ROUND TABLE - Is there a future for non-banks?
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|Tuesday, 18 January 2011|
Six Australian elite business writers share their opinions on the non-bank sector and how non-bank lenders can improve in order to boost their market share
Paul Shahinian, Econ Financial Services
Jamil Allouche, Loan Market Group
Sally Whitworth, Acceptance Finance
Anthony Smith, Mortgage Choice
Bradley Nolan, Eastern Financial Solutions
Tony Bice, Finance Made Easy
Do you sell non-bank products? Why/why not?
Shahinian: I only sell a few non-bank products here and there.
Allouche: Non-bank lenders are an integral part of my business. They offer competitive products with great service.
Whitworth: I don’t sell a lot. The majority of my clients do not feel safe being put with a non-bank lender; they would rather have the security of a bank.
Smith: We sell non-bank products and they are often a good option for the client. The more awareness clients have of the non-bank sector, the greater the competition – which is good for the industry and for all borrowers.
Nolan: I sell non-bank products because there are some really competitive ones out there. I strongly believe spreading my volumes across non-bank lenders can only be good for competition in the future.
Bice: I do, and have for a long time. I write a lot of non-bank loans because they have good products, sharp rates and I find the service, in many cases, to be more personal – particularly within the credit area which I’m sure is an area where most brokers experience frustration.
What are the benefits of using non-banks rather than banks?
Shahinian: More money, more control over clients and better service. Non-bank lenders have historically offered brokers greater remuneration for selling their products, but non-bank lenders also understand how important the broker/borrower relationship is. They help foster this relationship rather than try to steal the client away from the broker. Ever since the non-bank sector was formed, they have been true supporters of brokers, so I am happy and want to support those that support me.
Bice: For me, the biggest benefit is options. The non-banks also seem more willing to do business with you and appear ‘closer to the ground’ when you need to talk to somebody.
Smith: Building the market share of non-banks helps creates competition, which is good for all. Improved choice, pricing and innovation are a welcome result.
Allouche: My clients say the service is usually a little more personal with a non-bank lender. For example, they are pleased to get a phone call simply asking how everything is going, rather than a generic letter about a specific product.
Have you sold non-bank products in the past?
Shahinian: I used to be a huge advocate of non-bank lenders. Back in their heyday, they provided flexible products that were competitively priced. Today, problems in the securitisation market have hurt the non-bank sector. They are unable to compete on price. I think the government needs to step in and improve the situation in the securitisation market.
Nolan: I have always used non-banks, as well as the majors and second-tier lenders, and will continue to do so. However, during the GFC, it was a big challenge due to funding pressures and the general consumer flight to quality. With banks going out of business worldwide, most people wanted the security of a major. Now we are seeing a resurgence of non-bank lenders due to increased competition and public fallout directed against the major banks.
Bice: I was selling quite a lot of non-bank products prior to the GFC, but then there was a perceived flight to quality in 2008-2009. Since then, however, things have been looking up and I’ve started selling more non-bank products.
How do you believe consumers perceive the major banks?
Bice: As you would expect, as consumer confidence has grown but interest rates have also risen, clients have been more inclined to seek a better deal. From what I’ve seen, consumer perception has been negative towards the majors - the poor publicity and continual bank bashing even at federal government level seems to be filtering down to consumers, prompting them to seek a cheaper interest rate on their current loan. That can only be good for competition.
Allouche: The majors have always been the cornerstone of the lending landscape. Their stronghold was loosened a little after the recent rate increases
Whitworth: The majors have definitely taken a bashing in recent weeks, especially after the Big Four all decided to raise above and beyond the RBA. Many of my clients see the negative press the banks receive and then call me to ask whether they would be better off with another lender. But the fact is, Australia’s major banks are still competitively priced and offer security to borrowers.
Nolan: A great deal of consumers, I find, are ‘off’ major banks. We hear customers venting their anger towards the majors over their publicised greed, and if there is a competitive offer from a non-bank lender, they become increasingly receptive to such options.
And how do they perceive the non-banks?
Shahinian: Consumers are apprehensive. They don’t know the brands, so they don’t want to use them. Moreover, they know the non-banks suffered after the GFC, so they are hesitant.
Nolan: I disagree. I think consumers are becoming more receptive every day. We are going full circle, back to about eight years ago, when non-bank lenders became the saviours to many people in getting cheaper products. Gone is the worry that came with non-bank lenders during the GFC; most people are happy to go there again.
Smith: I agree with Brad [Nolan]: Consumer perceptions of the non-banks are improving. The way some lenders treated the clients on their back books was questionable, to say the least. People don’t forget that, and this certainly makes me wary of some lenders and their source of funding. Regardless, I know there are some terrific non-bank lenders in Australia and I fully support them.
Whitworth: Many of my clients don’t know who the non-bank lenders are – they simply don’t have the same brand presence as the majors. When I discuss Resimac or FirstMac with my borrowers, I tend to get a blank look. Worse still, the non-banks’ image was badly hurt by the GFC. People no longer see the non-banks as being ‘safe’.
Is there strong borrower appetite for non-bank products at the moment?
Shahinian: I agree. At the end of the day, the borrowers I deal with want to use bank products because they are seen as reliable and secure.
Whitworth: I haven’t seen appetite increase and, to be honest, I don’t think it will any time soon. Non-banks are unknown. People do not recognise their brands or value propositions – they are never going to successfully compete with the majors while this is the case.
Bice: I disagree. I believe the appetite for the non-bank sector is strong. I’ve sold a stack of business by simply opting to sell a non-bank product which has basic features but includes an offset rather than the traditional pro-packs of the majors, which generally come with a hefty annual fee as well. The key to selling non-bank products is to focus on the funding source – in most cases, the client may not have heard of the non-bank but they will be familiar with the bank providing the funding and that is where the client gets comfort. Throw in the sharp rate and it sells itself.
Given the bad press the majors are getting, are you seeing a flight to the non-banks?
Smith: Some clients now refuse to deal with a major bank. I’m not seeing a huge number [moving to a non-bank lender], but a big enough portion of clients to make a difference to market share.
Nolan: I agree. Borrowers are happy to once again use a non-bank lender, not only because of the bad press but because this sector also provides them, in many instances, with cheaper products.
Allouche: The majors’ recent rate rises have allowed the non-bank lenders to strategically position themselves for an influx of business. Consumers are now more open to the non-bank lender option.
Shahinian: Well, I’m certainly not seeing any real movement towards the non-bank sector. I am happy to sell a non-bank product, because I am happy to support the sector that supports us. That said, I often find that to sell a non-bank product I have to let my clients know that the product is backed by a major – so it is secure and safe to use.
What frustrations do you currently experience with the majors?
Bice: Questionable credit decisions and not being able to appeal a decision or speak with the credit officer about the rationale behind the decision; ordinary service levels – slow turnaround times are very frustrating to explain to clients; and the seemingly endless requests for more information with no justification.
Allouche: I am actually impressed with the major lenders’ turnaround times currently. Usually, we begin to see a blow out in turnaround times at this time of the year.
Whitworth: I don’t have any particular frustrations with the majors or the non-banks exclusively. That said, one frustration I have with all lenders is the lack of notice surrounding policy changes. Lenders are constantly changing their product policies without warning. If a broker is not told about a policy change, they could have loans rejected. This is incredibly frustrating when you have a client that is waiting for pre-approval.
Nolan: My biggest frustration with the majors is that everything is too heavily geared toward the shareholder and not the customer. As important as it is to look after your shareholder, on many occasions this has been done with little regard for the customer. On a positive note though, there have been some great initiatives by the major banks of late which in the end will deliver a smoother process for brokers, customers and the banks.
Shahinian: I agree. While I think the majors are doing a reasonably good job given the fact they are dealing with higher funding costs, I am not happy with the commission levels. The present commission levels allow me to make a wage, but not a profit. I don’t think it is possible for a broker to make a living out of just broking. We all have to diversify.
Smith: My main frustration with the majors is that they now pay us less for more work.
What frustrations do you currently experience with the majors?
Smith: As with a number of lenders, they have been known to introduce a new special without being 100 per cent prepared for the increased workflow, so they fall into a servicing hole.
Nolan: I agree. Sometimes the non-banks are a little inconsistent with policy but overall, I don’t have too many frustrations.
Bice: None really – if there is a credit decision I’m not happy with, at least I can discuss it with a credit officer, and if it’s not going to be approved I can explain to the client the reasons why. Again, if there is a hold up with a deal I can normally get to the source quite quickly and resolve it before there is any perception from the client that I’ve dropped the ball. With the majors, your credibility is at their mercy.
What would you like to see from the non-banks?
Whitworth: I think they would be well placed to increase their brand awareness. While they are relatively unknown, borrowers will be hesitant to use their services. They need to get out in the marketplace and highlight themselves as trustworthy and competitive.
Shahinian: I don’t think the non-bank sector has to do much more than it does already. Rather, I think it is up to the federal government to step up to the plate and intervene in the securitisation market. They need to open up funding for the non-bank sector. Otherwise, this sector will never be truly able to compete against the majors.
Nolan: [I’d like to see non-banks] continue to band together to ramp up competition in the marketplace and lobby government to not fall into the trap of knee jerk reactions to events. For example, the suggestion to scrap exit fees was a short sighted suggestion. All this would do is kill off the recovery we are seeing from the non-banks and return to the monopolistic environment we had during the height of the GFC.
Bice: I agree. I believe the non-banks should keep up what they are doing now or increase their competiveness by working out where they can go with increasing LVRs, lowering rates and entry costs.