Broking in the age of fintech

The Stone & Chalk fintech hub opened in Sydney in August last year with plenty of fanfare. The Turnbull government has also announced a vague innovation agenda, which rebooted the excitement.

The financial services industry has gone gaga over fintech – a term that literally means ‘financial technology’. But somehow the utterance of the word ‘fintech’ conjures so much more: one thinks of young, tech-savvy entrepreneurs working tirelessly in collaborative workspaces (hubs) to create the next best thing in … well … fintech.

Brokers would be aware of the emergence of peer-to-peer lenders in Australia over the past few years. These new fintech players have, until now, offered personal loans and SME loans through their online platforms. But according to those in the know, new digital channels will soon become an even more disruptive force in the mortgage space.

In this feature, we take a closer look at how technology is disrupting the Australian mortgage market, where fintech has entered the third-party channel, why the banks are jumping on the bandwagon and what the future will look like for loan writers.

While some brokers choose to ignore the digital world in staunch defence of the face-to-face proposition, others have been thinking outside the box and looking at new ways of integrating a digital capability into their traditional business models.

Mortgage innovation

The future of the lending market was a hot topic at the Australian Securitisation Forum’s annual conference in November last year and formed a major part of the panel discussions.

SocietyOne co-founder Greg Symons explained how his business – which was the first peer-to-peer lender to enter the Australian market – operates on two levels.

One is an origination business, which offers personal loan products. SocietyOne is currently defending its position in Australia as the peer-to-peer lender with the largest volume and loan origination. Growth has been substantial: somewhere in the region of 10 per cent month-on-month. The second part of the business is sourcing deals.

“There might be better people that could send us deal flow,” Mr Symons says, “brokers, referrers and the like. Our idea really in 2016 is making sure that the marketplace flow that we have now is placeable in the industry and is underwritten according to standards that the industry has seen for many years on good performance metrics.”

Fintechs like SocietyOne are smart, nimble businesses that have attracted plenty of attention from investors, including the banks, who see the upside of investing in new technologies.

Westpac was an early investor in SocietyOne. James Packer and Rupert Murdoch climbed aboard shortly after when the peer-to-peer lender successfully completed a round of capital raising back in 2014.

The main question on everybody’s mind has been whether these groups can have the same success in the mortgage market as they have in the personal lending space.

Mr Symons says consumers will eventually drive the development of peer-to-peer lenders to the point that they are able to provide home loans.

“It is inevitable. I get asked a lot if we are taking it to the banks, if we are competing with the banks. And the answer is it is actually not us, it’s the consumer,” he says.

While he admits that mortgage lending is far more complex when compared with the unsecured lending space that groups like SocietyOne play in, he is confident that mortgages will become part of peer-to-peer lending.

“We have a platform that could do it and we don’t do it today for a very good reason – we don’t have an underwriting team and we haven’t figured out that funding model yet,” he said.

“But it will happen. It is consumer-led to a large degree, because they are looking ultimately for a better deal.”

Banks get on board

In November last year, online SME lender Prospa revealed that it had been quietly piloting a partnership with Westpac, which basically involved Westpac leads being sent to Prospa’s loan application site.

A few weeks earlier, over in the US, JPMorgan Chase announced that it was building a rival to Apple Pay, which will allow customers to make payments using their mobile phone.

In Australia, one of the smaller banks had been doing due diligence on the peer-to-peer lending market for 12 months. Then, on 16 December last year, it struck a deal.

ASX-listed Auswide Bank – formerly Wide Bay Australia – announced a strategic partnership with peer-to-peer lender MoneyPlace.

The deal, the first of its kind in Australia, included up to $60 million to assist MoneyPlace to grow its consumer lending and for the Queensland-based bank to grow and diversify its financing activities nationally. Auswide also took a 20 per cent equity stake in the company.

The peer-to-peer lender had only opened its doors two months prior, in October, after receiving its retail and wholesale AFSL to provide loans of $5,000 to $35,000 through its platform.

MoneyPlace CEO Stuart Stoyan, a former NAB banker, says the relationship is a critical milestone for peer-to-peer lending globally and demonstrates how banks can work with peer-to-peer lenders to provide better rates for all customers.

“This is an exciting development for both companies and is an example of the type of collaboration we believe enables traditional lenders to tap into the innovative business models that alternative lenders like MoneyPlace bring to the market.

“In Auswide Bank, we have a partner who is keen to take advantage of our low cost distribution channel to grow their consumer lending business and support their expansion into Melbourne and Sydney,” Mr Stoyan says.

Speaking to The Adviser, Auswide CEO Martin Barrett reveals that he had been working with MoneyPlace for close to a year before the deal was announced.

“I was following their progress and building an understanding of their story,” he explains.

“Getting an understanding of the people and the opportunity. Getting some research done into peer-to-peer and how that has played out internationally and putting that into the context of our own ambitions of growing our personal lending and growing Auswide Bank nationally.”

Mr Barrett believes peer-to-peer lenders are a natural fit for smaller banks. “We see it as being a potentially disruptive capability that could play positively for us,” he says. “We undertook due diligence, we went right through their processes, their systems, made sure that the credit quality component would be satisfactory and took a view that we would enter both an equity stake and an investment stake into the lending component of MoneyPlace.

We are excited about the possibilities.” Mr Barrett says that fintechs provide a significant opportunity for innovation by improving niches in the financial services space, a concept he describes as “quite fascinating, but also quite confronting”.

When it comes to the disruptive force of fintechs on home loans, he thinks it will be a slower burn. But again, as Mr Symons says, it will happen.

“When it comes to the home, I think there are still a large number of people who do require some level of advice. Whether that comes from a broker or through a bank,” he says.

“Over time, though, I do think that will change.

“We are already seeing today a higher level of commoditisation of home lending. Pricing is fierce, features generally are quite standardised and the market is quite regulated. I think that all those things speak to the possibility of a low-cost model getting some traction and the peer-to-peer space probably is a natural one for evolving from consumer financing to home lending further down the track.”

The online trend of people self-educating and having access to information is far greater today than it was yesterday. It will be even greater tomorrow.

For this reason, Mr Barrett believes banks and brokers need to think seriously about how they operate in the future.

“There will be some who will disagree with me, but I think it’s likely that in the years to come we will see some further comfort in terms of using online-only application approaches, whether that is peer-to-peer or some other application of it,” he says.

“I don’t think brokers or we as a bank can really sit back and say that is all nonsense and will never happen. You have to, as part of your own thinking about the future and strategic planning, put that into context and think of it as a threat.”

Mortgage market disruption

Australia has been a bit slower to adopt new technologies in the mortgage space. However, if we look to the US, two major developments happened at the end of 2015.

In a news article published on 24 November, US-based website TechCrunch reported on a new home loan from Quicken Loans that gets you an approval in 10 minutes – all online.

Under the headline ‘This could be the mortgage industry’s iPhone moment’, the article went on to explain that the ‘Rocket Mortgage’ took five years and a team of 450 people to develop. The process uses a combination of internal and public data to verify a person’s employment history, eliminating the need to upload payslips and other supporting documents.

The second big announcement to come out of the US late last year was from Silicon Valley. Google’s decision to launch a mortgage comparison tool forced the industry to question which distribution channels the banks will invest in over the next decade.

Speaking on a panel at the Australian Securitisation Forum event a few days after Google’s announcement, JP Morgan executive director of Australian equities research Scott Manning provided a forecast for the Australian mortgage market by highlighting the technology behemoth’s motives.

“They are trying to insert themselves in the front end of the value chain closest to the customer and getting as much data as they can,” Mr Manning says.

“You are going to see a lot more competition from people fighting for specific parts of the mortgage value chain.”

Mr Manning says he could see online players moving into the mortgage space, noting that we have already started to see risk-based pricing in personal lending through peer-to-peer lending platforms.

“I think inevitably that will ultimately move into mortgage pricing and it may or may not be through brokers. It may be through self-discovery like Google in 10 years’ time,” he said.

“I know banks are quite passionate about the branch and people wanting a conversation and that kind of thing; a lot of that will be in tune with an online presence, whether that be through tutorial videos and online instructions or just more effective search positions.

“That will cause quite a significant rethink in where banks invest in technology versus physical presence. I think that will be a five- to 10-year story, not a two- to three-year story.”

Third-party banking figure Steven Heavey says the mortgage value chain is long and complex, but that certain parts of it, such as customer enquiries, have been the target of digital disruption for some time.

“The advent of comparison sites and other information-based services in the last decade or so has enabled a much more informed and confident customer, more than happy to switch providers for a better deal and service,” Mr Heavey says.

“I think that brokers are well positioned to maintain their important role in the distribution component of the value chain.”

Mr Heavey says the way brokers perform this role is rapidly changing. Brokers need to embrace this change, he says, and stay very close to their customers and referral sources.

“Customers in more affluent segments are looking for a more integrated financial services offering, utilising technology where it makes sense,” he says.

“There will always be a need for customers to communicate directly with their advisers and that creates opportunities for organisations that are set up to provide that service.”

Mr Heavey sees the primary challenge for brokers is ensuring they evolve their method of generating customer enquiry and leads to meet customers’ preferred methods of engagement.

“This means the right digital footprint,” he says.

Fintech and broking

One broker with a firm eye on fintech is Ren Wong of N1 Finance, who was ranked number 26 in The Adviser’s 2015 Elite Business Writers list.

When you listen to the Sydney-based broker talk about his plans for the future of his business – a one-stop shop that offers home loans, commercial loans, financial planning, insurance, superannuation, accounting and tax services – it’s clear that technology is front and centre of his thoughts.

In April last year, Mr Wong launched Chengdai.com.au, an Australian mortgage comparison website for Chinese buyers. The site is in Mandarin and provides information on a wide range of mortgage products and car loans.

While there are plenty of comparison sites in the market, there are little if any that cater to Mandarin visitors. Mr Wong saw the gap and went for it.

“We have at least 4,000 unique visitors a month,” he says.

“It makes up about 20 per cent of our leads now. It’s important to us because we run on a PAYG model instead of a commission base. The website provides leads to our brokers.”

Mr Wong says most visitors to the site are younger investors or first home buyers, who are comfortable going online to research financial products.

Importantly, the website feeds all of its leads and customer data to N1 Finance, which is where its true value as a business comes into play.

“We treat it as a technology business,” he says.

“We need the data from our visitors for us to be able to analyse where we will direct more marketing dollars into richer segments. Capturing that data is very important. It’s not just a mortgage business for us. It’s a technology business.”

One example of how the broker uses this data is by viewing where customers are coming from at a postcode level.

To remain competitive, the website now offers free price estimates through a partnership with Residex. If visitors want a more detailed report, they must register as a member, which gives N1 Finance even greater data on its future customers.

“Technology and fintech is now our main focus,” Mr Wong says.

“It has been for over 12 months now. You have to be more than a broker. Mortgage broking is an industry, but it has to become a technology-dominated industry. Otherwise you will be left behind.”

Lead generation has been a big growth area for fintech start-ups entering the third-party space.

The Adviser reported in May last year on the launch of HashChing, an online lead generation platform designed specifically and solely for mortgage brokers.

The company has gone on to partner with ASX-listed property search website Onthehouse.com.au, which has been tipped for acquisition by CoreLogic RP Data and Macquarie Bank.

Unlike mortgage comparison websites that channel prospective borrowers to lenders, HashChing sends customers to a mortgage broker in their local area for further credit advice.

Until July 2015, the business was offering a free trial to a select number of brokers. Since then, demand for the service has surged.

HashChing CEO Mandeep Sodhi told The Adviser he has over a 1,000 brokers on the waiting list.

“We now have 71 brokers live and are adding 15 brokers a week going forward to meet consumer demand,” Mr Sodhi says.

Each broker is currently seeing five to 10 leads a month from the platform, which only takes a fee if a loan is settled.

“If a broker does not close a sale, HashChing does not make money,” Mr Sodhi says.

“We only charge when a broker makes a sale. Now brokers don’t have to worry about bad leads.”

Mr Sodhi explains that borrowers can use HashChing to seek out cheaper home loans as brokers negotiate rates with lenders based on the volumes they write and then advertise their deals on the platform.

When they see a deal they like, borrowers punch in their postcode and are connected with a broker in their local area.

Once they’ve submitted their details on the platform, consumers receive a notification telling them who their broker is and the date and time of their appointment. A calendar invite is automatically made for both the consumer and the broker.

The consumer also receives the broker’s profile picture along with a phone number and email address.

“Brokers receive an automatic SMS when a lead has been assigned to them,” Mr Sodhi explains.

“They also get an email with the calendar invite with details of the lead. That goes onto a dashboard where they can login and see the consumer’s details. We make it very easy for mortgage brokers to manage their leads.

“On the dashboard, they see the new leads that are coming in, the leads in progress and the closed leads. Through the dashboard they can send automatic notifications to consumers that their application has been received,” he says.

Mr Sodhi stumbled upon the idea when he went to a major bank for a home loan and nobody informed him about the progress of his application.

“I didn’t know if they had received my documents or not, so I had to call the bank all the time,” he says.

“Consumers want the whole application process updates as well. Through HashChing, we are solving that problem.”

In December last year, HashChing entered into a strategic partnership with Onthehouse Holdings Limited. Through the partnership, brokers who use the HashChing platform will have their pro les appear whenever a prospective home buyer visits Onthehouse.com.au and searches a particular suburb.

Onthehouse already has existing relationships with a number of large broker groups on an advertising level, but the HashChing partnership will allow those looking for a property the opportunity to engage individual brokers in specific suburbs.

The website provides free access to an extensive database of real estate content and property values on over 13 million properties in Australia.

“We publish our calculated estimate [on properties], which is based on an algorithm,” Onthehouse chief operating officer Andy Antonini told The Adviser.

“The broker will get an engaged audience who are already at that stage of researching properties, so they can build those relationships ahead of time, so that when it comes to the actual decision, there is less competition.

“It promotes a longer-term relationship based on advice, rather than the broker just trying to sell them something,” he explains.

Mr Antonini says the ASX-listed group’s vision in partnering with HashChing is to meet the needs of homebuyers, investors and renovators by introducing them to a trusted adviser.

Q&A

Lisa Class, executive director, distribution, ING Direct

Q. Google has launched a mortgage comparison site in the US. Do you see more tech giants and other non-traditional players entering the financial services space?

It’s fair to say that financial services is a hot place to be. It’s universal. So not surprisingly, smart organisations like Google want a part of it. Players like Google and others are entering parts of the value chain. At this stage, no non-financial services player has taken on the whole value chain. But it is a good thing for incumbents. By entering certain parts of the value chain, new players innovate and stimulate the traditional players into tweaking their proposition to be more closely aligned to the customer’s appetite. Traditional players can certainly learn from new entrants and adapt.

Q. How can mortgage brokers successfully integrate digital channels into their offering?

There are a myriad of ways that digital and broking can be a happy marriage. It is everything from the very basic levels of communication with their customers to how they use and deploy customer data. For example, how they on-board a customer for a mortgage, how they maintain that relationship with the borrower, but also how they use the data to cross-sell into adjacent products, how they upsell into complementary products [and] how brokers can use customer data in a predictive way. Where are their customers on that life-cycle journey?

Equally important is how brokers enable self-service for customers. The new digital order is teaching us that customers value being able to do things themselves.

Also, brokers need to be flexible. I think the ‘one-size-fits-all’ approach is reaching its sunset years. There is an onus on the broker to move beyond a single style approach [and] to adapt to changing customer needs.

We see examples in Europe where brokers have to be a purely validator model.

They are providing a service to a very digitally competent customer to validate the choice the customer has made and getting remunerated for that.

But we also have the very traditional customer who would value the full end-to-end service that the traditional broking model has provided. I still see a need for that going forward. 

Then there is somewhere in between, which is an execution model, where the customer has already made their choice and uses the broker to get settlement organised.

Q. What should brokers be doing to remain relevant in the fintech age?

You look at taxis, you look at books, at streaming, and everything is being revolutionised. What do brokers need to do? Personalisation is becoming increasingly important in this cluttered, noisy world in which we operate.

Digital has to be a centre point of a broker’s proposition. You need to be accessible, you need to communicate, and you need to be available on any device beyond the telephone.

Data. There is an expectation that you are using the data given to you under the umbrella of a trusted relationship for the purpose of helping that customer get ahead in their financial journey. Gone are the days when there was a high sensitivity around using data for anything but the binary one transaction purpose. There is now an expectation and loyalty and advocacy if you intelligently use the data a customer has given you to further that customer’s financial needs. You need to be smart about that. You need to use data to retain, maintain and attain your customer.

Choice. This is really important. A broker’s core value proposition is providing a choice of home loan and other adjacent products. The more that brokers can differentiate themselves from all the other offerings in the market in how they can deliver that choice in a personalised manner for each and every customer they have, they will be highly rewarded.

FINTECH IN THE MORTGAGE MARKET

A number of fintech businesses have emerged with big plans for the Australian mortgage market. Meet the new digital players:

HashChing

A lead generation platform for brokers, HashChing calls itself “Australia’s first online marketplace for home loans”, allowing consumers to access mortgage deals without having to shop around. The web-based platform is completely free to use and connects consumers directly to independent verified mortgage brokers who can further negotiate a better rate from lenders, saving time, hassle and money. 

Joust

An online platform that competes directly with brokers. Joust is set to launch in 2016. It is the brainchild of former CBA and Westpac banker Mark Bevan. The platform involves a panel of lenders bidding (or jousting) to be the provider of a customer’s home loan. Joust aims to target prime mortgage customers with good credit ratings, good jobs and equity in their homes. “We are assembling a panel of lenders to compete on our platform via a live auction direct to consumers’ mobile devices. “We are providing the technology and software to our panel of lenders that lets them see the details of consumers and to match that up with their own growth strategies. “We would hope to take some business away from mortgage brokers,” Mr Bevan says.

Eccho me

Former Wizard Home Loans co-founder and Intouch Finance executive director Paul Ryan is the brains behind Eccho me, a community platform that allows consumers to have their finance and credit-related questions answered by users of the service. The app allows consumers to ask any question, whether it’s about home loans, asset finance, commercial loans, personal loans, or credit cards. For example, someone may want to know if the interest rate on their home loan is too high. The question can then be answered by mortgage brokers, finance brokers, bank managers, peer-to-peer lenders and even other consumers who have a desire to help others. Eccho me also sends leads to brokers via push notifications. The platform allows registered users to review the questions answered by finance professionals and the quality of their answers. They can echo (like) the information posted, follow the discussion and have the option to follow the finance professional.

Chengdai.com.au

A Mandarin language comparison website for mortgage and car loans. It is wholly owned by N1 Finance and generates 20 per cent of the Sydney brokerage’s leads. The website has become such a major part of the group’s business that it is now planning to list on the ASX to fund its expansion.

MOGOCheck

Founded by Andrew Clouston, the former owner of mortgage manager National Finance Club, MOGO launched in late 2013. The mobile app allows brokers and lenders to receive customer data on income verification within 60 seconds, streamlining the front-end mortgage distribution process. Mr Clouston says that obtaining income verification documents currently slows down the approval process, adding that the new verification tool could provide a competitive advantage to lenders. The technology has been endorsed by the FBAA, who see it as providing significant benefits to its broker members.

Ask Alan

Mortgage Choice Brisbane CBD principal Alan Heath has developed ‘Ask Alan’ to give potential borrowers direct contact with him and provide all the information they need to enter the market. “They can contact me 24/7, read about issues of importance, ask a question, watch videos on different topics, calculate repayments and find related trusted services,” Mr Heath said. The Queensland broker has invested tens of thousands of dollars in the app and it is currently the main focus of his business. “This, to me, is the future, and our business is there now,” he says.