Niche or not?

But while many of these non-majors have taken ownership of important niche markets – with great success in plenty of cases – many also have their eyes on the sector dominated by the big four.

That sector, of course, is the conventional residential home loan space, with demand coming from owner occupiers (including first-time buyers), investors and upgraders.

What’s in a niche?

When financially-savvy consumers think of Citi, they often think of expensive dinners, five-star hotels or travelling the globe.

Citi has not only created this lending niche; the non-major has also managed to take ownership of it to the extent that many everyday Australians will know whether or not the bank is right for them.

“Our brand strongly resonates with affluent people who are globally minded, like professionals, investors, the self-employed, frequent travellers and people who enjoy their lifestyle,” Vibha Coburn, head of mortgages at Citi, tells The Adviser.

“We offer the strength of a large [international] organisation and the versatility and nimbleness of a local, non-major lender with a highly personalised level of service for both our customers as well as our brokers.

“This provides us with the strength to develop certain benefits that fulfil particular segments’ needs, hence their strong affiliation with our brand.”

But while Citi has embraced a single niche market, St George has managed to work its way into several sectors.

“I can think of three that we really have focused on over the years,” says Clive Kirkpatrick, general manager of mortgage broking at St George Group.

“We’ve been in the SMSF (self-managed super fund) lending space for around 15 years now, and in that time we’ve really tried to make that one of our specialties.

“We’ve heavily invested in this channel, we have a separate processing team for those products in Parramatta [and] we have 11 people who just work in super, so they have specialised knowledge.”

With the increasing need for broker diversification, and a growing public appetite for SMSF products, St George Group swooped on a space that the lender knew would be bursting with activity in the not too distant future.

“That’s really why lenders set themselves in a niche,” says Mr Kirkpatrick. “They identify a space that is going to become a winner further down the track, which is exactly what we’ve tried to do with our SMSF team.”

Citi initially found its niche through providing a great product, which has carried the bank through to today’s market.

“Historically, we’ve developed some flexible lending policies that have strongly resonated with investors, ex-pats or people living overseas, and the self-employed, who have more demanding and particular needs,” Ms Coburn says.

“Over the last few years, we’ve been focusing on bringing rewarding experiences to our brokers and their clients … we have enhanced our product offering beyond our lending products to provide lifestyle solutions.”

Citi has found that offering perks – such as its dining program, which provides a free bottle of wine at a variety of restaurants nationwide – can set a lifestyle standard that everyday Australians aspire to.

“The fact that these professionally and globally minded people have a stronger affiliation with our brand requires from us developing flexibility and expanding our offers to fulfil their demanding expectations – which then become accessible to a wider range of customers,” Ms Coburn says.

Making a name

Mr Kirkpatrick admits that competing with the big banks for these everyday Australians is a challenge with which many non-majors struggle on a daily basis.

“Back when we weren’t part of Westpac Group, we had to survive by doing things a little differently,” he says. “We were never a big player so I think if you’re not the biggest, you have to find a way to be different and better.”

St George took on a wealth focus fairly early, with Asgard (a provider of super and investment solutions and member of the Westpac Group) at the forefront of its financial planning proposition.

“I think there was a lot of knowledge across the group on wealth and I think they just saw self-managed super growing and it obviously has been growing very strongly, at least over the last decade,” Mr Kirkpatrick says.

“We asked ourselves, ‘How can we fund the product or build a product that can fund real estate into a super fund product?’ because obviously, most super fund products are built around managed funds or direct shares.”

This sparked the bank’s hunger for SMSF lending, which was further solidified when St George realised Australians are more comfortable with tangible, bricks and mortar-style investments than with the stock market.

Citi, likewise, appreciates that trying to be all things to all people is not for them.

“We have a comprehensive offering for a wide range of borrowers, and we perform exceptionally well within our target segment,” says Ms Coburn.

“However, due to our size within the Australian market, we know we can’t be a solution for everyone; instead, we’d prefer to focus on doing a few things but doing them well.”

Breaking out

Not every lender can boast ownership of an entire market segment, and some non-major banks are now putting their efforts into moving out of an area in which they appear to be comfortable.

Steven Heavey, general manager, intermediaries, at Suncorp Bank, says that following the GFC, the Queensland-based lender painted itself into a corner to a certain extent.

“I suppose the reputation we had developed in the past was that we weren’t a viable option unless it was a high LVR, very cheap offer – and I wanted to set about changing that,” he says.

However, to change this perception of the Suncorp Bank brand, Mr Heavey knew he needed to appeal to brokers.

“A lot of brokers complained to me that they spend hours on the phone waiting for status updates, so we’ve developed an online tracking tool which we feel is nearing the best in the market,” he says.

Improving the IT department and creating a fast, efficient process has set Suncorp on its way to becoming an all-rounder and a genuine alternative to the majors.

“Two and a half years ago, we were carrying manual files around from floor to floor,” Mr Heavey admits.

“We also increased the number of staff we have to answer the phones – we’ve reached a stage where our broker support area is able to get on to the broker in less than two minutes.” This, he claims, is an achievement with which the other banks cannot compete.

Non-major lenders, however, understand their niche market can be determined by mortgage brokers; they are the gatekeepers between the lender and a significant proportion of savvy consumers.

“The rates, products, services and policies that we offer are always evolving to better fulfil our brokers’ and customers’ demands,” says Ms Coburn.

“We listen to the feedback from brokers and clients and keep improving our offerings to better meet their needs.

“For example, this year we have introduced a new ownership model which gives greater and tailored service to our customers, a more flexible overseas borrower policy and [we have] continuously introduced promotional offers to meet the current demands for our target segment.”

St George Group is in a different situation altogether. While it is a non-major lender with a limited presence across the country, in NSW the bank is on par with the majors.

“In NSW, we basically are a heritage brand so we are probably the fifth bank in NSW, so people come to us with all types of business, from everyday accounts to mortgages,” Mr Kirkpatrick says. “Our branch customer satisfaction is the highest across all banks.

“So in NSW, we play a big bank type of game – that’s where something like the SMSF fits perfectly – and in Queensland and WA we’re quite small. That’s where our niche plays are probably more relevant – in areas we have yet to break into.

“In each geographical location, we play a different game and it’s quite exciting when you think about it that way because you need to have a broad suite of products because we have a very broad demand of products from different customer demographics.

“It’s not restrictive; it’s actually the reverse of that. It’s invigorating.”