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Retail heavyweight Coles looks set to beef up its financial services offering by entering the $1.2 trillion mortgage market in the near future.
The Adviser’s sister title, Mortgage Business, understands that Coles has already engaged a third-party distribution specialist to evaluate plans for the supermarket to begin distributing residential mortgages.
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The major supermarket chain – which currently offers credit cards and home and motor insurance – would be playing in the largest profit pool in the financial services sector if it goes ahead with its home lending plans.
In its submission to the Financial System Inquiry, Coles outlines opportunities for Australian retailers to extend their financial services offerings.
The submission looks at offshore markets where other consumer brands, such as UK retailer Tesco, offer mortgages to customers.
Richard Wormald, general manager of financial services at Coles, is leading the development of the retail giant’s financial services business.
Mortgage Business understands that Mr Wormald had previously worked in the UK and was involved with Tesco’s move into mortgages.
Coles’ submission said an unnecessarily complex regulatory environment in Australia had prevented it from moving into mortgages sooner.
Coles also said that since the GFC there had been a shift in the regulatory stance that had seen financial stability prioritised over a more competitive environment supportive of new entrants.
“The issue of regulatory conservatism is particularly important in the Australian context given APRA’s approach to prudential supervision is already ... one of the most conservative in the world,” it said.
ING Direct’s executive director of distribution, Lisa Claes, said she was “alert not alarmed” at the prospect of Coles moving into mortgages.
“What those consumer brands are really good at is data management and targeting offers that are relevant and meaningful for customers,” she said.
“However, for consumer brands to come into financial services, the barriers to entry, because of the capital requirements, are quite high, and the risk management skills [required] are quite high because you have depositors’ money which has to absolutely be kept sacrosanct.”
