Getting personal

The benefits for loan writers who offer that ‘personal’ touch are obvious: a greater suite of products and services to attract and retain clients, an additional income stream and a reduced level of risk to their business in case there is a downturn in the mortgage market.

However, personal lending still seems to be a relatively untapped market for the third-party channel.

Daniel Foggo, CEO of peer-to-peer lender RateSetter, agrees. He believes that once mortgage brokers start thinking about personal loans and the way people use them, they will quickly realise there is significant demand from within their existing customer base.

“We’re finding that after our broker partners let their customers know they also offer personal loans, they are often surprised by the response,” he tells The Adviser.

“Around 25 per cent of our lending is now from broker referrals, and I think this percentage will continue to increase over time.”

Mr Foggo says that now is an exciting time for personal lending, with signs emerging that banks’ stranglehold over loan markets is starting to weaken.

“This is a trend I think we’ll see accelerate as lenders such as RateSetter gain scale and open up the market to other participants – including brokers,” he says.

Furthermore, Mr Foggo says consumers are starting to recognise the benefits of personal loans for consumers, such as greater choice, flexibility and better interest rates, “especially if they have a strong credit history, as new lenders are introducing risk-adjusted credit pricing, and a much faster and more convenient loan application [process]”.

“An online lender is typically available 24/7, so you don’t need to go to a branch during certain hours,” he adds.

Mr Foggo says it’s very easy for a broker to start offering personal loans, and RateSetter has gone to great lengths to simplify the process using two different models.

“For very self-motivated borrowers, the simplest option is for brokers to send a customised RateSetter web link to their customers, and if they proceed to draw a loan, the broker earns the relevant commission,” he explains. “We provide brokers with a portal to monitor customer progress so they can see their commission earnings in real time.”

He continues: “We also appreciate that many brokers understandably want to have a bit more involvement in the lending process, and often the broker already has the information needed to fill in the application, and so we also allow them to apply on behalf of customers.”

The first step when applying for a loan at RateSetter is what Mr Foggo calls a ‘rate estimate’ – it only takes about 60 seconds, and brokers can easily do this on behalf of a customer to test their eligibility.

“We do a soft credit search that won’t affect the customer’s credit score, and if they qualify, they can also find out the estimated rate of the loan,” he says.
RateSetter then lets brokers set their own commission (to a cap), which is capitalised into the borrower’s loan.

Another group that is seeing the demand for personal loans via the third-party channel is marketplace lender DirectMoney.

Peter Beaumont, CEO of the ASXlisted lender, says a major transition is underway among Australian consumers where they are increasingly looking to their brokers to offer a broader service.

“At the same time, brokers are understanding the value arising from servicing a client for life, which of course requires a wider set of product skills,” he notes.

Mr Beaumont says DirectMoney offers brokers five things: an attractively priced product, a smooth online application process, an insight into its credit process, a fair financial incentive, and ongoing service and engagement.

“DirectMoney personal loans are designed to be easy to understand for brokers and their clients,” he says. “The product is straightforward – no hidden fees, no ratcheting up of rates if a payment is inadvertently missed – just a monthly fixed payment over three or five years.

“The application and document process is 24/7 and online, and we provide upfront training [for brokers] as part of our accreditation process, as well as ongoing updates as our product evolves in line with our development and the market. We currently provide this service from a Sydney hub and intend to grow this in 2016.”

A holistic approach

While it only makes up about two per cent of her total loan book, Mortgage Choice Ormeau owner Deslie Taylor says personal loans go hand in hand with mortgages.

“It’s not a huge portion [of my loan book], and it’s not my primary focus – I look at it purely from a customer service perspective, holistically looking at the client’s overall financial position, and providing solutions beyond home loans,” she tells The Adviser.

“While I’m sitting with the client and finding out what they’ve got – looking at their asset / liability position – I make sure that when they go into a home loan, they’re going into it in the best financial position they can.

“So, if they’ve got a number of credit card debts that they’re clearly struggling to get down, then we will offer the option to consolidate with a personal loan so that they’ve at least got an end goal.

“Or, if they’ve got a couple of little personal loans, we offer the option of consolidating them into one loan so that they’ve only got one repayment instead of two or three.”

Once every three months, Ms Taylor identifies personal lending clients from among her residential loan book by sending out an email to her database targeting those who are looking to consolidate existing debt.

“Also, clients ring me wanting to do consolidation loans to pay off credit card debt using the equity in their own home, so that’s when we obviously look at the option to consolidate within a personal loan,” she adds.

From Ms Taylor’s experience, consolidation of credit card debt is the most common reason why customers take out a personal loan.

“I know it’s horrible to say that, and that’s why we’re trying to re-educate our clients and assure them that there are other options and we can clean everything up for them,” she says.

“Unfortunately you do get a small percentage too who come back to you in the exact same position that you got them out of a couple of years prior.”

Another broker who has caught the personal lending bug is Tom Caesar, managing director of Positive Lending Solutions in Adelaide.

Like Ms Taylor, personal loans only make up a small portion of Mr Caesar’s overall loan book – about five per cent – but he says diversifying into the space has helped reduce the risk of losing clients directly to the bank.

“If you let them go to their bank for a personal loan, you are at risk of losing their home loan,” he says.

Apart from debt consolidation, renovations, cars and holidays are the most common reasons why Mr Caesar’s customers apply for a personal loan, and he says the lenders are quite competitive – especially the credit unions.

Mr Caesar says personal lending isn’t difficult at all, and a lot simpler than setting up a home loan.

“We have had personal loans quoted, approved and then funds transferred within a couple hours. A home loan can take a month and 10 times the work,” he says.

“RateSetter has state-of-the-art systems that allow you to get a quote for your client and then proceed once they have accepted the quote.”

A vibrant future

As broker market share continues to grow in the mortgage market, loan writers are well positioned to diversify their service offering and include new and complementary products such as personal loans, according to Now Finance managing director Richard Blumberg.

“We expect the personal loan market to continue to grow modestly,” he says. “The interesting opportunity in the personal loan market will be the shift by customers away from the incumbents as they search for better, easier and more efficient lending solutions.”

Mr Beaumont says Reserve Bank statistics show that the “non-revolving” consumer credit market is to the tune of around $40 billion to $45 billion per annum, and he also expects it to continue growing, “largely through personal loan products continuing to replace some of the less borrower-friendly consumer loan products such as short-term credit contracts and credit cards”.

“For example, we understand there is some $32 billion being borrowed on credit cards at present, and much of this would be better placed in low-rate, fixed-term personal loans,” he adds.

CUA’S INSIGHT TO PERSONAL LOAN CUSTOMERS

Women are more likely than men to take out a personal loan to travel, but are more conservative about the way they borrow, according to new research by CUA.

A study of more than 1,600 personal loans issued by the credit union that were taken out for holidays and travel shows that 54 per cent were taken out by women.

However, while men make up only 46 per cent of holiday borrowers, they tend to take out a larger loan when they’ve been bitten by the travel bug.

CUA’s research found that men over the age of 40 are the biggest borrowers, being lent an average of $13,250 for their holiday splurge – around $900 higher than the average loan amount of $12,323 for younger men.

Men under 40 are the least likely group to take out a personal loan to pay for a holiday, accounting for fewer than one in five of CUA’s holiday loans.

Similarly, younger women tended to borrow less than those aged over 40 – an average of $11,724 compared to $12,457 for women aged 40 and over.

LENDER Q&A

Richard Blumberg, managing director of Now Finance, reveals how the group is capitalising on the personal lending market using technology and working with brokers

Q. Tell us about the personal lending market at the moment

The personal lending market continues to be dominated by the big Australian banks and has shown modest growth in recent times.

Interestingly, the strongest driver of growth has been outside the traditional banking sector. In our experience, this is reflective of consumers’ interest in alternatives, which offer improved service levels and a better customer experience. Non-bank lenders such as Now Finance have achieved this by using the latest technology and proprietary service platforms that significantly improve the customer’s experience.

This change in approach has driven strong growth for a business like Now Finance in a relatively subdued personal lending market.

Q. What is Now Finance’s value proposition for brokers looking to diversify into personal lending?

Now Finance has established itself on three key value propositions – technology, simplicity and service.

Our technology platform is fully integrated, online and easy to use. Our origination portal allows the broker to monitor the process, access loan documentation, upload documents and communicate with underwriters. In addition to this, we have developed a proprietary broker portal that includes a number of business tools to aid brokers in their business development.

Our loan product is a simple, easy-to-understand fixed-term and fixed-rate amortising personal loan. All our processes and systems have been designed with a simple, easy-to-understand approach for both the customer and broker.

Service is a key differentiator and something that we continue to work on every day. All our staff are based in Australia and have KPIs around service. Brokers have access to our team of relationship managers based in NSW, Victoria, Queensland and WA. Relationship managers undertake an ongoing active call program and are responsible for individually training all accredited brokers. Brokers also have ready access to the underwriting team.

Q. How difficult is it for a residential broker to master personal lending?

Brokers tend to stick with what they know and are comfortable with – therefore introducing new products and processes can often be resisted.

One of the challenges we recognised early on was the need for a simple and easy process for brokers to follow which had to be matched with exceptional customer service. Brokers don’t want the distraction of spending hours working on a personal loan that takes them away from their core mortgage business. As part of our technology platform, we developed an online origination module for brokers to use. The application process is simple and easy to follow. Each broker has their own unique dashboard where they can monitor applications, access loan documentation, view a live note program and upload supporting documents.

Our system is all online and we take a lot of the work away from the broker so that they can continue to work on their core business and look for new opportunities.

Q. What are the benefits for brokers who diversify into personal lending?

Diversification is a strong differentiator for mortgage brokers and something we promote at all our training sessions with accredited brokers. The key benefits are: spreading the risk of your business in case of a downturn in the mortgage market; offering a broader suite of products for their customers; providing an additional income stream for their business; and improving customer experience and ultimately customer loyalty.