The non-major banks on industry changes

Clive Kirkpatrick, general manager mortgage broking, St George Banking Group: The economists are saying we should see improvements to employment; growth looks stable; the basic macroeconomics looking ahead look good. There seems to be a little softening of property prices in some areas and I don’t think the recent Budget has helped.

Steve Degetto, head of intermediaries, Suncorp Bank: The broker channel is strong, there’s a lot of investor activity at the moment, and I think that’s played out well for brokers. [Investor lending] can involve more complex loans and brokers often have more expertise in that area. As a result, brokers have the opportunity to potentially write a higher proportion of investor lending than the broader market.

Stewart Saunders, national broker manager, ME Bank: It’s such an interesting time at the moment.

We’re going to see continued competition – be it through new players or through everybody wanting to increase their market share – so price is going to be important. In addition, it’s going to be about how we differentiate ourselves; and technology will play an important part in this.

I think I speak for most lenders when I say we’re all investing vast amounts in technology, and brokers and their customers will start to see real benefit from that. Banking is becoming a technological arms race and nobody knows that more than the majors – and the non-majors are now trying to get in front of them.

Jarrod Cahill, state manager Victoria and South Australia broker sales, Bankwest: I think everybody’s watching consumer sentiment and business confidence. We’re all in a growth industry, a very competitive industry, and as long as the cash rate remains low I think we’re going to continue to see pretty much what we’ve being seeing over the previous 12 months.

David Ure, head of contact centre and intermediaries, Heritage Bank: We’ll see more pressure on interest rates, more pressure on credit. We’re increasingly seeing more government bodies coming out and questioning what’s going on. I agree tech is going to be a big thing, particularly for the smaller players.

If you look at what the majors do, they dictate what their customers want, consumers are being led, and I think it’s our job [as non-majors] to take consumers where they want to go. Rather than drive customers to certain behaviours it’s all about
being there to meet their needs.

Glenn Gibson, head of sales and marketing, AMP Bank: The job of the non-majors is to find a niche and fight in that niche. For AMP, that’s a product range that is both variable and fixed. We’re seeing a lot of consumers wanting to fix portions of their loans and there’s some aggressive pricing in the market and we don’t want to chase the rates down.

As far as the next 12 months go, I agree technology is something we’re all spending money on. Where it’s different now is the way you can get into technology – it’s far cheaper and quicker now.Take a tablet app: in the past, to do what most apps can do now you had to build almost a core banking system to do it.

Ultimately it’s about the end customer and working out how you want to interact with them – is that through a third party or is that directly? But trying to understand what the customer wants and delivering them the technology to match that is the important thing for AMP over the coming 12 months.

Mark Woolnough, head of third party distribution, ING Direct: I think it’s about working on what you do well. We talk about innovation, but what is that? I think that’s simplicity. Banking has moved beyond banks. Customers aren’t interested in banks, they’re interested in banking. You have to evolve, you have to go where customers are heading and that’s on the back of technology.

Everybody talks about technology, investing in backends, but are we really any faster than we were 10 years ago? We can certainly handle greater volumes, but nobody is popping out loans in 20 minutes.

I think the role of a broker is changing to being more of an endorser, more a validator, more like a financial coach. That’s why at ING Direct we are working with brokers to ensure they are well informed and educated on our entire product suite – from mortgages to everyday banking and even our investment products.

Never before have we seen an environment where customers are being more conscious of their holistic financial needs – both short and long term. And will brokers be paid for their services? Absolutely. Yes, the better broker will be able to enter into charging some sort of service fee.

If fee for service does become more the industry norm, how will that play out in relation to commissions?

MW: Commissions  are basically the extent to which the lender wants to share the value with anyone in the value chain.

It’s a great time for brokers especially with the number of lenders currently altering their commission models. Not only to increase the broker share in the overall value and you look at all the lenders, they’re all increasing their commissions. The reality is every broker is at a different stage of their professional lifecycle and brokers should not rely purely on commissions to fuel their business growth. After all, we’ve seen what can happen in the financial planning space albeit for different reasons.

What more can the non-majors do to compete with the big four?

Vibha Coburn, managing director retail distribution, Citi: I think non-majors are part and parcel of the lending landscape in Australia now. During the GFC, I think there was a flight to the majors, but people now realise that non-majors do compete, they’re often more accessible and flexible than the majors in terms of being more nimble, being more personable, and with their smaller teams they can reach customers much, much faster.

CK: When the majors move on pricing the others follow and that puts a lot of pressure on the non-majors. We have to be much more nimble, a better alternative.

I think the non-majors offer brokers and their customers a more niche suite of products; but we also need to deliver this to a broader audience, target more customers.

There’s been a lot of talk about the banks buying into the aggregation groups. Does that make things more difficult for non-majors?

SS: The ownership structure in most circumstances has not had an impact, but questions are beginning to be asked about how this development might affect competition in the future.

SD: We understand from a distribution perspective why they are going down this path. The challenge for a non-major is to work with our aggregation partners to ensure we get the same opportunities as their white label products do.

It’s all about transparency and the broker’s role to have an independent view of what is an appropriate product and lender for a customer. The broker’s key function and value proposition is to look after the customer’s interests first and foremost and we support this goal.

MW: If you ask aggregators what the future of aggregation looks like, it’s a question they are finding increasingly difficult to answer. It stands to reason that if brokers remain concerned around the future of commissions and clawbacks so too do the aggregators. The emergence of aggregator white label products since the GFC is a step to protect their revenue and income base. What has made it more difficult for the non-majors is that increasingly we are competing with the internal objectives of these programs in terms of their overall share of production which in many cases is backed by bonus commission rates and concessions to aggregation fees.

Social media – essential tool for brokers or all a bit of hot air?

VC: I think if you're talking about this new generation of broker coming through, I think they’ve been born with these tools. Things like Twitter and Facebook come very natural to them. Used well, they are becoming very valuable tools.

MW: The other big thing is around the data that we have on customers. Increasingly, customers are going to expect that banks, as with a number of institutions, use the data they have gathered to tailor and deliver personal solutions that will help them get ahead in life.

SS: Social media can be an important tool for brokers. Broker businesses are built on referrals from existing clients and social media is one way to help leverage larger networks.

DU: I think the challenge for lenders is to put their technology dollar where it creates value for the customer and the customers want banks to lead on this. There’s an expectation of the banks to be offering market leading technology options.

Could we see some new players – particularly one with a revolutionary tech offering – come in and really shake up the market?

JC: We see players dip in and dip out all the time and now there’s talk the supermarkets want to play in this space too. While this may not immediately change things, the landscape can get  fiercer, particularly when you’ve got a lender who’s very aggressive.

CK: Lenders have to be in the broker channel. Sure, some have moved in and some have moved out. If a new player does come in and try and disrupt things they would have to know their niche and their market very well, otherwise I’m not sure why an aggregator would sign on with them. What are the big issues you’re hearing about from the broker channel?

SD: Brokers continue to talk about the increased level of regulation and administration in their business. They are required to complete preliminary assessments, have additional technology considerations, increased information to manage coupled with a greater regulatory regime to navigate. It has become a far more complex profession to be in than it used to be.

What will the successful broker look like in, say, five to 10 years’ time?

JC: It will always remain about service, about wanting to help the customer, and that will be backed up by technology and usability. And it’s about taking the customer from that first transaction, adding complementary products and other things and, when they can’t help, referring out to a specialist. Brokers need to be able to assist customers with their needs.

Recruitment and succession planning remain big industry issues – is enough being done to tackle them?

VC: Brokering hasn’t been around that long and for a long time it was made up of ex-bankers. But to attract new, younger brokers I think we need to look further afield to recruit.

I really think trying to get them when they’re at university would be a great place to start. I don’t think, as an industry, we’ve ever worked out where to get brokers from.

SD: This will continue to be a challenge for the mortgage broking industry much like it has for the financial planning industry. We need to get better at articulating what are the career and business opportunities that mortgage broking can provide, along with the potential for flexibility in working hours that so many people now desire.

SS: To take the industry to the next level is going to require ‘new blood’ that has a fresh way of thinking. While brokers are good at perfecting the fulfilment of mortgage applications, they also need to be able to build their business by expanding their networks.

Essentially, they need to ensure they’re spending their time ‘on’ business as well as ‘in’ the business.

In terms of attracting young talent, we need to put some of the industry’s young shining stars out there and make an example of them. This will assist in building the profile of the industry in the years to come.

JC: I agree that it’s an industry issue to train and recruit. And that’s from the lender level, through the MFAA, to the broker level. It’s about understanding what brokers do and selling that.

GG: If you look at the franchising industry, there are expos all the time trying to get new recruits. We need to look at how we use social media and other avenues to generate more interest in broking as a career. And it’s the responsibility of everyone in the third-party market to do this; both lenders and aggregators need to play a big role here.

CK: Succession planning is a vital topic for both the broker industry and lenders. I think some lenders have an issue with recruitment too. So there’s a bit of a conflict there if the lenders are out trying to recruit graduates for the banks while they’re also trying to help the broking industry grow.

Work needs to be done around the best way to approach this situation, with industry bodies playing a vital role.

Looking at the issues the industry faces as a whole, what are some of the more burning ones?

SD: It’s all about sustainable, pro table growth and I think retention is really important. The value to both a lender and a broker is to have customers for longer.

It’s our job as a lender to work with brokers to have more satisfied customers over the long term which in turn provide valuable growth for the broker’s business as well as ours.

DU: We just have to continue to remain relevant. For a player like Heritage, when you’re competing against the majors as well, we just don’t have the spends that they do, particularly around technology. So that means articulating exactly what your niche is so as to remain relevant in the marketplace.

I think the majors have done well in the tech space; there is a perception that their level of service is growing and it’s our job to keep up with that.

GG: I think the big question is ‘what’s next?’ Internally, it’s making sure you’re relevant, you’re growing, all those things. But what’s next?

It’s trying to predict how the industry will look and start to navigate your business down that path, whether that’s to do with technology, your people, product, structures. For AMP, it’s what’s next? And being able to find or predict that trend.

VC: To touch on recruitment, Citi has been working with 120 new brokers to the industry and we’re now their second preferred bank.

That just shows the value of lenders getting involved in recruitment and when you come earlier in the piece that value is very good for us. We want toparticipate in that space and that’s a great purpose for us.