Edited Transcript of GO.TO earnings conference call or presentation 3-Jun-20 9:00pm GMT

One of the things we’ve been pleased with is how well our lending business has performed. We’ve been in online consumer lending for 17 years, and we believe it’s a great business. That said, we acknowledge that this has not been the most appealing part of the Mogo story for many investors because of the credit risk. And the concerns on how this part of the business would perform in a challenging market.

As you will see in the data we are sharing today, this environment really highlights how our portfolio composed of smaller-dollar loans with high affordability can perform well even in the most challenging times. If you look across the consumer lending industry, you’re seeing deferrals at 20% to 50%, while we’re only at about 5% today.

The portfolio we have today is a high yielding, high-margin and drives reoccurring revenue. These loans also have a high attachment rate to our premium offering.

We continue to believe our lending experience, our digital lending platform and years of data is a key differentiator to other fintechs, both in terms of our value proposition and perhaps most importantly, a strong economic model, something that is lacking in many of the other fintechs. This is not an easy business to get into. And we think it will continue to be important and valuable part of our model.

Over the last few months, we have been hyper-focused on cost cutting, including stopping originations and marketing spend and managing our loan book. With much of that behind us, we are now turning to what we see as a tremendous growth opportunity. We believe that one of the clear outcomes of this current environment is realization of the importance of financial health and is the acceleration of the secular shift that presents a long-term growth opportunity for Mogo. Pre-COVID, there was already a financial health crisis, given the majority of Canadians were in debt. But given the environment, including strong employment, many just didn’t have the urgency to make it a priority. Now many are saying never again, and want to make financial health a priority. As a result, digital financial health is now going to be mission-critical for millions.

There’s no question that financial health is more relevant than ever, but perhaps even more importantly, is making it accessible to everyone. So with that in mind, we took a look at our strategy and our product road map and our goal is to not only make our solutions more accessible, but also have a road map that was simpler and easier to execute on. Democratizing financial health is not only about a digital-first solution that anyone can access anywhere, but it’s about making it simpler than ever to make smarter decisions. One of the other things that sometimes prevents everyone from accessing a solution is cost, and nothing makes it more affordable than free. In line with this, we are making changes to several of our products.

Without question, the most important part of solving the financial health problem comes down to helping people get better control of their spending. There’s a direct link to consumer debt and credit cards, and we believe consumers will increasingly be looking for simple ways to control their spending. There’s also a broader trend of mindful consumerism that’s rising, and people are looking for solutions that not only help them achieve their personal and financial goals, but also help them make a positive impact on society and the planet.

MogoSpend was designed to not only help you be more mindful of your spending, so you could spend less, but also offset your carbon footprint. And it’s the only card in Canada that does this, and importantly, with no fees. As part of our goal to create a more financially sustainable model, we also decided to eliminate cashback. This will not only enable us to continue to offer the card for free but turn it into a product that can drive profitable revenue growth without the need to convert these members into any other products in order to be profitable. Importantly, it also is designed to work alongside your bank account. So unlike other cards that are trying to get you to move everything to them, our strategy is to simplify this and make this your spending account. For those with access to Visa Direct, which is currently available at 3 of the 5 banks, users cannot only transfer instantly with a few clicks, but can also set up automated deposits. We’re in the process of removing cashback now, and we expect to have this product fully rolled out in Q3. The good news is that most of the heavy lifting and development work on this product has already been done.

We’ve always felt that MogoProtect is a product that every Canadian should have. And while we have built a decent customer base, for the majority of consumers it’s not something they feel they can afford to pay for. So we are now planning on making this product completely free and expect that this will become a material driver of new member growth and importantly, active member growth. In Canada, the majority of these solutions typically charge between $15 and $20 a month. MogoProtect will be the only one that’s completely free. With identity fraud rates up exponentially over the last few years and recent stats showing close to 40% of Canadians have high anxiety around this, the opportunity is significant. Although we will be sacrificing some revenue from current active Protect customers, we believe the increased revenue from loans and our new referrals will more than offset this over time.

MogoCrypto has continued to be a solid product — growth product for us, but we believe there’s still a lot of opportunity here. We’re eliminating trading fees, and we’ll be one of the only companies in Canada offering free funding, free withdrawals and free trading for Bitcoin. Although not a primary focus for us, this offering is very similar to Square’s Cash App in the U.S. They like us have a few products, including a prepaid Visa Card and Bitcoin, and it has become an important and complementary part of their offering.

We were the pioneers of free credit score in Canada, and it continues to be an important driver of member growth activity. But from a competitive perspective, we have fallen behind as there are now a few solutions that offer full credit report as well. Your credit report is what gives you the details of what drives your score, including your current loans, mortgages and other accounts that important to the bureau. Our plan is to bring this into the account alongside credit score later this year. There is no incremental cost to us as this is something we’re already paying for. Full credit report has proven to be a great product for long-term retention and engagement, and fintechs like Credit Karma then monetize through referrals for other financial products. This will also become part of our monetization strategy, which I’ll touch on shortly.

As we get back to a focus on growth and beginning to market our new value proposition, having a low-cost channel to get the word out will be key. Our free product strategy is also designed to help drive a more scalable and cost-effective customer acquisition strategy for our loans as well. Performance marketing will be part of this, but we increasingly believe that our free value proposition will also drive a good ROI from a marketing perspective. Postmedia continues to be a key strategic partner that we believe will pay dividends with our new free offering and another key strategic advantage over others.

One of the most important evolutions in our strategy is the development of a new referral partner revenue model. Our previous strategy has always been to focus on a fully integrated solution, but we now feel that adding referrals makes a lot of sense. Not only is it a much faster way to bring in partners, but the cost and resources needed to implement are a fraction of a fully integrated solution. So for example, instead of bringing into — in a savings account into the app, through our new referral model, we will begin by actively promoting a savings account to reflect a partner where we earn a referral fee.

With over 1 million members, we have a massively undermonetized member base as we have been primarily focused on subprime loan conversions. Yet one of the largest segments of members we have is actually in the prime category. So again, our new strategy will be to focus not only on growing active members with a more compelling value proposition, but also on focusing expanding the ways we have to monetize with the addition of referral partners and related financial products like insurance, savings, et cetera.

Another thing that drove this new direction is inbound request for a referral. The cost to acquire customers for many financial products has recently increased and therefore, companies are looking to expand their referral channel that is typically a lot less in traditional advertising, including performance channels. Again, there are many examples of this model being successful in our space, Credit Karma in Canada. Revenue then becomes a formula based on active members. The more active members, the more opportunities for conversion into referral. To be clear, this doesn’t mean that we’re not going to ever create another integrated product. This referral model will give us exposure and experience with more products. And we will continue to evaluate which ones make the most sense to ultimately bring into the account. But for now, this is where the focus will be.

In summary, we believe the combined value proposition of this free offering, along with monetization through on-balance sheet loans, partner loans, interchange on card and referral will become a stronger model for profitable growth.

With that, I’ll turn the call over to Greg. Greg?

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Gregory Dean Feller, Mogo Inc. – President, CFO & Director [3]

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Thanks, Dave. Given the combination of the current environment as well as the sale of our liquid book in the middle of Q1 and the significant cost-cutting we’ve done post quarter, I’m going to focus my comments on what’s happening real-time in the current second quarter versus reviewing Q1 results. Our press release and the financial summary, you will find the full statements and MD&A on SEDAR.

It’s been a very active several months for the company as we took quick and decisive actions to navigate both the near-term economic uncertainty as well as create a leaner, more efficient cost structure that better positions our business for the long term. I’m going to focus my discussion today around these financial model highlights: one, how the flexibility of our model has allowed us to quickly move from investment mode into cash flow generation mode; two, the strong performance of our loan book; three, how we have recently decreased our leverage and cost of capital; and four, how we are expanding the monetization opportunities of our model.

Given our revenue scale, we’ve always talked about having multiple dials and levers we can use to manage our cash flows, including the amount of origination activity and the level of cash OpEx spend. Specifically, as it relates to our OpEx, these dials include adjusting the level of growth-related spend we are doing as well as the variable spend, which includes performance-related marketing as well as ongoing variable expense items that are driven by overall volume levels.

As you heard from Dave, we did a lot of the heavy lifting on the development side over the last few years, building out our app, developing the card product and digital spending account, developing our partner lending platform, which includes the announced goeasy partnership. This has allowed us to reduce our level of investment in this area while minimizing the direct impact to our existing products. Separately, we also felt it was important for management to participate in sharing the pain by agreeing to temporary salary, reductions, which included 40% salary reduction for me and our CEO, 20% for the rest of our senior management team and 5% to 15% for the majority of our remaining salaried employees. We are very grateful and proud of our team and the belief and commitment they have in Mogo and our mission of helping Canadians getting control of their finances.

Separately, we also decided early on when COVID-19 hit to temporarily pause our loan originations, which included pausing performance spend, which generated about 30% of our overall OpEx savings. With these changes, we have reduced cash operating expenses by approximately 47% in Q2 as compared to Q4, from $10.7 million to an estimated $5.7 million for the second quarter. The most significant savings are being driven by reductions to headcount, including natural attrition, both temporary and permanent layoffs and some of the temporary salary reductions I spoke about. To date, we have seen a reduction in headcount of over 40%, of which 40% has become permanent. We have also been able to negotiate a number of additional nonpersonnel-related savings from a number of our vendors.

Given the economic deterioration in recent months, we continue to get questions related to our loan book. We expressed cautious optimism when we talked in March, and that has been reinforced by strong performance of our loan portfolio in Q1 and the first 2 months of Q2. As Dave mentioned, we’ve been in online consumer lending for more than 15 years and have always believed this portfolio made up of small-dollar loans with low regular payments would be resilient during extremely challenging times. This has proved out so far. Specifically, we provided under 5% of our loan customers with some form of relief, including reduced interest and deferred payment, with less than half, roughly 2% currently still on relief. In April and May, we have seen a decrease in the rate of customer defaults relative to Q1 to record low default rates for these loans.

We have also seen higher-than-normal loan repayments in the second quarter. Average monthly customer repayments on our line of credit product has increased over 30% relative to the first quarter. We think it’s helpful to understand the profile of our loan portfolio, which we believe helps explain why it’s been resilient. This is a highly diversified portfolio composed of small-dollar lines of credit with an average balance of roughly $1,500 per loan. An average payment of $50 make your loans high on the affordability index, which we believe is a critical factor during times of financial stress. 100% of our loans are set up for digital payments and approximately 88% of these loans are set up with multiple payments per month that more closely coincide with our customers’ pay cycle. 55% of our customers have loan protection insurance that they purchase at the time loan is granted. The insurance is applicable in a number of scenarios, and cover their loan payments for up to 6 months and potentially more.

While the portfolio performance has been solid, under IFRS 9, it is required that forward-looking macroeconomic indicators be considered in developing the provision for future losses. So as a result of the current uncertain economic environment, our loan loss provision in the first quarter was approximately $1.2 million higher than it otherwise would have been.

In addition to a lower cost structure, we moved forward with a substantially improved balance sheet and lower cost, stable capital structure. Four recent initiatives have driven this improvement. This includes the sale of our liquid book to goeasy, reducing our credit exposure by approximately $32 million or about 32%. The subsequent payoff of 1 of our 2 credit facilities outstanding, reducing our total credit facilities outstanding to $45 million at the end of Q1, down from $77 million at year-end. This also generates roughly $900,000 per quarter in interest savings. The increase of our remaining credit facility is $60 million, which included reduced interest rate of up to 400 basis points and the extension of the maturity date to July 2022. Lastly, in May, we amended our $12.5 million convertible debentures and extended the maturity date by 2 years to May 22, 2022, as well as reduce the conversion price. At quarter end, we had cash and investments for — and investment portfolio totaling $25.5 million.

Like many businesses, we’re in a period where liquidity is at a premium. With all the initiatives I’ve just outlined, along with the resiliency of our loan portfolio, the net effect is that we now expect a dramatic sequential increase in our cash flow. Specifically, we now expect to generate $5 million to $6 million of cash flow from operations net of investing activities during the second quarter of 2020, a roughly $9 million to $10 million positive swing from the first quarter. Again, clearly demonstrating the power and flexibility of our financial model. Our expectation is that much of this operating cash flow will be directed towards reduction of the credit facility, further deleveraging our balance sheet.

As Dave highlighted, we’ve had to take steps to manage through these uncertain times. We are not simply playing defense, however. In particular, we will continue to make investments in new products and expand our ability to monetize our large member base. This includes 4 specific growth drivers. One, once we see market conditions stabilize, we plan to slowly resume on-balance sheet lending of our low dollar high-yielding loans. Access to responsible credit solutions remains one of the pillars to financial health, and we have deep capabilities in data as well as the most convenient mobile-first loan experience in Canada. And this is a highly profitable product for us. Two, we will also continue to focus on growing our partner lending revenue. Three, we plan to rollout new products like MogoSpend in the third quarter. With the value proposition adjustments we have made, including eliminating cashback, this now becomes a profitable product for us as we scale. And four, our goal is to bring in new revenue streams from referrals and products that our members are asking for, but which we don’t currently offer. We expect to get a referral program off the ground in the second half of this year.

In summary, it’s clear that financial health is more important than ever, with consumers increasingly desperate for easy and affordable mobile-first digital solutions to help them achieve their financial goals. We believe that these trends, which are only accelerating, play to Mogo’s strength, including our unique platform and value proposition in the Canadian market, which we plan to take advantage of over the coming quarters.

Lastly, I would like to echo Dave’s earlier sentiment, a huge thank you to our team for the dedication and resilience they have shown during these challenging times.

With that, we will open up the call to questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Nikhil Thadani from Mackie Research Capital.

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Nikhil Thadani, Mackie Research Capital Corporation, Research Division – Analyst of Technology [2]

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Great. Can you hear me okay, guys?

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Gregory Dean Feller, Mogo Inc. – President, CFO & Director [3]

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Yes.

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Nikhil Thadani, Mackie Research Capital Corporation, Research Division – Analyst of Technology [4]

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Greg, so I wanted to go back to your comment about the Q-on-Q savings and the cash flow, the $9 million to $10 million swing. That’s pretty impressive. Could you maybe just walk us through the components offset, and how you get to that point? I guess, $5 million is coming from the cash OpEx savings. And maybe if you could just walk us through the moving parts there. And the second part of that, what part of the cash OpEx savings might be permanent once we pass-through this crisis in terms of commercial real estate and things of that sort?

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Gregory Dean Feller, Mogo Inc. – President, CFO & Director [5]

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Yes. Thanks, Nikhil. So yes, so the cash flow — the significant change in cash flow from cash use to material cash generation in the second quarter versus first quarter, it is really a component of a number of factors. The 2 biggest ones are the substantial reduction in OpEx — in cash OpEx. The $5 million that we’ve talked about plus about just under $1.5 million of capitalized interest expense, which was also cash savings over the first quarter. And then the other piece is effectively a combination of pausing originations in the second quarter. So effectively, reducing the amount of — basically eliminating the cash that actually we’re investing in growing the loan book. And as I mentioned in my remarks, we’ve actually — not only have we seen a decrease in defaults, but we’ve seen an acceleration — an increase in full principal paydowns.

So the combination of pausing with continued strong performance on our existing book, the significant cash OpEx and interest savings along with principal paydowns is driving the big swing in overall cash flow. As it relates to ongoing savings, once we’re through this, the vast majority of these savings, I would say, are within our control. And so again, those are levers that we control. The variable expenses related to marketing spend, which is somewhere in the vicinity of $1.5 million a quarter in the past, that as we get — start ramping back up, you’re going to see that number go up, but we’re going to be pretty judicious and prudent about how quickly that ramps up. And then we’re going to continue to assess, based on the demand, what costs and resources that we believe we need to keep longer term. But again, importantly, those are going to be well within our control.

I would say the vast majority of the savings that we’re seeing outside of the variable ones definitely are going to be driving a permanent overall reduction and a material overall reduction in our overhead, so positioning us for operating leverage going forward. We’re not looking to get back to our historical quarterly spend. We’ve really taken this as an opportunity to streamline the company, focus on our core business. Obviously, making some decisions to really sort of push out growth investments. And like anything, once you start, just like the consumer, they’re sitting at home, focused on their budget and finding ways to save money they didn’t realize they could save before. Companies are doing the same thing, and we’re no different.

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Nikhil Thadani, Mackie Research Capital Corporation, Research Division – Analyst of Technology [6]

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Got it. And in terms of the 5% deferrals that you’ve been offering your customers versus some of the industry data of 20% to 50% that you spoke about, how does that compare to the default rates back in ’07, ’09 at that point in the cycle back then?

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Gregory Dean Feller, Mogo Inc. – President, CFO & Director [7]

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It — to be totally honest, it’s actually hard for us to compare it, given the mix of our portfolio is vastly different now. I would say — look, one of the things we have said is even during those periods, our loan book remained profitable, even during historical periods of economic stress. I mean our general view is the economic stress environment we’re seeing today is unprecedented. And so we were — although we were optimistic and have always believed that we’ve got a loan book and the book that we’re keeping on our balance sheet, low dollar amount, high affordability. We’ve always believed — and the customer base that we’re serving as well, we’ve always believed would be resilient in a downturn. We’ve actually seen defaults actually go to record low. We’re not suggesting they’ll stay at record low. But the bottom line is, we continue to believe that the area that we are focused on, on our balance sheet is a very attractive risk-adjusted return portfolio. And right now, we think that our performance is clearly highlighting that. Obviously, that’s been a question for investors for a long time, what would happen to our book in a downturn. And so we think this is an opportunity to prove out what we’ve been saying for a while.

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Nikhil Thadani, Mackie Research Capital Corporation, Research Division – Analyst of Technology [8]

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Okay. And how should we think about the debit card cashback and the MogoProtect fees? On a cash basis, are those 2 roughly the equivalent? And maybe just help us understand the thinking behind that decision a bit more.

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Gregory Dean Feller, Mogo Inc. – President, CFO & Director [9]

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Yes. Dave, do you want to take that?

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David Marshall Feller, Mogo Inc. – Founder, CEO & Chairman [10]

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Sure. Maybe just to clarify the question, the thinking behind the elimination of the cashback?

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Nikhil Thadani, Mackie Research Capital Corporation, Research Division – Analyst of Technology [11]

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Yes, that’s right. Yes.

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David Marshall Feller, Mogo Inc. – Founder, CEO & Chairman [12]

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Yes. I mean I think the — when — obviously, when all this stuff happened, we took a look at everything. And one of the primary goals, too, is just kind of sustainability and profitable growth. We always knew that offering cashback on the card was aggressive, although essentially, it was the interchange that we’re offering. The — ultimately, the profitability model there would depend on how many of those card users you manage to really kind of convert over into other products, including loans and referrals.

By eliminating the cashback, we think that not only do we still have a significant compelling value proposition, but it obviously makes that card product a sustainable product on its own. That is a product that as it scales, it should drive meaningful, profitable contribution margin, whether or not those customers convert into anything else. So it’s just a more profitable model. But at the same time, feeling like the focus on controlling your spending, keeping it free, the carbon offset, along with the rest of our combined value proposition, you then add in free Protect, free credit score with full credit report, free Bitcoin. All of these is part of that kind of holistic value proposition, we think, is still obviously very differentiated, very compelling in the market. And quite frankly, a lot more profitable than if we were going to offer the cashback. So that’s why we decided to move to the — eliminating the cashback.

And at the same time, when we took a look at MogoProtect, we just believed that this is a product that, quite frankly, we could see 10x, 20x what we’re currently seeing, if this is a free product and not something that anybody — once they signed up for, many would basically churn. Once you have it, you probably want to keep it. There’s no reason you wouldn’t have it. Obviously, it gives you a reason to download the app, become an engaged member. It would be the only product like this in Canada. And again, gives us a lot of opportunity to then kind of monetize those members as they’re coming in for the free product with essentially a low customer acquisition cost. Monetize them into, whether through referral, whether it’s card, whether it’s loan. So it all kind of ties together. That referral model is going to be an important part, as I said. Up until now, we’ve been primarily focused on really trying to convert people into subprime loans, even though a large segment of our member base is actually prime consumers. So those prime consumers, we really weren’t trying to monetize. And now we’re going to be able to monetize both in these referral programs as well as things like MogoSpend itself.

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Gregory Dean Feller, Mogo Inc. – President, CFO & Director [13]

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The other thing I would just add to that is that pre-COVID, everybody that uses our card loves the value and the ability to control their spending, and they start to see the value of that. And it — but it does require you actually starting to use it. Sort of pre-COVID, when — as we say, the majority of consumers were more focused on accumulating Aeroplan Miles on the credit card, you needed — we felt we needed to offer more incentives to get consumers over to try it like cashback.

We think the mindset is clearly shifting to a post-COVID world, where everybody is increasingly focused on their spend, their budget and their finances in order. Every consumer out there is seeing their credit card bill drop dramatically during this period. And the vast majority of them are saying, as things open back up, I don’t want my spend to go back to the level it was at. And by the way, I need to spend less, save more. So we think consumers are really sort of desperate for a solution like this. So part of that change is also just recognizing that I think consumers are probably more open and ready for that solution today than they were before.

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Nikhil Thadani, Mackie Research Capital Corporation, Research Division – Analyst of Technology [14]

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Got it. And just one last one before I pass the line. In terms of the referral model with some new products, did you say the time line to launch that was some time in Q3?

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Gregory Dean Feller, Mogo Inc. – President, CFO & Director [15]

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Yes. We’re saying that we expect to get that model going in the second half of the year.

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Operator [16]

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And your next question comes from Suthan Sukumar of Eight Capital.

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Suthan Sukumar, Eight Capital, Research Division – Principal [17]

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So my first question here is on — obviously, the evident — the resilience in your loan base, that’s clearly evident here. In the press release, you guys noted 2% of your customers have only — only 2% have required some sort of intervention. That’s down from the 5% you guys talked about in your COVID update. Can you kind of speak to some of the factors beyond that improvement that you’re seeing now?

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Gregory Dean Feller, Mogo Inc. – President, CFO & Director [18]

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Yes. So the 5% is really accumulative. And so the majority of relief measures that we’re giving were temporary. So a lot of those temporary ones have rolled off. And the customers back on a regular payment schedule. So I think some of the dynamics to think about, I mean you — I think what happened was when this initially hit and people were panicked, a lot of people started requesting relief before they actually necessarily knew if they needed it. And so that’s why I think you sort of saw a spike earlier. And then, a, as people get a handle on kind of what their status is, do they need it? Do they not need it? And, b, as some — a lot of people sort of roll off the relief, that number naturally comes down unless there’s other reasons, new reasons to — for that number to increase again. Obviously, government programs out there have helped the consumer a lot. Our average consumer is making about $50,000 a year. And that’s really that everyday Canadian that a lot of the government support areas are focused on.

So we think that’s also helping our overall performance as well. If you’re — look, if you’re making $200,000 a year and you lost your job, your — even all the government support that’s out there isn’t going to make a material dent in your sort of employed income cash flow. And so you wind up having much bigger challenges to manage your commitments in that kind of scenario.

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Suthan Sukumar, Eight Capital, Research Division – Principal [19]

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Right. Okay. Great. That made sense. My second question is on crypto. You guys touched on some commentary around the crypto segment in your opening remarks. It sounds like you’re seeing some higher engagement on your platform as a result of the offering. Can you guys touch on some of the trends that you’re seeing with respect to new user acquisition kind of post the quarter from crypto? And what if conversions kind of look like for these users into your other offerings?

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David Marshall Feller, Mogo Inc. – Founder, CEO & Chairman [20]

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Sure. It’s Dave. I would say on the crypto side, quite frankly, in the last, say, 2 months, we really haven’t at all focused on crypto at all, quite frankly. I mean, from a marketing perspective and customer acquisition, we’ve just had our kind of known offering out there in the marketplace. And quite — right now, for example, we’re — through post, we’re marketing essentially mostly credit score. We actually have not gone out there and really marketed anything around Bitcoin. It’s something that most people are just finding out, I’d say, through kind of word of mouth. And we typically are seeing a continued increase in the percent of new members that are signing up that are activating the Bitcoin account and buying Bitcoin.

And as I mentioned, similar to, I think, the Square Cash App in the U.S., definitely, this is not a main focus of ours. We’re not obviously an exchange. We’re only offering Bitcoin, but we definitely believe that there is a correlation between a member that activates Bitcoin and then the level of activity of that member. Many of our members that are buying Bitcoin, it’s their first time. So these — they haven’t necessarily ever purchased Bitcoin or owned it before.

And so kind of the decision to move to take away the fees already wasn’t that meaningful of an impact. But ultimately, we increasingly are focused on what are those things that really can help drive that kind of viral word of mouth. NPS score, Net Promoter Score, is something that we’re really focused on as well. And we do believe that there’s a correlation between somebody who signs up for a Mogo account, activates crypto, gets Bitcoin. That actually impacts our overall experience with Mogo, even though they didn’t necessarily sign up just for Bitcoin.

So we’re really kind of, I’d say, leveraging it in that way. And our hope is that we’re going to move forward with this in Q3. At some point in Q3, those fees will be taken away, and then that value proposition will be enhanced and, again, continue to leverage it for — mostly for engagement from our member base. And hopefully, viral kind of word of mouth, but not necessarily a product that we’re actually going to go out there and spend money on marketing.

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Suthan Sukumar, Eight Capital, Research Division – Principal [21]

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Okay. That’s helpful. And last one for me, guys, is on the deferral model. Now is the plan here to be working with maybe select strategic partners out of the gate? Or is the vision here to really build some sort of broader marketplace type model? And the follow-up that I have is, how do you anticipate the monetization of work? Will these transactions be done on a revenue share basis? Is there an affiliate model or some combination of all your work?

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Gregory Dean Feller, Mogo Inc. – President, CFO & Director [22]

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Yes. I mean I’d say the model that we’re looking at initially is, again, we’re being strategic in terms of the partners that we’re looking at. As I mentioned, what we’ve seen is, a, we’ve always had inbounds, but we’re seeing increasing inbounds from companies saying, “Hey, we would love to be able to get referrals from you guys.” One of the things, I think, increasingly, companies are realizing is, for example, if you’re a secured lender and you’re looking to offer, say, a secured loan for those people that own a home to — and looking to buy — basically do debt consolidation, have some equity in their home, they don’t necessarily qualify for traditional line of credit, maybe they have a challenged credit score. There’s companies like that are obviously around. They go out there and they’re doing direct-to-consumer marketing, TV, et cetera. And increasingly, it’s expensive to acquire those customers, given that these customers are already customers somewhere else, including Mogo.

So — and obviously, for most consumers, they really don’t want to go somewhere else to open a new account. They’re really looking for something that is already kind of related to where they are, that really is, I would say, the Credit Karma model, right? That referral model that we talked about. But what we’re doing is we’re essentially looking at our member base, really analyzing our member base and what do we think those most relevant products based on that member base is that we initially want to start with. So for example, there can be, obviously, a high interest rate savings account. That would be a product that we’ve never monetized anything related to that before. Secured loans, as I mentioned, insurance, but we’re really kind of spending some time right now kind of really analyzing where do we think we have the best opportunity based on our member base, based on the level of engagement from those members.

And then we’re already having a whole bunch of partner discussions. Most of these are typically a referral as then you sign up and you might get anywhere from $50 to a couple of hundred dollars for an application. But some might actually be for you essentially do it if they convert and then you get a bigger fee. So no decisions have been made on there, but we’re kind of exploring all those different scenarios. And then essentially, we’ll have an internal team that is essentially just focused on mining our member database and continue to look for those opportunities to make sure that we’re bringing the right products to the right people, so it’s relevant. Obviously, you don’t want to be marketing a product to a member that clearly isn’t a relevant solution for them. But we expect that as early as Q3, we’ll begin to start doing some referral partnerships.

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Operator [23]

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(Operator Instructions) There are no further questions at this time. I will turn the call back over to the presenters.

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David Marshall Feller, Mogo Inc. – Founder, CEO & Chairman [24]

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Okay. Well, thanks, again, for — everybody, for your time today. We appreciate the support. We look forward to updating you after our next quarterly earnings call. Thanks.

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Operator [25]

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Ladies and gentlemen, this concludes today’s conference call. Thank you for participating. You may now disconnect.