity to other people, you can lend your equity and be able to get all of the benefits of interest income that comes through. Lastly, because it's the blockchain, every single owner or whoever is owning the equity is also very transparent. From an issuer perspective, Figure, if I wanted to know if Patrick's holding on to the equity or myself, we can actually see that information. I think that's highly beneficial. It's the same thing as you have to wait for a servicer report 45 days to see your loan performance. You don't have to wait for a Form 13F to come out 45 days later to know who is holding onto your equity.
Maybe just a quick follow-up there. Do you have any comments on the regulatory environment, specifically this innovation exemption that is being talked about? Do you have any concerns? Do you think that could be a tailwind? Any thoughts at all?
Figure has really thrived and grown, in any regulatory environment or any administration, to be frank. We received a lot of the licenses, and we've received the blessing from the SEC on many of the products that we have throughout the last three or four years. It's not really a recent event. However, we welcome the tailwind. I really enjoy the fact that tokenization is more of a everyday word that people think about and talk about, and there's more understanding on the benefits of tokenization of assets that are used on a day-to-day basis. I really think that the regulatory tailwind in helping us get through the understanding from institutions and more interest from the institutions, I think is very helpful. I think the other part I would also add is that there is more awareness around stablecoin.
Because we do have our own stablecoin called YLDS, that was registered with the SEC, it is a face amount certificate, more like a debt security and earning yield. We think that's going to be a huge tailwind for us because the current Clarity for Payment Stablecoins Act that's going through the government right now, it talks about stablecoins not being able to earn yields if you're a passive holder. Whereas our yield token is more of a security, so we are able to provide yields. Right now, it's SOFR minus 35 basis points. It is freely transferable peer-to-peer, which I think is a huge benefit for the holder. I think as I was doing my research around what are treasurers of companies really interested in, they want to be able to hold stablecoin. They think about, is this something that is actually yielding?
I don't want to lock up my cash on something that's not yielding. I think YLDS, our debt security, is really an attractive alternative in that case as well.
Let's shift gears. On competition, you're competing with not only traditional originators, but also there's a growing set of crypto native players who are trying to tokenize real-world assets. We have many of them at this conference. You've probably been outgrowing a lot of them, most of them. What do you view as Figure's most durable moat in a tokenized world?
I would take us back to us being a capital market infrastructure. We essentially have created an alternative view of the credit capital market. The one that you will be most familiar with is with the GSE, Fannie and Freddie. They have created a standard homogeneous process for mortgages to go through the ecosystem there. There is a buyer on the other side. You definitely know when a mortgage is originated, there is going to be a takeout at the end of the day, and there's liquidity that's readily available. That's essentially what Figure is doing in terms of the capital markets infrastructure. I would say the other advantage and the huge moat that we have is we've been securitizing Figure loans that are native to the blockchain for a very long time, since 2021.
We are one of the very few companies, or actually the only company that has AAA from S&P and Moody's for our securitization vehicle. That's a huge moat in terms of any competitor coming in. Sure, if you're looking at your fintech companies out there, it takes time, and it takes experience, and it also takes the performance of the loans to be able to get these types of ratings. I think that's another huge moat that we have. The other one I would add is we're licensed in all of the states in the U.S. for originations and servicing. We also have different types of registered broker-dealer. We have a transfer agent for our equity. Being able to, one, get these licenses and then, two, maintain them over time without major issues is also a huge effort for the company itself.
You can only see all of this through history, and you have to have the experience of several years of what we have been doing as a company to be able to build out the capital infrastructure and bring in the different types of buyers and lenders into the ecosystem.
All right. We'll end on a big picture question. If we fast-forward three to five years, what does Figure's revenue mix look like? Are you still primarily a HELOC business, or is the tokenization Democratized Prime OPEN platform become the dominant story?
We have been growing really fast, being able to predict five years down the line is going to be difficult, to be honest. However, I really do think that we're going to be primarily on a market infrastructure. Connect and Democratized Prime will be a huge part of what we do. We want to be able to make sure that our partners are using both of the marketplace infrastructures, which makes a lot of sense for them. Ultimately, we want to be able to address many of the different asset classes, not just HELOC, coming into our ecosystem. Auto, as I mentioned before, some type of loans that are based on asset classes. Ultimately, today, we're about 50% ecosystem fees, if you look at our revenue, and ecosystem fees is what we generate from our marketplace.
We want to make sure that that is the vast majority of what we do. Democratized Prime, Figure Connect, that will all come through our ecosystem. The other part I would mention is we are currently 50% adjusted EBITDA margin. We would want that to continue to grow. A lot of the volume that goes through our ecosystem is really, contribution margin is quite high. Ultimately, if you look at who we are five years down the line, I'm sure we'll continue to be profitable. Our margins are going to be high, and we have lots of different types of assets on our markets infrastructure.
All right. Well, it's been a fun story to watch so far, and we look forward to watching it play out over the next years. Macrina, thanks for joining us.
Thank you for having me.