POINT BLANK -- A Competitive Alternative

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A competitive alternative

Aggressive pricing from the majors and the high cost of funds have pummelled the non-banks, but FirstMac’s owner, Kim Cannon, expects the sector to come out swinging in due course

What is the market currently like for non-banks? Will we see the sector re-emerge?

For most true non-bank lenders – lenders that source their funds from international markets – times are tough.

The capital markets are effectively closed, which means we cannot buy funds and we cannot successfully compete with the other Australian banks on price.

In June 2011, we thought we would start borrowing again and dive back into the market in a bid to increase our market share. However, by September, the global markets had crashed and the capital markets became a very expensive place. We were effectively locked out.

Earlier this year, we thought things might be starting to turn a corner – seemingly, there was light at the end of the tunnel. By February, we were bullish about our future. However, since then, Europe has taken a turn for the worse, the Reserve Bank of Australia has slashed 50 basis points from the official cash rate and things are seemingly heading south once more.

At the end of the day, you just never know what the future is going to bring.

At FirstMac, we really hope things will turn around soon, because we are now in our fifth year of heartache.

That said, we remain very optimistic about the future. While we might not be able to compete now, we are actively putting strategies in place that will put us in good stead for the future.

We are always thinking about tomorrow – tomorrow’s client and what they will look like. We are also thinking about what kind of product tomorrow’s client will need. At FirstMac, we are working on a number of new initiatives, including new products, which we will roll out within the next few months.

What does tomorrow’s client look like?

Tomorrow’s client – or the borrower of the future – will be more internet savvy. In addition, they will be more capable of making decisions independently.

They will know how to use the resources available to them and they won’t be afraid to do so. We are investing heavily in the online space at the moment because we understand there is a large proportion of borrowers that want to get their home loan completely sorted online.

That proportion is growing exponentially.

While I don’t think the internet will ever replace face-to-face interaction with a bank manager or broker, it will become more dominant, which is why it is so important that brokers also consider their future.

Brokers need to engage with the internet
now – make it part of their core offering, or risk being left behind.

In tomorrow’s market, they need to be able to cater to the needs of their clients, and their clients will inevitably want more information provided to them electronically.

I like to use the example of snow boots. Today, many places charge people to try on their snow boots because they know these shoppers are just planning to try them on and then purchase a pair online for half the price.

Brokers need to truly think about their value proposition and their stance on fee for service. Fee for service can help a broker’s bottom line, so at the very least, if a client does not proceed to settlement with a particular broker, they are still rewarded for doing all the initial leg work for the client.

You do not want to be doing all the work, only to have the client turn around and source the product/s you suggested online, or go directly to the branch. It just makes business sense to charge a fee.

Will the non-bank sector eventually crumble under pressure from the big banks?

There will always be a space for the non-bank sector. At the end of the day, the non-bank sector is what keeps the big banks honest.

The creation of the sector injected much needed competition into the mortgage market. Sure, times have been tough for us since the global financial crisis, but we are still here and we are still hanging on. If the non-bank sector was to disappear, there would be no competition and no one to stand up to the big guys. Our position in the market is very important and it would be good to see more brokers supporting this sector.

I have been in this industry for more than 20 years, and while I don’t think we will ever see the non-banks return to the days when we were writing 20 per cent of all mortgages, I think we will see a
re-emergence of this sector.

I think we could stand to receive a little bit more government support, but that is entirely up to them. When I hear people say that the Government’s competitive and sustainable banking reforms package failed to deliver any real competition to the market I only have one thing to say: the non-bank sector is still here.

Who knows, without the support of the Government, we might not still be here. And without us, the majors would be able to control the mortgage lending sector.

When non-bank lenders first appeared on the scene, we gave mums and dads a go. We offered competitively priced, flexible products and excellent service.

While we are not able to compete on price at the moment, and may never be able to compete successfully on that front again, there are many other ways we can compete. We can still be competitive on service and offer borrowers a flexible alternative to the majors.

We can also lend when the banks say no. If we are not around, who is going to provide competition? The government knows this and that’s why they have done what they can and what they think is right to continue to feed competition. The fifth pillar project was an abject failure, but not everything else they have done has been wrong and misguided. At the end of the day, we are still here, and we are still a force to be reckoned with.