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Good afternoon. My name is Cyndy, and I will be your conference operator today. At this time, I would like to welcome everyone to Mogo's Fourth Quarter 2018 Earnings Conference Call.Please note that today's call contains forward-looking statements, statements that are based on current assumptions and subject to risks and uncertainties that could cause actual results to differ materially from those projected. The company undertakes no obligation to update these statements except as required by law. Information about these risks and uncertainties is included in Mogo's press release for Q4 as well as in its filings with regulators in Canada and the United States. Also, today's presentation will include adjusted financial measures, which are non-IFRS measures. These should be considered as a supplement to and not a substitute for IFRS financial measures. Reconciliation between the 2 can be found in the company's presentation today, which is available on its website. And finally, note that all amounts discussed today are in Canadian dollars unless otherwise stated.I will now turn the call over to David Feller, Founder and CEO. Mr. Feller, you may begin.
Thank you. Good afternoon, and welcome to Mogo's Fourth Quarter and Full Year 2018 Results Conference Call. I'm joined today by Greg Feller, our President and CFO. We prepared a presentation accompanying today's call, which is available on our Investors site. Again, I apologize for the delay in today's call. Apparently, we had some technical difficulties getting our filings on SEDAR.First of all, I want to thank our entire team for their dedication and hard work over the past year. We delivered a strong fourth quarter to close out a highly productive year operationally and financially. And this speaks to the results that our team is delivering throughout the organization. In a rapidly growing and changing FinTech market, these efforts continue to solidify our position as an innovator and leader in Canada.So what's the problem we are focused on solving at Mogo? Almost everyone has a bank account, yet almost universally we struggle to be in control of our financial life. Financial stress continues to be one of the biggest stress factors affecting Canadians. There are a lot of apps and solutions in the marketplace today, yet it is a big challenge to be on track to a certain level of financial health. Although there are a lot of solutions, no one has brought in the right solutions together in a way that makes it easy for consumers. This is a problem that all of us can relate to in one way or another. Our view is financial services will be dominated by companies that not only offer the best digital experience, but the best products that are brought together in a simple way that truly helps the consumers get financially healthy. This is our mission, making it easy and engaging for consumers to get financially fit, and this is what guides our ongoing investments in our platform and our product road map.Through the end of 2018, we've now invested more than $200 million to date in our platform. This has helped us create a competitive moat, and, as we will highlight today, made us an increasingly effective partner as we look at expanding our offering. The Mogo Finance app is at the heart of this solution, mobile-first native app. I need to be able to do everything here. It's the most relevant and convenient way for users to stay in control of their finances.Specifically, our current focus is on 4 key areas, which we see as the most important and common elements of financial health. It's also important to note that this focus is what's driving our financial results, highlighted by record quarterly revenue in Q4 of just over $16 million driven by 100% growth in subscription and services revenue.Let me quickly discuss the evolution of our products and near-term initiatives as we continue to execute on this strategy. Perhaps the most important part of financial health comes down to controlling your spending. And as such, the MogoCard continues to be a key part of our product strategy. The MogoCard, which is part of what we call Mogo Spend, was a big focus of our development efforts in recent quarters pick. Among the enhancements, we've improved the ability to help members save money with the launch of our cash-back feature. Consumers, especially millennials, want more control on their spending, but they also want the rewards for credit card, and cash-back is by far the most requested reward program.Just to put this into perspective, in Canada, there's about $250 billion a year spend on debit cards. And for the most part, they don't earn any rewards. That's potentially billions of dollars a year the consumers are missing out on. By switching to Mogo Spend not only would you not have any monthly fees, but you would get features that help make it easier to stick to a budget like our monthly spending goal feature, along with the best-in-class cash-back. As an example, if you were spending $2,000 a month on your debit and switch to Mogo, you would earn anywhere from $30 to $60 per month in cash-back. That's obviously a material and is a money that can then be used to put towards saving and investing. We're currently in beta testing on the cash-back and expect to begin the broader rollout in Q2.MogoWealth. One of the now -- absolutely, one of the key measures of financial health is your level of saving and investing, i.e., building wealth. Controlling your spending and earning cash-back leaves you with more money to put towards this. As we've previously announced on our last update, we are working on developing MogoWealth. Our objective is to bring together a range of best-in-class products, robo, ETFs, savings accounts, so that our members can easily begin investing and saving all within the same app and have access to best-in-class solutions. Wealth will be by far the biggest market we have entered and, in fact, is expected to grow to over $7 trillion within the next 7 years. We are in active partnership discussions in this area, and it's clear that we offer an attractive distribution platform for prospective partners with 750,000 members and growing.As I'm sure many of you recently saw, there was another massive data breach where billions of records were potentially exposed. Included in this breach were things like date of birth, Social Security Numbers, passwords, et cetera. As these data breaches continue to occur, consumers need to monitor and protect their finances as identity fraud can seriously derail their financial health, whether that's preventing you from getting a mortgage or having to spend months and potentially years clearing up your good name. MogoProtect product continues to gain traction and was an important contributor to our increased subscription and services revenue in 2018. The majority of Canadians today don't have a solution like this, and we continue to see this as a massive long-term opportunity, including potential partnerships to expand our distribution of this product.Responsible credit is a fourth pillar in managing your financial health. Because we all know that there are many times when we need some credit, our goal is to give our members access to not only the best rates, but an experience that is designed to help them make smarter borrowing decisions all from a mobile app. In 2018, we continued to improve the experience with significant enhancements to the platform that helped drive efficiencies both in marketing and operations. Specifically, these improvements led to improvements in conversion rates of leads to loans of over 50%. As we continue to prove our platform along with expanding our product offering, we see increased opportunities to expand our lending through partnerships. Our goal has always been to deliver the best rates to all Canadians regardless of credit score. And we believe, just like we have partnered with other products, partnering on lending will enable us to scale even faster. At the core of our success is the technology platform that is designed to deliver best-in-class, mobile-first digital experience along with best-in-class financial products all through one app. This modern platform is one of the big advantages we have over the incumbents as it allows us to be faster and more innovative in terms of features and products than the banks, and we're not burdened by many of the legacy issues they deal with.One of the areas of investment in 2018 was increasing the use of AI as we continue to evolve to an AI-centric platform. We've always been a data-driven organization. We continue to gather more and more valuable data as we increase our member base and launch new products. We have started to use AI in our credit risk and underwriting processes, and we expect to continue to expand the use of AI and incorporate it in almost all areas of the business. Just like we believe the future of financial services will be dominated by best-in-class digital product offering, there's no doubt that AI will be one of the key components of this modern platform.Expanding our partner ecosystem. We have multiple partnerships enabling our current products, and a key strategic priority is to expand this partner ecosystem in 2019 to deliver best-in-class products for our members. Unlike many of the traditional financial institutions, we are not tied to the model of the proprietary, internally developed solutions. As finances continue to move to this mobile-first digital experience along with a holistic solution, mobile offers a very unique partnership opportunity. So why would banks, wealth management, insurance, credit unions want to partner with Mogo? We have a mobile-first digital app and innovative product ecosystem. We have distribution with over 750,000 members. That's larger than any credit union in Canada. We have the Postmedia partnership that not only could we market to existing members, but gets us in front of about 18 million Canadians. We're also hyper-focused on the millennial and Gen Z demographic, the next generation of Canadians, which is where many companies are challenged. Some have broad traditional distribution. But as things move to more mobile driven by millennials, how are they getting to these customers? As we expand our product offering through these partnerships, the more we deliver to our members with great products and experience, the more reoccurring revenue we drive. While it's still early days in the execution of the strategy, the 100% growth in our subscription and services revenue in 2018 highlights our initial success at building a valuable reoccurring revenue base.We're also designing the experience in ways that naturally tie our products together. For example, controlling your spending is a prerequisite for saving and investing. And features like cash-back will help our members not only hit their savings target faster, but also give them the ability to have this automatically invested.One of the other unique elements of our platform is our scalable go-to-market strategy, highlighted by our Postmedia partnership. As we continue to add new features and products, we will continue to leverage this partnership to not only build our brand, but acquire new members. Just as we see partnership opportunities for new products, we're also increasingly seeing opportunities for partnership on the marketing side. We are seeing an increase in inbound inquiries where companies want to promote our products and solutions to their customers, and we expect to build this channel out going forward. Financial services marketing in Canada is measured in the trillions and is undergoing a fundamental shift driven by millennials to a mobile-first digital experience. And it's not just millennials, eventually every demographic will be interacting primarily through the mobile phones to manage their finances. Today, 47% of banking customers are digital centric and 32% digital only, according to recent survey. The point here is that not only is this massive market is undergoing a fundamental shift just like every other industry, and we believe we're at the forefront of this shift. As we look ahead to 2019, we have 3 main strategic priorities: one, expand our product offering with focus on MogoWealth and the launch of Mogo Spend with cash-back; two, continued focus on revenue growth with a primary focus on subscription and services; and three, related to both of these is the expansion of our partnership ecosystem, which we think will become an increasingly important component of our business. I will now turn the call over to Greg to review the financial results. Greg?
Thanks, Dave, and good afternoon. A record fourth quarter closed out another very successful year for Mogo from a financial perspective. Before we dig into the Q4 numbers, we think it's helpful at this point in the year to consider how far we've come in the last 3 years since we became a public company. Dave talked about how we evolved and expanded the technology platform products and partner ecosystem. From a financial perspective, the progress is also outstanding and is a major point of pride for our team. We believe we are truly helping to transform the way Canadians access financial services, making it easier for people to manage their financial lives.To take a quick look back, in Q2 of 2015, our first quarter as a public company, we had quarterly revenue of approximately $10 million, $8 million of which was from our short-term lending product. In the most recent quarter, we reported a quarterly record of $16.1 million in revenue, none of which was from short-term lending. We have grown our revenue organically during this period through the success of our in-house product development, marketing and strong execution across the company. Approximately 90% of our $61 million in 2018 revenue was generated from new products that were introduced since our IPO.In addition to the organic growth, we are pleased with the major progress in transforming the revenue makeup of the company to a much greater portion of capital-light recurring revenue stream. This is again evident in the Q4 results. Core revenue increased by 75% in Q4 and has increased by 60% or greater in each of the past 4 quarters. A key driver of this was our subscription and services revenue, which increased by over 100% year-over-year, which was the fourth consecutive quarter of 100% or greater growth. Again, strong evidence of the uptake in new products. Adjusted EBITDA reached a record $2.1 million in the fourth quarter, an increase of 107% from the prior year period. In addition to the dollar growth, this is the third quarter in a row of expanding EBITDA margins, which now stand at 13%. We also continued to grow our member base strongly, adding more than 210,000 new members and increasing members by 39% over 2017. And we exited the quarter in a strong financial position, with just over $20 million of cash, and based on certain conditions, up to an additional $173 million in an undrawn credit facility.As we discussed in our prior earnings call, we exited the short-term lending business in the third quarter, so there were no loan fees recognized in our Q4 results, leaving just core revenue, which we believe will make the core revenue year-over-year comparison even more relevant to understand our true underlying revenue growth as well as making it easier for investors to understand our growth going forward. Core revenue reached $16.1 million in the fourth quarter and for the full year increased 71% at $53 million. The increase reflects strong growth in subscription and services revenue as well as increased demand for MogoMoney product, with interest revenue up 45% for the year and 55% in Q4. Perhaps the most significant financial highlight is the continued increase in our high-margin subscription and services revenue, further evidence that the investment in our platform and product expansion are working. This portion of our revenue doubled in Q4 to $8.2 million from the prior year period and for the full year increased 106% to $27 million and now represents 51% of total revenue, the target we established at the start of 2018.Within this revenue segment, the most significant growth in Q4 came from high-margin subscription-related fees from our Premium account Option as well as our MogoProtect product. MogoProtect revenue grew approximately 30% sequentially from Q3. And as we heard from Dave earlier, we believe this product by itself is a massive opportunity for us. And we are seeing an increase in demand for partners interested in offering this solution to their customers, which creates exciting new revenue growth opportunities for us. We will continue to drive growth in subscription and services by ramping existing products like MogoProtect as well as new partnership opportunities where we're pursuing around products like MogoMoney, which as Dave mentioned, we are seeing increasing interest in our digital loan platform and our valuable distribution channel that we have built with over 750,000 members and growing. We expect to launch with at least one new partner in MogoMoney in the coming quarters, which will allow us to generate a high-margin fee-based revenue from this product with no capital requirements or credit risk. We see this as another exciting new revenue opportunity that would complement our current on-balance sheet business. As Dave highlighted, our Mogo platform allows us to iterate rapidly to improve existing products as well as launch new products much faster than a traditional financial services player, and these will remain big areas of focus for the company in 2019. The power of our expanding ecosystem of products and partners as well as best-in-class products and digital experience we think is one of the big drivers of what we believe to be best-in-class marketing efficiency. Specifically, you can see that over the last 4 quarters, we have driven 60%-plus core revenue growth on marketing spend that's actually been decreasing as a percent of revenue. In fact, not only was Q4 less than half the spend as measured by percent of revenue as Q1, but it was also the lowest dollar spend on an absolute level of any quarter in the year at only $1.7 million.Our groundbreaking Postmedia partnership is also a big component of this performance and is also driving the increasing brand awareness of Mogo with the consumers in Canada. Our focus on profitable growth is evident in our record quarterly adjusted EBITDA of $2 million, which represents 13% of revenue in the fourth quarter. For the full year, adjusted EBITDA increased by 68% to $4.2 million and contribution was a measure of overall profitability of our products before investment in our platform.Adjusted net loss was $4.7 million in Q4, up from $4.1 million at the same time last year but significantly down sequentially from $5.5 million reported in Q3. The year-over-year change is mainly attributable to an increase in noncash depreciation and amortization expense related to our investment in our software platform while the sequential decrease is based on increasing operating leverage.In terms of credit performance, net charge-offs was 15.8% in Q4 compared to 13.1% in the current period, which was uncharacteristically low. Full year charge-offs decreased to 14.8% compared to 15% in 2017. While we continue to see quarter-to-quarter variability, we are generally expecting to -- for this trend to trend down over the long run based on the shift away from our short-term loan product in favor of longer-term, lower risk installment loan products.While we are delivering strong revenue growth at increasing scale, we continue to make meaningful progress in our path to profitability. Cash OpEx as a percent of revenue declined each quarter in 2018, reaching 50% in Q4. And we saw a corresponding increase in adjusted EBITDA margins. In 2018, we focused our investments in enhancing our digital loan platform and building out our next-gen prepaid card platform and digital spending account with cash-back. As I highlighted earlier, the investments we're making in technology and product development is demonstrating tangible financial results with almost 90% of our revenue today coming from new products introduced since our IPO.Strategically, we will continue to find the right balance between further investments in new product development that will drive future growth while continuing to demonstrate operating leverage and our path to profitability.Turning to cash use for the year. We think it is very important for investors to understand the components of our cash use and the levers that we can pull to manage this. Specifically, in 2018, we generated $7.2 million of cash flow from operations before investment and loan receivables. We then invested approximately $11 million, mostly in new product development initiatives. This collectively totaled to approximately $3.8 million of cash used in operations for the year after all investments. As we look to 2019, we expect that continued top line growth and further benefits from operating leverage will allow us to turn this $3.8 million of cash used into positive cash flow, which can then be used to help self-fund cash requirements for investments and loans receivable.In 2018, we invested net cash of approximately $15 million in loans receivable for the year after accounting for cash from financing, which supported this investment. It's important to remember that this is the dial that we control that directly relates to the amount of growth we want to achieve in our balance sheet loan book. As we look to 2019, we now expect to be able to start self-funding a portion of this loan capital from positive cash generated from operations and investments. In addition, as we mentioned earlier, we also expect to have new revenue opportunities with our MogoMoney product through partnerships that will not require any capital from us. Collectively, this is why we feel very good about our liquidity going forward. We continue to generate strong member growth in the fourth quarter and ended 2018 with 756,000 members, up 39% over last year. From a monetization perspective, we are seeing encouraging trends. Our core average revenue per member increased 23% to $88 from $71 for the same period last year. As we expand our products, such as MogoWealth, we have more opportunities to bring new members into the Mogo ecosystem, more ways to add value and build engagement with our growing member base and more ways to digitally cross-sell. With each passing month, we gain more data on members' trends and patterns, data we are leveraging to continue to refine and improve the monetization.So as we look ahead to 2019 and beyond, clearly, we have a huge opportunity in front of us, and we are really at the front end of that growth runway. We have multiple important growth drivers this year led by the introduction of new fee-based products we outlined, products that open up significant new revenue streams for the company. As we continue to add these products that are a broad cross section of members and Canadians in general, like MogoWealth and the new card program, we have more opportunities to both expand our member base and monetize it, further solidifying our position as the leading mobile-first digital challenger to the banks of Canada. That concludes our formal remarks. And we'll now pass it over to the operator to open it up for questions.
[Operator Instructions] And your first question will be from Doug Taylor at Canaccord Genuity.
The Mogo members, I mean, is there a shift in your marketing spend to focus on -- or shift from focusing on adding new members to driving product adoption within your member base? And how should we think about the overall member growth in 2019?
Dave, do you want to talk about just our view on marketing spend as it relates to member growth versus monetization? And then I'll comment maybe on 2019 outlook?
Yes. Yes, I would say absolutely. We're -- as much as we're keeping an eye on member growth, we're definitely more focused on monetizing customer acquisition quality of member growth. So we will take less members for more quality growth. And I think, quite frankly, that's obviously reflecting in our kind of revenue growth here, even though maybe the member growth has slowed compared to some of the other kind of faster quarters. In the long run, we still see a significant opportunity to grow and even accelerate the member growth, especially as we continue to launch these new products. For example, the Mogo Spend with the cash-back. We see that as something that most likely will have a positive impact on member growth. But yes, absolutely, we are, I would say, prioritizing the focus on quality of members over just member growth.
And Doug, to your question on 2019, in 2018, we added a net increase of just over 230,000 new members, which is significant in terms of scale. I think we commented before, Royal Bank made a comment that they added 300,000 new accounts in 2018. So 230,000 is obviously a significant scale. I would expect that in 2019, we add more net members than we added in 2018. But I think as Dave mentioned, we're very much focused on driving engagement and driving revenue.
Yes, okay. I understand that. The new commentary you provided about potentially partnering on MogoMoney product in the near term, how do you balance the potential, I mean, to compete with your own partner with respect to your existing offering? Is it going to be at different ends of the market from what you do currently? I'll start with that question and then I'll ask a follow-up.
Sure. So why don't I start on that. It's Greg. So first of all, we are talking to partners that we actually think can first of all bring loan products to part of the credit spectrum that we're not serving today. So that's a big opportunity, number one. Number two, we believe there's significantly greater opportunity to monetize our members through credit than Mogo itself is tapping into, just given our limited appetite to grow our on-balance sheet lending beyond what we're currently doing. So we really see that there's an opportunity here for incremental revenue coming from partnering. And you can imagine a customer experience that we have certain loan partners that would extend more credit to an individual than perhaps we would, may extend it longer period of time and at different rates. And as Dave spoke about earlier, our strategy of offering best-in-class products means just that. We want to make sure that we believe ultimately to be a winner, we have the best-in-class digital experience with best-in-class products. And that means that in some form, it may even compete with our own products that we offer. By the way, that's no different than even Amazon. Amazon had some of their own products that they've put up there against a selection of other third-party products.
And so I mean, as you work through the process of making this a less capital-intensive business overall, which you highlighted, is there a level of loan growth that you're happy to have on your balance sheet? Or should we think of that tapering off and you're comfortable with the scale of that business or size of the business right now?
Yes. I think what I would say is as we start to see progress in partnerships here on MogoMoney and we see that starting to ramp up, that will obviously give us more comfort and flexibility as it relates to what we want to put on our own balance sheet. But I think, look, the overall trend absolutely has been that our on-balance sheet interest revenue continues to become a smaller and smaller portion -- although growing, continues to be a smaller portion of our total revenue. And we expect that trend to continue.
All right. Last one for me, and I'll pass the line. I think you went through the new products that are upcoming. It seemed like very quickly, I think you might have been trying to make up some time in the air, but if you could just walk through the -- I mean, the timing of some of these new product innovations that you're coming out with and what we should expect as we walk through 2019, that would be helpful.
Doug, it's Dave. So yes, I think a couple of obviously key product focuses. One is the Mogo Spend with the addition of cash-back. So we actually launched the cash-back feature in December. So we're in beta on that. We've got several thousand users with the cash-back experience right now. We are focusing on a few other elements of that program, including a new load channel, essentially a way for consumers to, with very little friction, automatically load money from their bank account to their MogoCard in real-time. And that's essentially a new feature that previously wasn't really available in the Canadian market. That obviously is going to be a key component of that, so that people essentially can keep their own bank account while conveniently and almost frictionlessly tap into the Mogo Spend and MogoCard. And we expect to start ramping up that more kind of broadly in terms of opening it up through Q2. Right now, we're really focusing it on the user experience, the data, the insights. And again, think about kind of quality of users as well and making sure that we have that right balance in terms of experience and feedback. But at this stage, we expect Q2 to start kind of opening this up more broadly. On MogoWealth, we are focusing right now on a few specific partnerships. So we expect that within 2019 to have at least 1 or 2, I would say, kind of products within MogoWealth out in the market. That's our goal.
Next question is from Nik Priebe at BMO Capital Markets.
Okay. I just want to start with a question on the installment loan portfolio. Just 2 observations. This year it looks like write-offs have trended up a little bit since the beginning of the year. But then on the other side of the equation, it looks like the weighted average interest rate on that portfolio has also been moving up. So I was just wondering if you could give us some insight on some of the trends that you're seeing in that portfolio, whether there's been a bit of a change in borrower mix or anything related to the geographical focus of that portfolio that might be driving some of those trends.
Yes. Thanks, Nik, it's Greg. So I guess, a couple of things. So I think we've talked about this before. But given the volume of loans that we're originating, which relative to the market size is still very small, we think we have a lot of dials as far as sort of focusing on what credit risk a customer we want to focus on and what is our target yield. And you've seen over the last several quarters us focus on driving that yield up. With loan -- absolute loan book growth comes -- generally comes absolute charge-offs increase. But on a relative basis, which is ultimately how we look at it, we feel very comfortable with our credit performance of our portfolio. And I would say that we've generally been in the 15% to 16% range. And I think we're comfortable in that range. I think if I look out end of 2019 and into 2020, do I think that ultimately our charge-off rates will likely be lower even than where they are today from a charge-off rate level? Yes, I think that probably is the case. But again, we're not seeing any issues on our loan portfolio. We're being very disciplined on it. Again, we've got, as I say, a very small share relative to the size of the market and relative to, quite frankly, the size of our member base and the size of new members that we're bringing on. So that really does allow us to be pretty selective in how we're actually adjudicating on the credit side.
Okay, no, that's good color. And the actual absolute level of loan growth was just a bit lower sequentially in the fourth quarter relative to the larger step-up in the third quarter. I'm just wondering like, was that the result of a bit of a deliberate slowdown in the growth rate of that portfolio just in the interest of balance sheet preservation? Or was there anything else on there?
Yes. So I would say that, yes, as we say, that is a dial that we can control, and so we are managing the level of growth that we want to see on our balance sheet. And that's, quite frankly, why we're excited about partnership opportunities around MogoMoney because we think there's a lot of untapped monetization opportunity in our member base that we're just really not taking advantage of right now. So I think that's exactly why you're sort of seeing us manage that from quarter to quarter.
Okay. And then maybe one last one for me before I requeue. You did allude to pretty strong -- I think it was 30% growth quarter-over-quarter for MogoProtect. Can you just give us an update on the number of MogoProtect as well as premium subscription accounts outstanding?
Yes. Right now, we haven't been disclosing those numbers, the detail of those numbers. But what I can say is the premium accounts and MogoProtect continues to be the biggest drivers of dollar growth in subscription and services revenue. And I think we're pretty excited about the opportunity for products like MogoProtect because we really just think that it is such early days in Canada in terms of consumers understanding the value of -- and necessity, quite frankly, of protecting their IDs from potential fraud. And as we say, every single hack that happens is a bit of advertising for people that they actually have to manage and protect this. And we think we've got the best mobile-first solution and only mobile-first solution out in the market today with the best pricing. So we think we've got a winning product there. And we're looking to expand that product reach through partnerships. So we see continued significant upside in that product going forward as well.
Next question will be from Nikhil Thadani at Mackie Research Capital.
Greg, I wanted to go back to your comment about the MogoMoney partnership in Q2. What's your level of confidence of that partnership launching in the Q2 time frame?
Well, I haven't specifically said Q2. We said over the next few quarters. But I think what I will tell you is we're having active discussions with a number of partners. And we think that getting something done by middle of this year is absolutely doable. Not ready yet to commit to a specific date. But we've got a lot of interest and we've got active discussions going on. And so we're going to continue to go down that path. And when we know more, we'll obviously give the market an update.
Got you. And could these partnership discussions include MogoWealth as well by the middle of this year-ish? Or is that something that's potential second half of the year?
I'll let Dave comment maybe on MogoWealth timing.
Yes. I think it terms of the timing on MogoWealth, I think it's -- probably, I'd say exactly what Greg just said about the timing on the loan partnership, right? Middle of this year, could be Q2, could be Q3, in which we have a partnership. Again without giving specific guidance, that is our goal. Obviously, those are the, I would say, in terms of the current partners that we're really focusing on and where we think we've got a good level of interest and multiple partners we're talking to. But ultimately, I think it's a focus of 2019. But yes, we're actively working them. And same with -- as Greg said, as soon as we know, we will definitely announce to the market.
Got it. And how have the discussions evolved in the past, call it, 4 months since your Q3 results? How has the partnership finally evolved either in terms of the number of potential partners or what the partnerships could include between mid-November and now?
So Greg, I don't know, I'll just comment on this first. I think there's definitely been an increase, absolutely, in interest even from, say, 12 months ago. I think increasingly what we're seeing is a combination of the current kind of, a, the uniqueness of the Mogo offering, right, the scale of our platform in terms of the members, our Postmedia partnership, but also just a better appreciation from the potential partners on the challenges to get essentially that kind of mobile-first digital distribution, right? So for example, you see with Investor's Group and their majority ownership of Wealthsimple, there's a perfect example, right? Increasingly, these very large organizations have essentially legacy distribution channels, and they are challenged to get that next generation in terms of distribution. So -- and as they started to kind of figure out all the different paths to go, people, I think, are increasingly realizing, this is not an easy thing to build, right? It's not an easy thing to create a differentiated solution, acquire members, get to a scale, all of these things. So I think for all those reasons, the partnership opportunity, we're I think at an inflection point where it definitely continues to increase in terms of interest from partners.
Okay. And depending on how the partnerships evolve during the course of the year, is it feasible then that in calendar '19 or perhaps calendar '20, the lending business could become self-financeable? Is that reasonable? Or is it too early to say?
Yes. So I would say it's sort of articulated in our cash flow page in our investor presentation that we are targeting positive cash flow from operations net of investments, but before investment in loan book in 2019. And so by the end of 2019, that we're in a position to self-fund a significant portion of that loan capital, depending on the amount of loan capital that we decide to put out. And obviously, as we continue to ramp up in 2020, I think it would be reasonable to assume at some point and -- at some quarter in 2020 that we would be able to self-fund any loan book requirement. Also, the truth is, is we have -- as we said in the call, we've got -- the amount of loan capital we decide to put out is very much in our control. So that's also a dial that we can control. So obviously, we have a good view that we're going to be able to increase our overall cash flow to help self-fund it, and then we're going to obviously manage how much capital we put out the door to manage our overall liquidity and make sure that we're making the right decisions for the business.
Got it. And just one last one before I pass the line. Has there been any initial feedback from the cash-back feature that you're able to share at this point?
There's -- I would say, what we are seeing anecdotally is, obviously from some of the surveys, high engagement, definitely an increased engagement of users with cash-back. We have some examples again of meaningful increase, significant increase in spend potentially with some members, the average spend increasing even over 100% in terms of previous. And it makes sense in that once you have this compelling cash-back -- and just to put our cash-back in perspective, we're offering 3% on all foreign transactions. So that includes if you're shopping online with a card, you use the MogoCard, you get 3% cash-back with no fee. So there's no annual fee. Most of the big banks' cash-back programs are -- maybe a premium one at 1.5% in terms of foreign exchange, so it's double that. And we're also offering 1.5% on all domestic. And again, there's no caveats. A lot of these higher ones are caveats where you fill me up with a certain amount and then it goes down to a much lower rate. So when you actually look at our cash-back program, even compared to a credit card, it's significantly better in terms of value, especially the fact that we're not charging an annual fee on it. Compared to a debit card, it's significant. I mean, essentially no debit cards in Canada offer any sort of cash-back. So again, I'd say we're seeing a dramatic increase in just kind of satisfaction rate obviously of the card and absolutely an increase in total spend.
Next question will be from Brad Berning at Craig-Hallum.
Wanted to follow up on a couple of details on the MogoCard discussion you're just having a little bit. Can you just talk a little bit about the timing of the rollout? And as you're seeing the interest in the card, talk a little bit more specifically about response rates into testing? Obviously, the engagement and the spending makes a ton of sense. But I hope to understand what you're seeing from a response rate as well. And as you think about what -- how to penetrate the customer base that you already have, how do you think about where that penetration rate can go as you've been starting to test some of the rollout?
Yes. So in terms of the cash-back card, we really haven't marketed it at all. We haven't marketed it to our internal customers, outside of a few kind of in-app messaging. Obviously, we have the messaging up on our website. We have not really gone out with any sort of campaign. We're kind of holding off until we're ready for that kind of more broad rollout. You're also going to see basically an entirely new Mogo campaign, which is really all about how Mogo and all its products can help you really achieve your financial goal, specifically build wealth, save and ultimately build wealth with the card obviously becoming a key component of that. So again, at this stage, we're looking for kind of a Q2, I would say, beginning of the marketing. So only then are we going to really be able to start to see kind of that response rate. As I said earlier, given the value proposition of this card program -- again, there's $250 billion spent on debit cards, that potentially is a $5 billion-plus in cash-back being left on the table. And again from an individual perspective, it's not a couple of dollars. It could easily be $30, $50, $100 depending on -- a month depending obviously on how much money somebody is spending. So it's material. So we believe, especially in this space, even if you look at any other prepaid card, the cash-back we're offering is -- there is another card in the market. They're offering a 0.5% cash-back. So our foreign at 3% is 6x theirs. Our domestic at 1.5% is 3x theirs. And again, obviously, with debit cards, you're not seeing any. What we also know is there is a large segment of credit card users, $450 billion a year spent on credit cards in Canada, a large segment of those users that prefer the control of a debit but aren't prepared to forgo the rewards including cash-back of a credit card. So we also believe there's a big opportunity to grab a share of that market as well. These are all the things that we think about. We think about all this as it relates not just from a product perspective, but from a marketing and positioning. Obviously, controlling that part of the customers' financial wallet, we think, will be increasingly important. It's kind of in the pole position for all these other products, not to mention you're gathering a whole bunch of really valuable data and insights in terms of that customer that you can ultimately better serve. So we're not really going to know the terms of the impact on the response rate until we get to that more kind of formal rollout. In terms of marketing...
That's understandable and really appreciate it. One follow-up on that is, can you expand a little bit how do you think about unit economics for the product versus is it relationship economics as this product being additive to the stickiness and being able to cross-sell the products over time? Just kind of curious how you think about that.
Yes. Yes, so there's a couple of things. On the foreign transaction, there is margin there because there's an additional foreign transaction fee. There's actually a margin there, even though we're giving away 3% cash-back. On the domestic side, we're essentially kind of breaking even on the interchange. So this just shows you to a certain degree how hard it is for others to compete with us. The only reason to a certain degree we can do this is because we do have an ecosystem of other products and other ways to monetize. Our view is when you look at it from a customer acquisition and customer engagement, especially when you look at the level of engagement someone has in their go-to spending account, credit score, for example, you might check once a month. Your wealth account, you might check once or a couple of times a month, maybe, right? On your spending account, if that's your go-to spending card account, you could easily be interacting with that several times a day and going into your app easily several times a week on that. So the engagement is literally 10, 20, 50x what some of the other products are. And so we are very focused on how do we leverage that engagement and leverage that obviously into monetization of the products. Part of the reason we're excited about the partnership opportunity on the loan side is because we absolutely believe that it's going to -- with the MogoCard and spend, you're going to see an increase in leads for loan solutions, right? So that's going to -- as that card scales, there's a natural attachment rate to credits. So our goal is essentially -- the card plus the credit, it's essentially a next-generation credit card. You're controlling your own spend, using your own money. But increasingly, you have access to essentially a more convenient and flexible digital credit solution that you can use just like a credit card. And that's obviously where those partners come into play. And then, obviously, that becomes part of the monetization along with the premium account we've got on the road map. Premium account gold which includes the metal card, subscription. It also includes identity fraud protection. So there's a whole host of things as it relates to our road map in terms of how we then monetize those -- that increasing members and engagement.
Understood and appreciate the insights. One follow-up on the credit partners. Is the objective -- so the second half of this year, the objective to get to, essentially that you can be cash flow breakeven on a funded basis. You're obviously cash flow positive on an operating basis. But from a funding basis for the loans, is that -- is the goal is from an all-in company perspective to be kind of cash flow neutral? And is that the objective of the partnership program this year yet?
So yes, I would say that our goal by Q4 of this year is that we are funding a large portion of any cash requirement -- self-funding a large portion of any cash requirements for the loan book from cash flow from operations and that a partnership on the lending business side would be incremental to that. So depending on how that ramps up, could it get us pretty close to self-funding? Potentially. But obviously, we've got to get those -- to get that going. But I think even without that partnership ramping up to any material degree by Q4, I think we feel pretty good as to the trajectory that we've got in terms of operating leverage in the business and the comfort that we've got that we're going to be able to generate more and more cash flow from our operations to self-fund that. And whether or not we get there by Q4 in terms of breakeven or that trend is trending in the right direction for the quarters in 2021, I think it's going to be less of the issue.
Next question is from Suthan Sukumar at Eight Capital.
It's Adhir calling in for Suthan here. I was just wondering, just in terms of your user base, you guys saw a healthy user base growth in fiscal '19, and I think you said that you could potentially add more net users in fiscal '19 than in fiscal '18. Could you maybe just talk about some of the levers that you have to maybe drive that user acquisition?
So it's Dave. Yes, I mean, obviously we've got the Postmedia partnership. As we, for example, launch new products, it's a perfect example. And we've seen this as we've launched new products. We're constantly -- each product brings in a different customer, right? When we first started out with lending, there's only so many customers who were interested in the solution. Credit score brought in a different set of customers. Crypto brought a whole bunch of customers that we otherwise would not have attracted. Every product we launch obviously brings in certain customers. We absolutely expect the MogoCard with cash-back to be one of the key drivers of member growth in 2019. So it's a combination of leveraging our Postmedia partnership to essentially get this product out there. One of the challenges a lot of smaller companies like us have is they may come up with innovative products, but how do you get the word out, right? We've got the benefit of being able to come up with not only a very compelling product offering, but essentially go out there with a $5 million a month campaign to get this in front of a whole bunch of people, partnering, say, with a bank on a high interest rate savings. It's one thing to offer a high interest rate savings rate, it's another thing to actually go out there and broadly market it and get that. And obviously, that's how ING Direct was built in Canada, right? They went out there and did a mass of ad campaign on a significantly higher savings rate than what the traditional banks were doing. And what did that do? That brought a whole bunch of customers, obviously, specifically customers with savings, right? So that product is absolutely we expect it to not only as an example be something to help acquire members, but actually acquire essentially a bunch of customers that maybe today we're not attracting, right? Those customers typically -- especially with the Postmedia partnership, as we move into wealth, most of the wealth -- fortunately, wealth today, the majority of it is in that higher income, higher net worth demographic. The Postmedia partnership aligns well to that. So this is not just a focus on millennials and Gen Z, especially in the wealth segment, although this is going to be the future, especially as those assets continue to get transferred down and as the millennials and Gen Zs start building their own wealth through a solution like that. But we are also, along with the Postmedia partnership and the products that we're launching, it's the combination of those 2 that obviously can affect the member growth, right? We also have, as we mentioned, partnership opportunities. We are -- continue to see an increase in terms of marketing partnerships and not just the partners for our products themselves, but companies with a significant customer base and are looking for products to potentially bring to their customers and obviously looking for ways to potentially further monetize those. So this would be partnership in which they're essentially marketing, for example, a product like MogoProtect to their customer base. That customer's signing up for Mogo, downloading the app, getting Protect, and they're getting some sort of revenue share from it. So it really is -- there's -- in that example, it's a pure performance play. There's no customer acquisition costs. It's just a rev share, and we're starting to see some -- what we consider material, interesting, potential partnerships there. So we see that as a growth opportunity from a marketing perspective. Also, referral, we actually have yet to build in a solid referral program within the Mogo app and experience. So the key to referral is do you have a referable product in the first place. So you look at the MogoCard, you look at the level of the cash-back, especially considering the marketplace in Canada, you add in then an easy way for members to share that and essentially get a referral fee. That typically becomes your lowest cost of customer acquisition, but it's usually built off of a highly referable product. So we see that also as a potential member growth accelerator as well.
That's great color. So just on MogoProtect and premium, so how much of the user base is this currently available to?
So -- well, MogoProtect is technically available to all of our members today. The premium account is really only available to, I would say, a small subsection of maybe less than 10%, our premium account. That premium account, as we've said in previous calls, really continues to kind of be the basis of our road map as it relates to essentially more premium accounts, kind of more broad. So we're looking at not only what we call MoGold but we're looking at potentially different tiers. You can have a MogoPlus account, which is a basic level gold and maybe a black, which could be invitation-only depending on the level of spend on the card, for example. There could be some other components. But this premium account that we've been doing now for a while, it really is our kind of testing and learning ground, and it is absolutely being incorporated into our road map. I think the -- on the Protect side, and you're going to see this with our upcoming new campaign and positioning, the -- although we launched Protect a while ago, we really haven't put that much work into it. We launched that product. We essentially stopped doing any sort of development work on it. And we took the team and we put them on some other new products. But there is a long list of opportunities to further improve that product, including things like dark web monitoring, et cetera. And those are the kinds of things that we know can go a long way to further -- essentially increase the current attachment rate of our member base into that. So -- and that actually -- those items are also going to be on the road map. But increasingly, we believe one of the big opportunities with protect is really to tie it into that premium account, right? So you essentially get a bunch of people into Mogo, give them reasons to upgrade to the premium account. And one of the reasons is it includes Protect. So now you're essentially no different than a Spotify model. You have the freemium version, and then you have the premium version. So right now, we are obviously choosing to focus on bringing new products like Wealth and things like -- features like cash-back over that premium. But we believe from the -- in terms of prioritization, all of those things are actually what's going to actually increase the inherent value prop of what our premium account will be, right, in terms of all the compelling reasons why you would choose to upgrade to a premium.
Okay, great. Just one last one here for me. So just in terms of R&D, you were talking about the product road map. So how should we be thinking about spend on technology investment for fiscal '19? Would it be like a somewhat similar level to fiscal '18?
Yes. It's Greg. So I would say that roughly what we're looking at for 2019 on technology and development, it's going to be a slight increase over where we were on 2018. So as we've talked about, our goal is to bring -- as we drive increased revenue and increased gross profit dollars, bring some of that to the bottom line, but also balancing that with investment in growth. Part of that investment in growth will be in technology and product development. So you will see a slight increase in 2019 over 2018. But again, our goal is to balance the incremental gross profit dollars between investing in growth and bringing more of it to the bottom line to drive ultimately positive free cash flow.
And at this time, Mr. Feller, we have no other questions registered. I would like to turn the call back over to you, sir.
Great. Well, thanks, everybody, for your time today, again, apologize for the delay. We look forward to updating you on our next earnings call. Thanks.
Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines. Enjoy the rest of your day.