Losing the Advantedge: Is this the death of bank wholesale funding?

This marks the end of a highly successful era for one of the original wholesale funders in Australian mortgage management. Tracing its roots back to 1999 as Challenger Mortgage Management, Advantedge officially came into existence in 2009 after NAB Group acquired Challenger for $385 million and rebranded it. In the 16 years since, most wholesale funders using bank balance sheets, such as Macquarie Bank and Citibank, have disappeared.

Despite this trend, Advantedge has consistently delivered “simple” prime home loans through a diverse array of aggregator white label lines, including:

• AFG Home Loans Edge

• Connective Essentials

• Loan Market’s Go Edge

• Mortgage Choice SmartSelect Home Loans

• Yellow Brick Road Select

The NAB subsidiary also funds a range of other white label loans, including one of the two products available from YBR-owned lender Resi (Resi Select), among others. While Advantedge also funded mortgage manager home loans, it had already stopped writing new loans through mortgage managers.

The decision to move Advantedge customers over to NAB has been touted as necessary because it allows customers to access functionality not currently available through Advantedge. Indeed, the wholesale funder has been operating on antiquated, legacy systems that would have been costly to update.

As such, it seems that rather than migrate customers onto a new technology platform to provide better functionality, NAB Group has made the decision to close the Advantedge business and consolidate its lending directly under the NAB home brand.

“Customers will benefit from greater flexibility and additional features, including access to up to 10 offset accounts, transactional banking and broad functionality within the NAB App,” the NAB Group said.

From the banks’ perspective, the decision to withdraw from white label funding likely boils down to economics and infrastructure. This move potentially streamlines operations and affords the bank greater direct control over client relationships.

While the major bank may not see the move as material (particularly seeing as the bank hasn’t disclosed that it will be closing the Advantedge business to the ASX), it has left the broking industry reeling.

For many aggregators, the closure of the Advantedge business not only marks the loss of a trusted prime white label funder, but also leaves them scrambling to find a replacement (or lose a good revenue stream).

It leaves Bendigo Bank as the last bank wholesale funder of aggregator white label loans (with the remainder being non-bank lenders such as Pepper Money, Thinktank, Brighten, Bridgit, and Athena Home Loans, among others).

But the rub really lies in the cost to aggregators – it represents a significant erosion of brand equity that has been painstakingly built over the course of years. And, while trail commissions for Advantedge-funded white label loans will likely be honoured, aggregators are justifiably frustrated. They have invested substantial resources in cultivating these Advantedge-funded white label brands, only for those loans to effectively revert to NAB.

From training brokers on the product, to marketing, to providing BDM support and managing commissions, there has been a lot of time and resources put into building this pool of Advantedge customers, for what feels, to some, like negligible payoff.

This situation starkly highlights the power imbalance at play, where funders can unilaterally alter product specifications, credit criteria, or simply throttle business volumes midstream, leaving aggregators (and their brokers) feeling like mere order takers.

Brokers speaking to The Adviser have also voiced concerns that their clients may be “flipped” to become a proprietary NAB customer once moved to the major bank brand next year (given that the bank has been clear that it is focusing on building its proprietary channel). Others have told The Adviser that their clients specifically wanted the loan because it wasn’t a bank-branded loan (leaving open the opportunity to refinance).

In a note to their brokers, aggregators, such as Connective, have reportedly told their brokers they had “several grave concerns” about the handling of the matter, particularly the short notice period, the changes they are proposing to make to customer loans, and “how they propose to communicate directly with [broker] clients”.

Others, such as AFG, have said that while they do not see the change as "creating a significant impact on [its] brokers or [their] customers", they will likely cease accepting new loans for Advantedge-funded loans before the end date of 30 September to "avoid any further confusion".

The timing couldn’t be worse for aggregators.

Many have been actively seeking to bolster their margins by developing their own funding lines, whether through white label arrangements or securitisation. This push comes amid dwindling returns in the core aggregation business (among growing payroll tax bills and surging technology and compliance costs).

Indeed, nearly all major aggregators have been diligently building and expanding their white label partnerships. For example, AFG recently revealed that its white label arm, AFG Home Loans, recently saw its volumes grow by 5 per cent on 3Q24. Major brokerage Mortgage Choice recently revealed that it had achieved $2 billion in settlements via its white label product funded by Athena Home Loans (Mortgage Choice Freedom). Both Finsure and Connective have been expanding out their white label offerings with new partnerships.

Others, such as AFG and YBR, have been building out their own funding arms through residential mortgage-backed securities (RMBS) warehouse facilities.

The closure of one of their oldest wholesale funders will likely stymie some of the big plans of the aggregators, particularly if a prime funder doesn’t fill the void. It compels aggregators to scramble to fundamentally re-evaluate their strategies and reconsider their white label lending suites.

For now, it remains to be seen if any new bank can genuinely fill the void left by Advantedge or if this marks the death of bank-funded wholesale lending.

[Related: NAB to close Advantedge business]