Adelaide Bank: the competitive alternative

It’s been said before, but it is as competitive now – at least in pricing terms – as I have ever seen it. We are at the stage where many players have moved past traditional deep discounting and are now – literally in many cases – buying business.

When an ‘application fee’ appears to have become something a lender pays a borrower, you’re in Alice in Wonderland territory.

It will be interesting to see how it plays out as I don’t think it is sustainable, and unsustainable pricing in the short term tends to lead to adjustments in the longer term.

The other point worth making is that the benefits of the current price war are not being enjoyed by all borrowers. For a range of reasons, Australia’s long-suffering first home buyers remain second-class citizens in the current market, unloved by regulators and lenders, and I think that is an unfortunate outcome.

How is Adelaide Bank performing in the midst of such tough competition?

We’re doing OK, but it’s fair to say we haven’t – and won’t – lead the market down, which has an impact on volumes. However, you’ve got to look through the cycle and ensure you’ve got a sustainable economic model that works long term for the lender, introducer and customer.

There are dozens of different lenders out there – in what ways does Adelaide Bank stand out from the crowd?

Everything we do in the broker space is about helping people buy and own their own home. That’s why we focus on simple, affordable products and reliable processes – because there’s enough stress in buying a home without the bank making it worse.

It’s why we think offset accounts should come with every account – whether it be fixed or variable – and why we provide free, automated budgeting and finances tracking software with our online banking – because the only thing better than buying a house is owning it.

It’s why we have an incredibly flexible approach to borrowers who find themselves in hardship – because we know stuff happens. And it’s why we support brokers – because we believe that competent independent advice leads to better outcomes for families.

Adelaide Bank announced a string of rate cuts during 2014. Why has the bank been reducing its rates?

When the music plays, everybody dances a little.

Some lenders have warned of a race to the bottom on prices. Is Adelaide Bank feeling pressure on its margins?

Of course, but we’re managing it closely.

According to the latest MFAA statistics, brokers have now increased their market share to more than 50 per cent. What does Adelaide Bank think about that?

It’s an awesome result. I expect to see it surpass 60 per cent within five years.

Some brokers believe banks dislike the third-party channel and are desperate to claw back market share from them. What does Adelaide Bank gain from the third-party channel that it wouldn’t have if it only did in-house lending?

There’s probably some truth in that. I am sure some of the big banks look back to the pre-broker market with a degree of wistful longing. Of course, for others like the regionals and non-banks, the development of the broker sector marked the most positive development in decades.

These days, even the most reluctant of the big banks can’t ignore the choices consumers have made, even if they’d prefer they hadn’t.

Having said that, I suspect your internal view around the growth of the intermediated sector is really a question of whether you have an interest in the sector or are, in fact, committed to it. The difference between interest and commitment is like the role of a chicken and a pig in an egg-and-bacon breakfast – the chicken has an interest; the pig is committed.

I think there are a few banks around the place that are, shall we say, at their core, more chicken-like.

Adelaide Bank is a third-party business. We rely on others for distribution as a matter of choice and wouldn’t have it any other way. The very worst thing that could happen to us is a shift back towards direct distribution.

That is to say: Oink!

Do the regulators give regional lenders like Adelaide Bank a fair go? If not, what sort of changes are needed to level the playing field?

There are a range of embedded advantages enjoyed by the majors, most notably around regulatory capital and their implicit government guarantee. This has led to an overly concentrated market which increases systemic risk, limits consumer choice and, ultimately, constrains innovation.

We and others made a number of submissions to the Financial System Inquiry, making suggestions as to how things could be improved.

What sort of feedback does Adelaide Bank get about its BDMs?

We get a lot of positive feedback on our team, including our telephone-based BDMs and our processing staff. Most commonly it’s about the fact that we get the balance right between the professional and personal bits of the gig. Obviously, being knowledgeable, reliable and helpful is absolutely key, but treating everyone with respect and personally comes through a lot.

We have the advantage that all the components of our business work exclusively for us. The processing centre is third-party only, the customer call centre only talks to broker customers, and our credit team isn’t shared with anyone.

The entire outfit lives and breathes third-party and I think that comes across when people deal with us.
I am sure one of the other reasons for the positive feedback comes back to the fact that we take the view that all brokers deserve top-notch service, not simply the large or the established.

As a non-major, we know that a vibrant, diverse and successful market rarely lasts if all the advantages go to the incumbents.

Can brokers expect Adelaide Bank to increase its BDM network in 2015?

Possibly. We review resourcing on an ongoing basis.

Is there anything Adelaide Bank feels it needs to do better from a broker perspective?

I think we need to do a better job of explaining how brokers – but more importantly, [how] their customers – can benefit by doing their banking with us.

From the way we design our products to the way we handle customers who are struggling, we want to help people take control of their finances. I sometimes think that the longer-term benefits of choosing the right lender are lost in the focus on headline rates.

We also need to improve our front-end technology and we’ve just kicked off a project to replace our lending platform, which will see some very significant improvements in that part of the experience.

Adelaide Bank has chosen Sandstone Technology to implement its new platform. When will the new platform come online and how will the upgrade benefit brokers?

We’ve had reliable processing at the core of our proposition ever since we first built our paperless loan processing system in the late 1990s.

Our current systems have served us well, but they’re not as seamless at the front end as we’d like, hence the decision to upgrade.

We chose Sandstone’s LendFast system after a review of a range of options and suppliers.

We liked the fact that they’re an Australia-based company familiar with our market – and particularly, third-party channels – and that the system rated well on our key requirements of customer functionality, frictionless processes and speed to decision.

We’re already pretty ruthless around turnaround times, so the main difference brokers will see will be improvements in the experience around the submission process.

We’ll be giving brokers and their customers a far greater degree of control and visibility around their deals than is the case now, which our feedback is telling us brokers value. 

We expect the system build and the initial pilot to be complete late in 2015.