NAB’s grand plan comes to fruition

What was the thinking behind NAB acquiring FAST, Choice and PLAN? In hindsight, it showed a great deal of faith in the broker channel post-GFC.

Absolutely. I think that was the main reason. I think there was a realisation there of the importance of the broking channel, that it was going to grow and, right now, one in two home loans come from brokers and we wanted to make sure we were part of that.

We saw the Challenger business – with FAST, Choice and PLAN – as three of the leading aggregators in the market and we also saw an opportunity with their white label business and the ability for white label to really become a fast-growing segment of the Australian mortgage market.

How do you think the trio benefitted from NAB’s acquisition?

It was the height of the GFC and NAB bought a strong balance sheet with funding certainty which enabled Challenger to continue its operations. Once we got through the GFC, NAB bought capital and investment. For example, we spent $20 million on our core technology platforms for brokers, which we call Podium.

And the investment goes way beyond that, not just technology – we went through NCCP changes in that time too, and that ability to have that level of capital has been incredible for them.

And what have been the advantages for brokers and ultimately their clients?

Again, it’s obviously the investment in the technology platforms and we’ve certainly made it easier for brokers to operate their business in that environment.

We’ve also led the market in the development of white label products and ultimately those products have proven to be very successful because they provide a good deal for the customer.

I think we’ve grown that book from around $4 billion to just on $20 billion in five years and that shows that the market will choose those types of products because they meet the need of the customer.

Is it important the trio remain independent, or would there be more benefit in highlighting the connection to NAB?

FAST’s, PLAN’s and Choice’s independence is critical and it’s real. All three have their own value proposition and they’re aimed at attracting different brokers to each of those groups.

And what we found is that with each one having their own value proposition they’ve been able to grow their businesses quite rapidly, and we intend to provide support and allow them to keep growing.

Obviously at the back-end we do get some scale through things like technology and compliance services, but ultimately these are three businesses that all work differently and we are going to continue to invest in having these three standalone businesses.

How did NAB’s procurement of the three change the third-party landscape in Australia? And, in that, were there any downsides?

In my view it changed the aggregation landscape for the better; it’s a perfect example of how an industry participant can operate in more than one part of the value chain. There’s a lot of talk about vertical integration but where I think people get comfort from is when they are going to a FAST, PLAN or Choice broker they’ve got a parent with significant capital behind it. It’s an interesting and evolving story with or without NAB’s involvement because other players have done similar sorts of things.

I think NAB has been a forerunner with this, we have shown the industry that you can have an aggregator in a business like ours. It’s absolutely key, and that is those businesses are aggregators first. When you speak to the other lenders out there and the growth that we have seen I think you’ll find those other lenders are incredibly happy to see the growth out of PLAN, Choice and FAST and that’s seen the size of the pie grow for [the other lenders] too.

What have been some of the milestones, the successes over the past five years?

I think it’s all about the growth we’ve seen over that particular amount of time. The businesses have grown rapidly and the trio’s books have grown from $111 billion to $153 billion. We remain collectively the biggest aggregation group in the market and I think we have an obligation to help the industry grow; we’re investing heavily in doing that, helping people into the industry, and we’ll continue to do that; we’ll continue to represent the industry quite strongly.

Looking ahead, how do you see the next five years panning out?

You have to start with the customer and customers are going to continue to choose brokers because they’re continuing to provide great service and they’re getting great value out of the help, guidance and advice they’re providing to them.

One in two mortgages [are done by brokers] and we think that’s just going to continue to grow. In terms of the commercial lending space, it’s hard to get great stats there, but we see that probably doubling over the next three years; and that is a great position for the broking market to be in.

Looking back, is there anything over the past five years NAB could have done differently?

We’re pretty proud of where we are, and that’s a good position for us to be in. If there was anything specific we could’ve done differently, maybe we wished we’d done it sooner!

Vertical integration – this idea of banks owning things such as aggregators – cops its fair share of flak. How do you respond to those criticisms?

We’re a great example of showing an aggregator can be an aggregator first, no matter who owns them. We’re very determined that the aggregators are independent and very focused on their own success.

We’ve shown that, we’ve shown they can do that, we’ve shown they can grow the pie substantially and again if you speak to the other lenders you’ll see they’ve benefitted very well from the growth of PLAN, Choice and FAST. Ultimately the broker makes the choice. If you think that a bank owning an aggregation firm can influence what’s going on, then fundamentally you do not trust what brokers are supposed to be doing and that’s acting in the best interests of their customers.

Lastly, just on commissions, do you see that changing? Could there be – as some are advocating – a move to the fee-for-service model?

Commissions are not a bad thing; they’re a fair way to remunerate in this industry and so long as it’s very clear what the broker is being paid and how they are being remunerated then that is the key thing. And so long as the customer understands that, so long as that is being achieved, then I can’t see the current system changing significantly.

Brett Halliwell, Advantedge Financial Services

You probably know the history of NAB’s acquisition better than anyone…

Yes, I’ve actually been with the business going on 12 years and actually saw its evolution going back to Interstar many years ago, then into Challenger.
I worked on strategy there and product, and worked on the deal coming across to NAB. I was the guy that’s actually seen it from both sides of the fence and then seen the benefits realised as part of NAB.

What do you believe NAB’s impetus was in buying the trio back in 2009?

I think NAB was looking at its overall business, where it was successful and where it could improve and it was fair to say that historically NAB had been the number one business bank in the market. When Cameron Clyne (then NAB CEO) came in he recognised, quite rightly, that NAB was underweight in personal banking and needed to do more in terms of volume and the offering of particular mortgages.

If you are going to be a much more committed player in the personal bank space and therefore much more committed to the broker channel [buying FAST, PLAN and Choice] was an extremely insightful way to go.

What have been the successes over the past five years; even the lessons learned?

I’d say it’s been remarkably successful and there are four key points to that. The first one is through the aggregators themselves. I think where NAB got it absolutely right was to look at the aggregators and look at the services they were offering brokers. Part two was to recognise that all three had different things to offer. The third one was continued investment in the broker channel, a substantial investment in [the technology] platform Podium and other broker services.

And the fourth one, underpinning it, was the introduction of white label that gave brokers under FAST, PLAN and Choice an alternative lending product.

Did NAB’s purchase of the three lay the groundwork for white label products in the Australian lending landscape?

There was a white label under PLAN before NAB’s acquisition, but I think once NAB came on board, post-GFC, it got the full benefit of investment, it [white label products] really came to light and that was based on the recognition that it could be a major category in the market and it could offer brokers an incredibly different experience to any other brands that were in the market at the time.

Why does NAB push its white label products, arguably more so than other lenders?

I wouldn’t say push, I’d say we compete very effectively within the market for our home-grown products and I think that’s very much doing the right thing for the customer, the right thing for the broker. In the white label space it’s a ticket to the table to tell your story, it doesn’t buy you more than that. Advantedge’s success is having the right products, the right service and delivering what brokers are looking for. White label products aren’t all things to all people but they do give customers what they need; they’re not paying for things they might not use like a branch network if they don’t access it.

Are there still difficulties communicating white label products? Maybe customers don’t understand them or brokers don’t know how to sell them?

I think most brokers have embraced white label products and that’s made it easier. I think the other benefits to brokers are that they can be offering something that customers can’t go and get themselves. And when they offer it, it’s a better rate, great product that meets your needs, then customers are absolutely delighted. It’s probably about [brokers] putting their toe in the water and trying it for the first time. Once brokers have done that they tend to embrace it, customers get a well-priced product that is part of the NAB group.

I do think that most brokers, in the sales process, tend to mention that these are NAB-funded and that gives customers a real sense of security.

NAB certainly grabbed the nettle five years ago. How do you see the next five playing out?

I think we’ll see white label become far more prominent across all aggregators and mainstream.

And the reason for that is that brokers are a growing channel and I absolutely see that proportion growing and I see white label growing and that is because it is a good alternative that is only available through the broker proposition and there is no channel conflict.

What have been some of the milestones over the past five years?

I’d start with the aggregators; they’ve all continued to flourish as independent businesses. We’ve had the introduction of NCCP where the aggregators were highly supportive of brokers to really navigate through that change and that’s really got the industry to a much better place.

Certainly the growth of white label, [this] was the creation of a major new category in the market and [it] has gained enormous traction and is now a credible major lender in its own right.

How has NAB’s ownership of the trio changed the lending landscape in this country? How have other lenders responded?

It’s added a competitive layer into the market and it’s fair to say, without naming any particular competitor, they certainly see NAB and they see NAB Homebrands and they realise that they have to be able to compete against both and in some instances in different ways.

I think it is fair to say within the market now you have the majors operating under a master brand and in many instances operating under different sub-brands.

NAB has been a major driver in that and I think the different offerings under the sub-brands are truly different and that offers brokers and their customers different products that may have otherwise not existed.