The battle begins

LC:
Lisa Claes
Executive director, distribution
ING DIRECT

SS:
Stewart Saunders
National manager, brokers
ME Bank

DL:
Doug Lee
Head of sales
Macquarie Bank

DP:
Damian Percy
General manager, third party mortgages
Adelaide Bank

DU:
David Ure
Head of third party channels
Heritage Bank

SC:
Stephen Craig
Head of sales and marketing
AMP

CK:
Clive Kirkpatrick
General manager, mortgage broking
St George

SH:
Steven Heavey
General manager, broking
Suncorp Bank

VC:
Vibha Coburn
Head of mortgages
Citibank

What does the future hold for Australia’s non-major lenders?

DL: We are really upbeat about this year. We will be spending the next 12 months capitalising on the growth opportunities that pass our way. We believe there are some good opportunities in the non-major space and I believe this will be the year for non-majors to return to form.

VC: In 2011, the non-majors really started to return to form. That said, building momentum really takes time. I think we need to break the habits of Australia’s borrowers. During the global financial crisis, the majors accounted for more than 90 per cent of all loans written, and they are not prepared to give up their share without a fight. So, we need to fight and we do that by changing consumer and borrower perceptions. We need to show them that we are able to support them in terms of service, offer them sharp pricing and really be here for them. I do not think this task will be easy, but it is something we have to do. Last year, we grew twice market share but that was off a low base. We don’t expect to see that kind of growth again, but I do believe we will be strong again this year.

DL: Brokers are starting to realise that we [the non-majors] have a very strong service proposition. In addition, they are starting to see that we cater to certain segments of the market very well. I think this trend will grow and we will ultimately see more brokers writing more business with us in certain market areas.

VC: I agree. I think it is also very good for the non-majors to segment themselves. At the end of the day, we cannot be all things to all people. But what we can do, we can make sure we do very well.

Do you think falling interest rates will encourage buyers back into the market?

SH: I don’t know if people are encouraged by falling interest rates. That said, we are starting to see a lot more competition around price at the moment and that will always pique the interest of borrowers. In addition, I expect to see prices drop further as more lenders become hungrier for business. I believe this will be a huge year for competition. I believe all of the banks will compete on price and [with] every other lever they can get their hands on.
For the non-majors to compete, we need to offer more than a sharp rate. While pricing is no doubt very important, it is also important for us to create relationships with our brokers. These relationships will ultimately drive business through our front door. But it is not just important for us to connect with brokers. Brokers also need to be connecting with the non-majors. I think the industry will become less valuable if brokers stop providing choice to their borrowers. A lot of business is going the way of the majors at the moment and I believe it is not just the job of the non-majors, but the brokers as well to ensure this is not an ongoing trend.

SS: Just to build on that, the non-majors have the best satisfaction rating of all the banks, so brokers should feel comfortable putting clients with us.

LC: Despite the fact that we work in the most highly concentrated industry in the world, we offer choice to brokers and borrowers – something that both parties desperately need.
Borrowers are increasingly savvy and are increasingly searching for new alternatives and we provide that. Brokers who broke through one bank not only negatively impact their consumers, but they negatively impact themselves because they will ultimately be caught out by the regulator.

CK: That’s right. Brokers should never put themselves, their licences or their borrowers at risk by just selling one or two lenders’ products. I believe some brokers will sell the products of some lenders because they feel pressure to do so. Some lenders have minimum volume requirements, while others will offer commission, support, or holiday incentives to drive business through their front door. This should be banned by the regulators. Having incentives or minimum volume requirements destroys competition, which doesn’t just affect borrowers but indeed the broker proposition as a whole.

DP: I agree. Lenders offer incentives all the time and some brokers will put business with certain lenders because they haven’t done much with them of late and want to make sure they stay on the top of their book. That said, we are seeing some structural changes to incentives. Some lenders and aggregators are offering huge incentives to brokers who write business with them. I have seen some aggregators offer free aggregation in return for selling their white label product and this is deeply concerning.

DL: I was at a conference last week and there were five economists speaking. While they couldn’t agree on where rates would end up, all of them agreed on one thing and that is that now is a good time to buy. The borrowing environment has probably never been as good as it is now, yet borrowers are still not buying. People are still nervous about taking on too much debt. Even with the rate drops, we are seeing people choose to pay off their debt rather than take on more debt.

DP: I believe people have changed. I do not think people are overly cautious anymore, but rather they just do not want 40 per cent of their disposable income going towards paying off their debt. People are deleveraging not because they are scared of what the future will bring but because it is a good opportunity to pay off their debt.

SC: I agree – borrowers are changing. They no longer want to take on masses of debt because they don’t feel comfortable doing that. This is something we as lenders have to not only realise but accommodate.

Why do brokers continue to send a large portion of their business to the majors?

DU: I think there are a variety of reasons. Sometimes they have minimum volume requirements that they have to meet, or perhaps it is because once upon a time they worked at that bank and know the ins and outs of the products. Some will sell a certain bank’s products because they want to make it into the platinum club while others are lazy.
They have one or two lenders that they use on a regular basis and if they use someone else then they have to learn their products and policies, which can prove to be a real hassle.

DP: It is an easier sell too. If the three options that your software tells you are available are CBA, Westpac and Heritage, you don’t have to explain who CBA or Westpac is to the client. In a tough market when credit growth is slow, why take that extra risk and try to push a person into a product that is offered by a second-tier lender?

DL: The consumer will often come to a broker and say, ‘I have seen CBA has a great rate out there’. When that happens, the sale has already been made. Why show a person all their other options when they are quite happy to go with the product they mentioned? While some brokers will still have a look at the borrower’s options and see if there is something better out there for them, not everyone will.

LC: We have all spoken of the reasons why brokers will send their customers to a major, but we haven’t looked at why they should send their clients to the non-majors. The fact is, we can’t be all things to all people, but we can provide consistent service that not only meets but, hopefully, exceeds borrower and broker expectations.

While our size has in the past turned borrowers off using us, today the reverse should be true. Our size means we are nimble, flexible and able to implement change in a short period of time.

VC: Also, we offer a more personalised service. Our clients aren’t numbers, they are people and we treat them as such. Every deal is important because there are so few of them in comparison to what the majors deal with.

DL: I agree, and just going back to what Lisa said, we are able to respond to broker feedback and sharpen our proposition based on what we hear from our broker partners. Once a broker has used us a few times, they stick. For those that don’t use us often, we need to take the pain out of dealing with us. We need to hold their hand and make sure the process is as easy as possible so that they come back to us time and time again. It is not that we provide them with a different service from our loyal brokers, but rather we just take extra time to explain our niches and our policies to them.

SS: I guess that is easier said than done. I was at a broker road show this morning and when I had finished my presentation, I asked the attendees who of them would be inclined to write business with us in the future and all but one put their hands up. That said, I know we will be lucky to have 10 per cent of the brokers in attendance send us business. Talking to brokers and espousing our benefits is easy; actually getting them to send us business is the hard part.

How important is price to borrowers?

DP: Pricing is no doubt important, but service is also crucial. Brokers do not want to be embarrassed and have to ring their clients and say, ‘Sorry, you are not going to be able to move into that house on time because the lender I recommended is taking a really long time to approve the loan’.

IR: Price is very important. The media focuses on rates all the time; as such, so do borrowers.

SC: At the moment, a lot of the banks advertise on price. This is never going to change because, for a lot of borrowers, price is important. I think the time is right for innovation. Lenders that want to grow their market share need to be innovative. What does innovation mean? It could mean a couple of things. Firstly, I wouldn’t be surprised to see many lenders innovate around services so that they can product a product for a lower cost and thus charge a cheaper rate – it is something we have done and been very pleased with the result. At the end of last year we developed a [principal and interest] payment-only loan. While people told us that nobody would want that because it is quite restricted, we found that by making a very simplistic product that is restricted in terms of policy, we were actually able to develop the loan a lot more cheaply and pass on those savings to our borrowers. As a result, the loan became – and still is – very popular. Approximately 20 per cent of the loans we write are our PI loan, which I believe is incremental business that we may not have secured if we didn’t have the product in the first place. Sometimes, innovation isn’t about being tricky or clever; it is about bringing things back to basics. Sometimes the most innovative approach to business is the simplest approach.