THIRD PARTY BANKING REPORT - MAJOR LENDERS, 20101691 people have read this article
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| Monday, 26 April 2010 |
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BANK RANKING - BUILDING BENCHMARKS By: Alex Whitlock In stark contrast to the collapse of the broker channel in some overseas markets, our local industry remains a significant distribution channel for Australia’s lenders – one that they underestimate at their peril. The approach the major lenders take to the third party channel has a dramatic effect on brokers, how they do business and how Australians source their mortgages. The Adviser recently undertook the most comprehensive survey to date of broker attitudes to the major lenders, the findings of which are outlined in the report that follows. The objective was to reveal the impact the big banks’ product offering, technology, service and commissions have on brokers, and to identify which organisations were most successful in meeting the industry’s needs. Lenders have radically changed their approach to the broker channel over the last few years. Significantly, the hunt for volume has been replaced by the quest for quality as the liquidity pool has diminished, polarising the lending industry. Commissions have been reduced and restructured by each institution. But while remuneration has been tightened, some lenders have endeavoured to strengthen their value proposition in other areas by delivering training and business development support, providing a broader product range as well as improving their web presence. The question is: how successful have they been? The Third Party Banking Report – Major Lenders unveils the views of almost 470 professional brokers – many of whom are members of one or more of the majors’ top segment groups. The survey was conducted with The Adviser readers and the responses were analysed by Retail Finance Intelligence (RFI) – a research house specialising in the mortgage industry – to ensure that the results were transparent and credible. The findings of this groundbreaking report reveal the true drivers for the third party distribution channel and dispel some of the myths around what truly motivates brokers. But perhaps what is of greatest value is identifying how Australia’s major banks can improve their value proposition if they aim to grow their share of broker-originated business. I’d like to thank our readers for the exceptional support that you have given The Adviser by taking time to participate in this report. With such compelling results the banks can better understand what brokers expect from their lending partners and take action to better position their businesses.
STRIKING BALANCE The Third Party Banking Report – Major Lenders confirms what we’ve known for some time: successful lending is a ‘people’ game The five major banks dominate mortgage lending in Australia. With the sheer weight of their market share, they also account for a significant portion of broker volumes. While the major banks’ share of the market fluctuates in line with the ebbs and flows of our economy, they remain an essential component of the industry’s growth as well as its fortunes. As of February this year, the five major banks (ANZ, CBA, NAB, St George and Westpac) accounted for over 83 per cent of all ADI housing investment and owner-occupied home loans in Australia, according to figures by the Australian Prudential Regulation Authority (APRA). This was broken down into the following loans and advances on Australian books:
In terms of market share, the most recent Fujitsu/JP Morgan Mortgage Industry Report (Volume 11), has also highlighted the collective influence lenders have on the mortgage market. Overall, the five major banks accounted for 73.2 per cent of the market in the year to December 2009. The following details banks’ share on an individual bank basis:
While these figures are collective across all distribution channels (retail and third party) – and also include non-banks – the fact remains that Australia’s major lenders dominate mortgage lending in Australia, and are therefore key providers to the broker channel. But while Australia’s brokers are reliant on the majors for products, that’s not to say that the majors dictate the relationships with brokers. In fact, the opposite is the case. Dynamics during the global financial crisis has influenced the leverage brokerages once had with lenders as liquidity tightened and lenders sought to ration funds. However, brokers’ market share is growing and should continue to rise over the period ahead for the simple reason that Australia’s consumers want to use brokers. According to the latest Fujitsu/JP Morgan Mortgage Industry Report (Volume 11), brokers now account for 40 per cent of all new loans originated. This figure has steadily grown over the last 10 years as the broking industry has evolved and matured into the professional industry it is today. Estimates for the growth of the third party channel range from levelling at about the 40 per cent range through to 50 per cent market share within the next three to five years. Broker licensing is anticipated to be a major driver for increasing broker market share, as well as a realisation by lenders that the channel can significantly influence their bottom lines and share price through cross-sell as well as improving cost efficiencies. BROKER OPPORTUNITY The challenge – and indeed the opportunity – for the majors over the period ahead will be to understand the drivers of Australia’s third party channel and direct resources to meet the needs of brokers. While the tangibles of product, price and policy remain an important component of a bank’s offering to brokers, it is the less tangible components that can influence a broker’s recommendation of bank products, and their success in the third party channel. This year’s Third Party Banking Report – Major Lenders has highlighted how different attributes of a bank’s offering can influence brokers’ willingness to write their products. Alan Shields, research director of Retail Finance Intelligence – which partnered The Adviser’s report – offers insights on these dynamics on page 32. These findings are important for Australia’s major lenders as they highlight where they perform well and where improvements can be made if they want to strengthen their mortgage broker offering. What is clear from this year’s report is that one of the key influences on broker attitude – and drivers for where they put their business – is the quality of the people within the banks that deal with brokers daily. Banks that strike the right chord with their BDMs, credit staff, administrative teams and proactive communications will go a long way to winning broker business as long as all the other aspects of their product and service offering are in the ball park. FINAL RATINGS & METHODOLOGY More than 740 brokers participated in the Third Party Banking Report – Major Lenders. Each respondent was asked to rate the five banks on a scale of 1 to 5 (1: very poor; 2: poor; 3: average; 4: good; and 5: very good) on a total of 16 metrics covering product, support, technology and commissions. For example, a rating on a metric of 3.5 would indicate that the bank was between average to good in terms of broker attitude. The final scoring was derived only from the responses of brokers that had written business with four out of the five banks surveyed in the last six months to ensure accurate and up-to-date feedback on the lenders surveyed. The resulting respondent pool of 469 brokers was sufficiently robust to draw clear conclusions on the broker market’s preferences and attitudes to the biggest banks. Out of a maximum 80 points available, the final ratings were as follows:
Achieving the highest rating, CBA is The Adviser’s inaugural Major Lender of the Year. The Adviser applied the following process in undertaking this year’s Third Party Banking Report – Major Lenders. In March 2010 brokers that subscribe to The Adviser BULLETIN, the daily email from www.theadviser.com.au, were invited to participate in the survey. All five major lenders were also given the opportunity to offer brokers that write their product the opportunity to participate in the survey. The survey was promoted once, although remained open for two weeks. Survey data was then assessed and analysed by research house Retail Finance Intelligence, which provided the final findings. PRODUCT While product alone rarely determines where recommendations are made, the depth and competitiveness of a lender’s product offering is a key influencer on where brokers direct their business The structure and pricing of product is one of the least controllable aspects of the banks’ third party operations. However, it can be one of the most influential. Aggressive pricing is almost sure to drive business in a lending market where there is generally little to pick between the majors’ variable rates. In the run-up to this year’s report we have seen a difference of 27 basis points open up between the majors, and this has been reflected in broker attitudes towards the majors. PRODUCT RANGE When considering the quality and comprehensiveness of residential mortgage products, ANZ was deemed to have the best overall product range with 75 per cent of brokers citing them as good or very good. St George’s product range was considered next best, with 67 per cent of brokers stating them good or very good, giving the bank an average score of 3.73 out of 5. BROKER COMMENT “Westpac and NAB are the only two banks to offer a full pro pack in which the client pays an annual fee and no other swapping or fixing fees. Westpac is [also] extremely versatile as most things can be done over the phone.” Michelle, WA CROSS-SELL As broker influence with consumers grows, so too does the lenders’ drive to capitalise on the distribution of other complementing products, such as insurance, transactional accounts and credit cards. CBA outperformed its peers in the availability, support and provision of non-mortgage products, with an average rating of 3.82. A significant 69 per cent of brokers rated CBA’s cross-sell offering as good or very good. ANZ and St George ranked next, both with an average rating of 3.29. BROKER COMMENT “CBA lead the way here [through] giving extra dollars to brokers for the cross sales of other products. ANZ fail poorly in this department as they don’t give any bonus dollars or incentives for cross-sells.” Mark, QLD POLICY & PRICING Measuring the competitiveness of major lenders’ products across key market segments NAB/ Homeside was deemed to have the most competitive policies and pricing: 68 per cent of brokers agreed that they were good or very good. Overall, NAB/ Homeside performed well in this attribute, with an average rating of 3.77. This was followed by ANZ with 3.64 and St George, 3.48. BROKER COMMENT “For a while CBA were so far ahead of the rest in terms of pricing that they received more than half of my business. Now NAB is that lender. However, it is difficult to meet servicing with their calculators, otherwise they would receive significantly more.” Chris, SA SUPPORT Ensuring brokers have the right support and business assistance is essential for the majors to build effective partnerships. This report clearly reveals that the ‘people’ component of a lender’s broker proposition is a key differentiator in influencing broker attitudes and perception towards their entire operations. Overall, CBA was rated by brokers as having the best support – including attributes such as quality of BDMs, ease of dealing with credit assessment staff, servicing post-settlement, training and education, and turnaround times. While CBA was the leader in the category, overall support from the major lenders was average. The attributes of education and training, business support, turnaround times and channel conflict were collectively distinctly average, with NAB performing poorly on the latter two. CBA performed particularly well in training and education, an area the lender has recently cited as one of significant importance. BDMS & CREDIT ASSESSMENT STAFF Access to BDMs is a clear differentiator of broker attitude towards the majors’ overall third party service offering. For most brokers, the only face-to-face interaction they have with their lender is via their BDM, and this is understandably a significant relationship for the broker. ANZ was the standout performer in this sector, with 50 per cent of brokers believing their BDMs to be good or very good. With an average rating of 3.45, ANZ fared well against CBA (3.24) and next best St George (3.06). Credit assessment staff are also a key touch point for brokers. Their effectiveness can have a major impact in the broker experience when dealing with the customer. CBA’s reputation for being willing to ‘do a deal’ for brokers has won it broker support, with 45 per cent saying its access to, and ease in dealing and communicating with, credit assessment staff was good or very good. ANZ was not far behind CBA’s average rating of 3.44, with 3.27. BROKER COMMENT “Tes Cruz [from St George] is fantastic… her experience and knowledge is wonderful.” Rachael, NSW CLIENT SUPPORT Broker segmentation has been a key focus for lenders as they push for better efficiencies in supporting brokers who write the highest quality business. Four of the five major lenders now have focused top tier segments. However, broker attitudes towards the major lenders’ servicing appears not to be influenced by those preferred associations. This is highlighted by NAB/ Homeside’s results in the broker survey, whereby just 18 per cent of brokers said their post-settlement client support was good or very good. Over 47 per cent of surveyed respondents have 4 Star status with the lender. Overall, NAB scored an average rating of 2.64 compared with CBA’s 3.47 and ANZ’s 3.35. BROKER COMMENT “I have linked up with one of the branch guys at CBA and I refer all my post-settlement cross-selling issues to him. St George is trying to build these relationships but in the past they seemed inconsistent. I recently met with local branch managers so I am hoping that my clients will now get better assistance.” Leonie, NSW BROKER COMS. & INTERACTION Ongoing broker communication via newsletters, updates and other channels is essential in ensuring brokers are across changes to bank policy and product. CBA and ANZ are clear leaders in their communications – both for day-to-day matters and when dealing with issues. In this segment, 47 per cent and 46 per cent respectively believe the lenders’ interaction is good or very good. BROKER COMMENT “The majors need to distribute information directly to brokers rather than through the aggregators if they really want all brokers to be across all the numerous changes.” Melanie, VIC TRAINING & EDUCATION AND BUSINESS SUPPORT In terms of their overall commitment to helping brokers build their businesses (such as business development days or sales and marketing support), very few brokers described any of the major lenders’ commitment as very good, with just an average of six per cent believing so. CBA was the best performer on this metric though, with 16 per cent claiming it was very good. CBA was the standout leader in this sector, with 50 per cent of brokers describing its provision of training as good or very good. St George was the next best with 31 per cent BROKER COMMENT “[Lenders’ business development days] mostly tend to be sales pitches on their products, rather than actual ‘education’. CBA seems to breaking out of this mould, which will be interesting to watch.” Fiona, QLD TURNAROUND TIMES Poor turnaround times were a major bane for brokers during the surge in first home buyer activity which peaked in mid 2009, swamping the major lenders. While turnaround times are now largely under control, some lenders have seen an upswing in volumes. It is therefore understandable that NAB/Homeside have some servicing issues, given the sharp pricing of their products at the time of this report. Almost half of all brokers surveyed said the lender’s servicing times were very poor; a further 24 per cent said they were poor. CBA leads the field on this metric, followed closely by ANZ. BROKER COMMENT “With all the supposed modern technology, turnaround times are only getting worse. Two days to acknowledge receipt of an application before it enters an assessor’s tray, and then two to three days for the assessor to ‘pick it up’. This is considered acceptable by lenders?” Tim, NSW CHANNEL CONFLICT With lenders originating business via both retail and third party channels, brokers have long be concerned that preferential treatment is directed via lenders’ bank branches – particularly when it comes to servicing times. ANZ was viewed by brokers as the major lender with the overall best approach to the third party channel compared with its bank branch network, with 41 per cent saying it was good or very good, for an average rating of 3.24. St George was next with 3.05. TECHNOLOGY & COMMISSIONS Brokers remain divided over the effectiveness of the major lenders’ technology platforms and ease of commission structures In what is a remarkably tech-savvy industry, brokers have adapted well to the new requirements with almost all business now submitted online. It is therefore critical that lenders’ systems are up to scratch after brokers have largely delivered what has been asked of them; but it is clear that some still fall short. Commissions now vary considerably across the majors when once there was little to pick between them. Not only does the level of remuneration offered vary, there are now stark contrasts between the structures of both upfront and trail commissions. COMMISSION STRUCTURE The days of a simple upfront and trail commission structure are now long behind us, with most of the majors now favouring more complex structures. In terms of the simplicity of the majors’ commission structure to quality for total available remuneration, ANZ was the market leader with 37 per cent of brokers perceiving it as good or very good, for a total average rating of 3.24 – significantly ahead of St George’s 2.90 and Westpac’s 2.83. REMUNERATION With brokers’ reliant on commission as their key source of income, remuneration is certainly an important consideration for brokers. Overall, ANZ was deemed to offer the best commission in terms of overall amount of commission paid, with a rating of 2.95 – this may explain why it was also regarded as having the best structure. St George’s remuneration placed it second, with an average rating of 2.81. And while Westpac’s structure was mid-ranking due to its simplicity, its remuneration level was the worst of all the major lenders, with an average rating of just 2.27. ONLINE LODGEMENTS Many of the majors will now only accept lodgements online and reward (or penalise) brokers on the quality of the applications they submit. ANZ is the perceived leader in this field, with a resounding 70 per cent of brokers considering its online lodgement efficiencies, usability and functionality as good or very good. With an average rating of 3.80, ANZ was the market leader. However, the top end was competitive, with CBA scoring 3.68, Westpac 3.65 and St George 3.62. WEB PRESENCE The effectiveness of the major lenders’ web presence was reasonably consistent across four of the five major lenders. Westpac’s presence was deemed best, with an average rating of 3.57. However, CBA was close behind with 3.56. There was also little difference between St George’s 3.43 and ANZ’s 3.40. NAB fell behind on the effectiveness of its web portal, with almost 30 per cent of surveyed brokers classing it poor or very poor, with an average rating of 2.99. UNDERSTANDING BROKER ATTITUDES Retail Finance Intelligence’s director of research Alan Shields offers his insights on the findings of The Adviser’s Third Party Banking Report – Major Lenders. In March 2010, The Adviser, in conjunction with Retail finance Intelligence (RFI), undertook the task of determining what mortgage brokers actually think of the nation’s five largest lenders. Respondents to the survey were asked to score the lenders – across a range of criteria spanning product and cross-sale, through support and importantly, commission – out of five for how well they performed in each instance. In total, more than 740 brokers took part in the survey; 469 of these brokers – the final sample size – had written business with at least four of the five lenders in question over the past 12 months. Analysing the responses of the broker community has been an extremely interesting process, revealing some insights into the market that I had not necessarily anticipated going into the project. Loan volume and service level are not correlated? I expected that when I looked at brokers’ responses broken down by their monthly settlement amounts, that there would be some clear differences in opinions. My reasoning for this was that lenders would be better at servicing the larger brokers. However, what I actually found was that there was almost no difference (statistically) in the score awarded to each of the lenders by those brokers that settle less than $2.5 million in loans per month versus those that settled more than $2.5 million per month. There are two reasons why this might be the case. The first and most obvious one is that the expectations of higher volume brokers are much greater and therefore the scores they attribute to lenders are lower. The second – and less intuitive – reason may simply be that the surveyed lenders are not necessarily servicing larger brokers at a higher level than smaller brokers. Broker segments are seeing variable impact across indicators. So if overall loan volume makes no difference to the level of service received, I then began to ask myself: ”What would make a difference?” Fortunately, we had asked the respondents to record whether they were in each of the lender’s preferred segments – CBA Diamond, NAB/Homeside 4 Star, Westpac Advantage Plus or St George Flame – so I was able to work out the impact. The answer to this question is that these preferred broker segments did tend to be a bit happier with the overall performance of the lenders. I say ‘tend’, because it was certainly not the case that they were always happier. I was also able to ascertain the aspects of the relationship where we saw the biggest gap between the preferred segments and the ‘other’ brokers – the ranking of which can be seen in the table below. The results are perhaps revealing in that they show that the difference in service comes down to interaction and support rather than technology, products, pricing and commission, which is where a lot of attention is focused. PICKING YOUR BATTLES It is clear that the lenders have chosen to reward certain preferred brokers by allocating them to segments in the hope that these brokers will write more of their business. However, the ranking tells us that this relationship is by no means simple – there are many attributes to a broker/lender relationship; some attributes are also more impactful than others in driving perception or preference. When we break down the impact these attributes have on perception, and the performance of the lenders against each of these attributes, it becomes even more obvious that there’s attributes that lenders need to focus on in order to win a greater share of their preferred brokers’ business. Lenders really need to understand individually how they stack up on each of these attributes and respond accordingly. Taking the average across these major lenders, we can see below that the core areas of focus all revolve around interaction, support and people. Ultimately, it is the right people with the right support behind them that will be a winning combination for the right lender in servicing the broker market and winning broker share. |
