Working together with aggregators

Gerald Foley:  They certainly play a very important role. Competition will always be a good thing.

I think the non-bank lenders have always been the leader in innovation in product because they’ve had to be. They've had to have a point of difference.  They can’t come out and compete at a standard variable home loan rate, and over time innovation has been driven more from that space and then the banks follow on product innovation.

If you lose that sector, you then potentially lose the creative minds who are out there trying to find a niche or an opportunity amongst the bigger players.

Brendan Wright: It’s around providing genuine competition and options for brokers to provide to their clients. So non-banks play a key role in catering to niche markets. Traditional banks can’t cater to everything and miss some opportunities. Brokers are keen to have access to the types of products and services that non-banks provide their clients.

Tim Brown:  They actually do take on the major banks in a lot of areas. I think the problem is that they don’t have the same access to funding that some of the major to market conditions.  They rely significantly on the securitisation market and in the current market, with long-term rates and securitisation getting a little bit healthier, they’ve been able to react well with their interest rates.  They also tend to be able to specialise with their policies a little bit as well. And they’re obviously highly third party-focused, which is great.

Brendan Wright: Non-bank lenders are typically more agile and nimble. They can compete in the niche areas, where they identify opportunities the traditional banks might not be as quick to move on.  at’s where the opportunity is. They also pride themselves on service. Because they are a bit smaller and nimble, they have an opportunity to rise above the pack in terms of their service proposition.

How can brokers sell non-bank to borrowers?

Mark Haron: I think a lot of the non-banks are fairly significant in their size and structure. If a borrower isn’t too sure about being placed in a non-bank loan, brokers need to remind them that the customeris borrowing that lender’s money. The customer isn’t lending them the money.

The customer is taking the money from the non-bank, so they aren’t taking on the risk.

Also, although there would be some minor costs in relation to refinancing, there are no early termination fees these days – so if the customer finds it’s not what they’re after, it’s a lot cheaper for them to get out of it.

Brendan Wright: There are a couple of things. One is about helping the client understand the background of the non-bank lender. But more specifically, if they are on the aggregator’s panel then there is also that vote of confidence that the non-bank lender is an organisation that can genuinely meet the needs of clients.

Tim Brown: I think probably during the GFC it was very difficult because clients were looking for that perceived safety. They saw the big banks as offering that safety. But I think that’s really become less of an issue today. I think the non-banks are a genuine threat and I think they will build up their market share again. And we’re seeing some of that occurring now.

At the mortgage manager level, we are seeing them become more competitive now.  They've got access to cheaper funds.  The good thing is we find they tend to be more innovative with products.

What can aggregators do to promote non-bank lenders to brokers?

Mark Haron: We recently had Pepper run a series of presentations at our PD days about alternative doc lending policies. It’s about giving the specialist lenders the opportunity to get in front of the brokers. We find it works very well and it opens brokers’ eyes to the opportunities that some of the non-bank lenders have to offer. We also have very good representation of non-bank lenders on our panel as well.

Brendan Wright: Firstly, it’s about having the right type of non-bank providers on the panel. We focus on getting quality lenders who provide options and choices for brokers to help their clients. It’s about seeking out and having the right mix of non-bank lenders on the panel. As with any lender who’s on an aggregator’s panel, it’s important that their BDMs work closely with the aggregator BDMs to help explain to the broker the value proposition that the lender provides andcan deliver to their clients.

Tim Brown: At Vow we do a lot of webinars and have the non-banks a end a lot of our training days so they can explain how they’re different to the banks and what they can do differently. And I think that’s a real key. We’ve got a couple of mortgage managers now who are starting to make inroads and people are beginning to understand how they can be different.

Should the non-banks be doing more to promote themselves to the borrowers?

Gerald Foley: Over the past couple of years, where we’ve come into and out of the GFC, there has been an absolute flight to what I call ‘perceived quality’ – the brands that people know and therefore feel safer with.

If the broker has a great relationship with their customers, then I think they will have the ability to sell a broader range of products and brands. Borrowers need to feel comfortable with the lender they partner with – so brokers have a key role to play here.

I think the non-banks will really make an impact if they can come out with more product innovation.

Will we ever see the non-banks return to their pre-GFC market share levels?

Gerald Foley: You never say ‘never’. There’s no reason why they can’t. I think we’ll also see the banks funding a broader range of brands.

Tim Brown: I think there’s always the possibility. They have to be thinking outside the box. They have to be much more innovative than their banking competitors. I think general funding levels in the world have to stay as they are now – reasonably stable – for this to occur.

We saw another upheaval in January last year where there was talk about the collapse of the euro. That really makes it difficult for the non-banks to compete price-wise. It makes wholesale funds very dear for them.