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The lender has begun a trial of real-time credit approvals for its mortgages, with CEO Mario Rehayem saying this will be the new battleground in lending.
Non-bank lender Pepper Money has revealed that it has launched “real-time credit approvals” for home loans through its Pepper Product Selector (PPS) tool following a successful trial in novated leasing.
While delivering its half-year results for the six months to June 2024 (1H24), Pepper revealed that it had enabled real-time credit approvals in July 2024, with integrations to roll out more broadly to the broker channel in the coming months.
Speaking to The Adviser about the new technology, Rehayem said that Pepper had been able to provide “real-time practical decisioning and real-time funding” for the asset finance offering in car dealerships and that it was now rolling it out for mortgages.
Aggregators that already have a direct API into the PPS tool (such as Lendi Group) will be the first to see this functionality roll out, saving brokers time and improving confidence in loans being approved.
“What we have done is teamed up with a particular aggregator … and – as the broker is keying the information that they have received from the customer to put in the application into their platform/their CRM – our credit integration in their CRM is actually filtering through the information and then gives them a guide offer. It says whether the deal has an opportunity to be approved by Pepper and shows the product, the rate and the fees,” Rehayem said.
He said that while the offer was not unconditional, it was “more than a pre-approval” because it has already done a credit check, an online valuation, knows what the fees are, knows what the maximum money, and has an understanding of the product matrix – “it just hasn’t verified income”.
“Outside of the income verification, it’s practically a full approval,” he said.
“So once that’s across the line, then we will give full approvals on the spot.
“The next stage is rolling it out to more aggregators and that will predominantly be the main way that mortgage brokers will interact with Pepper.”
According to the Pepper CEO, real-time credit approvals will be “a common reality” in the next 12–18 months.
The Pepper CEO said he believed that “technology and customer-centric automated processes” such as those that sit behind PPS, “will be the future of lending”.
Elaborating to The Adviser, he said that real-time approvals would be the next “battleground” for mortgages.
“At the end of the day, every broker and every customer wants a fast turnaround and wants confidence in the decision of who they’re going to go forward with,” Rehayem said.
“So, I do believe we will get to a state where all lenders are going to be forced to do real time approvals. And we are ahead of the game there. Once we start to prove the model, there’s going to be fast followers … because we’ll be able to get a full approval within seconds, as opposed to days.”
However, he said that this technology would “only increase the value that brokers bring” by “removing any form of discrepancies between time-to-yes between third-party introducers and retail channels.”
Mortgage originations rising
Looking at Pepper’s 1H24 results, the non-bank revealed that mortgage originations were up 6 per cent on the prior comparative period (PCP) to $1.8 billion.
Near-prime loans continue to form the bulk of Pepper’s business, with $1 billion of new mortgage originations being for near-prime loans, and $700 million being for prime loans. Just $100 million were specialist loans.
Meanwhile, asset finance settlements dropped 19 per cent to 1.4 billion in 1H24 when compared to the PCP.
Pepper said the decline in asset finance originations reflected both the underlying “soft market conditions” as well as the impact of the removal of government tax incentives, effective 1 July 2023, impacting the growth of the commercial segment.
Indeed, commercial asset finance originations halved to $400 million in 1H24, while novated leasing accounted for half of the asset finance volumes; 56 per cent more than in the prior comparative period.
Its total assets under management equalled $19.3 billion at the end of 1H24, with mortgages down 9 per cent to $11.3 billion (given higher whole loan sales in 1H24 coupled with “soft market conditions”) and the asset finance book was up 1 per cent to $5.7 billion. The servicing arm of the group was up 149 per cent to $2.3 billion.
The Pepper CEO said: “We thank all our mortgage broker and auto brokers partners and introducers who introduced 37,000 customers to Pepper in the first half of this year.”
Looking forward, the non-bank said it expects the market to return to growth given that inflation is trending towards the RBA’s cash rate and amid stable rates (and expectations that rates will fall next year), which may buoy both consumer and business confidence.
“All in all, I do feel that the headwinds are easing and, as a business, we are feeling more confident as we progress through 2024,” he said.
[Related: Pepper welcomes new leader for asset finance sales]
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