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After being pressed by a member of parliament, a senior executive from Westpac admitted that a reduction in mortgage brokers would drive customers directly to bank branches.
Appearing before the Standing Committee on Economics on Friday (8 March), Westpac chief executive Brian Hartzer was hesitant to clarify the major bank’s position on Commissioner Kenneth Hayne’s recommendation to ban trailing commissions, saying instead that it will “abide by whatever government decides on that”.
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“Effectively, it’s in the hands of government and we’re waiting to see where that lands, but we’ll implement whatever comes out of that process,” the CEO reiterated.
During the hearing, Trevor Evans, Liberal Party representative for Brisbane, asked what impact a reduction in mortgage broker market share would have on Westpac’s position, given 65 per cent of its loan book is comprised of residential mortgages, and further, 45 per cent of mortgage originations are generated through the broker channel.
In response, Westpac CFO Peter King said: “I would probably think about it slightly differently. Often customers choose how they get their mortgage. Whether they go to a broker, or whether they come to a bank, or some other mechanism, it tends to be the choice of the customer.
“It’s a customer choice about which channel they come into the market through, as opposed to us saying we want to get market share in broking or proprietary.”
Mr King went on to note that the size of a mortgage book is “much more linked to deposit growth, wholesale funding capacity, and demand in small business versus mortgages”.
“It’s more a portfolio approach than it is anything else in terms of the shape of the balance sheet,” the CFO added.
Mr Evans reframed the question, asking: “If there was some significant shock to the mortgage broking model and it didn’t work the same way tomorrow, where would those customers who prefer that model currently go?”
Mr King noted that the mortgage broking industry is not immune to change.
“Mortgage broking, like any other market, will be influenced by trends in technology, trends in open data as an example. I think those markets are going to move and be very different in five or 10 years’ time from today” the CFO said.
The chief executive added that the “mortgage broking model, which relies on paper-based applications and in-person service, is changing pretty rapidly anyway.”
For example, Mr Hartzer said St George Bank offers a service that allows customers to apply for a mortgage “through their phone, paperlessly, in about 15 minutes”, adding that he expects Westpac’s rivals to have “some version of that available” in time.
“I’m not sure that it’s merely a question of broker or branches. I think increasingly, phone and digital will become viable options for customers in how they get their mortgages, and some brokers are and will continue to embrace that themselves. There are online brokers now that people can go to,” the CEO told Mr Evans.
However, when pressed to answer who broker customers would turn to today if the broker remuneration structure had changed, Mr King was compelled to admit that “if there [were] less brokers then there would be more people coming in through the branches”.
[Related: CBA CEO weighs in on flat-fee model]
