Meeting of minds

CS:
Chris Slater
NSW/ACT state manager
AFG

TB:
Tim Brown
Chief executive officer
Vow

MH:
Mark Haron
Principal
Connective

SW:
Sam White
Loan Market Group
Executive chairman

PN:
Phil Naylor
President
MFAA

BW:
Brad Wood
Director
Astute

VC:
Vibha Coburn
Managing director, head of mortgages
Citibank

AM:
Aaron Milburn
Head of broker distribution
Citibank

RG:
Roy Gori
Chief executive, Australia
Citibank

Are there opportunities out there for Australia’s lenders to be more innovative?

JS: I think there’s real lack of innovation. For the last three or four years, banks have just been trying their best to stay afloat. As such, the money that is usually pumped into innovation is being pumped elsewhere, into different projects.

Since the GFC, lender innovation has involved keeping their head above water, keeping their ship on course and surviving. So, unfortunately there hasn’t been that much innovation.

Five, six and seven years ago we saw people heading online, and different distribution methods.

Today products are stock standard, as they should be in this marketplace. There’s little innovation in credit, and there’s little innovation in distribution.

But it is not just the lenders that are failing in terms of innovation, the aggregators are too. The fact is, there is little meat left on the bone these days.

Margins are so tight, that I find it difficult to understand how the smaller aggregators can even survive. Moving forward I expect to see greater consolidation and innovation in aggregation.

Can diversification help aggregators to stay alive?

JS: People have been talking about diversification for years. We launched an Aussie credit card about 10 years ago, and today, that programme nets us about $15 million a year. That said, for the first few years, the programme made us bleed through the eyeballs. We lost millions on it.

We persevered however, and that perseverance is starting to pay off. Of course, we haven’t really moved into much else. Financial planning would be very hard to navigate into, so it will be interesting to see how Mortgage Choice goes with that.

TB: Obviously, we are very strong in diversification. When the business was launched, we knew we had to differentiate ourselves and our service proposition and diversification helped us do just that.

Thankfully, our brokers have embraced it and we have enjoyed some great success in this area.

Of course, not everyone in our network is putting their hand up and going down that path. Many prefer to stay specialised and I think there will always be a market for the specialised mortgage broker. As long as they have a good client database and are vigilant about maintaining their relationships, they should succeed.

Do you think we will see the non-majors strip market share away from the majors?

JS: To be perfectly honest, my experience in the past tells me that a non-major should mean better service, finer products and easier credit in some ways.
A non-major should be a leaner, meaner machine. But over the last three or four years, non-majors have, as a general rule, been the opposite. And that has forced the brokers to go to the big banks.

We could try and tell our brokers to push non-major products, but if you tell them that, they are bound to do the opposite.

The non-majors need to push themselves. They have to engage with brokers and offer unique products that cater to a niche market.

The non-majors have only started to push hard this calendar year. Two years ago we weren’t having lunch with Citibank saying let’s get more business; most second tiers were just trying to survive.

MH: Today, competition is definitely starting to become more aggressive. Also, from our data we can see that more and more consumers are asking about the alternatives to the majors. And brokers are all too willing to sell a non-major bank, because it is an alternative product.

That said; they can’t sell the product if it isn’t as good as what the majors provide, which is why non-majors need to change the way they look at the market.

They need to be nimble and not try to be everything to everyone. You don’t need to be at the forefront of everything. You don’t need to have the sharpest rate on the market. What you need to have is consistency of service.

TB: I agree. On the topic of whether or not we will see the non-majors strip market share away from the majors, the reality is, we are already starting to see it.

Over the last 18 months, the non-majors have helped us create a competitive environment. Today, instead of 92 per cent of all loans going to the majors, we are seeing just over 70 per cent heading their way.

So the non-majors are helping us to keep the market competitive.

CS: I agree, but if you want to grow your market share further still, you need to go out and hire the best BDMS.

If I were a bank, I’d go out and hire the best BDMs in every state. Having a good team of BDMs is the easiest way for a lender to grow their business.

What do brokers want from their BDMs?

CS: Good BDMs are on the phone all the time, and they know their stuff. They know when something is going to be a deal, and they follow it up to make sure it’s closed. It’s also about the personal relationship. A good BDM won’t meet a broker and try to sell their lender’s product. They are business development managers, so the good ones work out ways to help their brokers grow their businesses.

Is there merit in the segmentation model?

SW: I think it is good to have some form of segmentation, but it should not be at the expense of service. At the end of the day, only the minority of brokers are in the elite clubs, so they shouldn’t be receiving good service in comparison to the other writers. If that was to happen, the brokers who aren’t in these clubs would begin to resent them and the banks they are associated with, and actively choose to send business elsewhere.

What do borrowers want from their broker?

PN: Borrowers want someone who is going to give them advice, meet their holistic financial needs and help them achieve their dream of home ownership.

TB: I agree. Borrowers don’t just come to a broker because they want a choice of lenders. They know there is competition out there and what it’s like. They simply have to get online, head to a comparison website and find out what the rates are.

They don’t want a broker to do what they can already do. They want someone who can advise them and guide them on the best financial decisions. Brokers are no longer just brokers, they are mortgage and finance advisers and the sooner they realise this, the better they will be.

CS: If you're a broker and someone says I want to re-finance, or buy a property, you can be a financial guru and offer more than a humble home loan by reaching out to them. You can offer them transaction accounts and credit cards – you can go the extra mile and really reach out to your customers.

You can add all these things, and borrowers really appreciate that.