There is no doubt COVID-19 has brought further disruption to the broking industry over the last few months and it has truly challenged our mode of operation not only in running a business remotely but in the way we now communicate and maintain our relationship with new and existing clients.
The broking industry had already been faced with its own set of hurdles over the last 18 months with the introduction of new regulatory requirements resulting from the Hayne royal commission, bringing more uncertainty with lenders distracted by leadership change, responsible lending rulings and AUSTRAC, among other issues.
While the industry is experiencing a lot of legislative pressures and despite this general sense of uncertainty in the market posing a question mark on the future of broking, we have always believed these challenges offer an opportunity for brokers to differentiate themselves from the crowd and really demonstrate their value and unique skill set to clients by seeking new ways to innovate and thrive, instead of sink, in challenging times.
We’ve seen a true uplift of the industry recently as brokers have proven their service proposition again and again by being the trusted gateway to lenders. With many lenders reducing their lending appetites rapidly in the face of COVID-19, it challenged brokers to pivot their strategy and be dynamic in their offer by expanding their lender panels and having to proactively think on their feet to seek out new funding lines to keep clients’ deals moving forward instead of stalling.
These challenges have subsequently enabled brokers to prove their valued role in identifying the right funding options for clients by leveraging their relationships with lenders, as well as being a valuable expert resource in providing the right advice and renegotiation of terms in a time of need.
We think this has actually cemented a positive outlook for the industry in that, once BID does come into effect as of next year, our industry will be able to look clients in the eye and be trusted when stating, “We will always act in your best interests, and we are now legally obliged to. Could you trust a direct banker to act in the same way?”
Further to the shift in trust and perception for the broking industry, the rapid acceleration in technology has already defined the future of the broking industry and the way we will operate moving forward.
The forced move to remote-working technology rapidly pushed the industry in a new direction, and it has been a pleasing success across the way we operate even more efficiently on a daily basis and in our client relationship building and management.
I think we will continue to see the entire lending process moving online, with video calls, electronic signatures and VOI becoming the new norm and transforming the way we engage with clients, lenders and team members. I also think technology will help brokers to better service their clients and enable added speed in dynamic pricing based on account conduct and a Google-style algorithm suggesting options in the market, and providing real time pre-approvals based on behavioural risk scoring and property value estimates, although I don’t see it replacing our role as advisers anytime soon.
With the increased technology focus, we’ll also likely see more brokers starting to work together to expand their scale and allow further investments in tech, either through mergers or informal partnerships. Likewise, aggregators will continue to consolidate as broker demand for more technology spend puts pressure on balance sheets.
We have also already seen an uplift of commercial opportunities as residential lending demand cooled, and we predict this is set to stay as clients are likely going to be more risk-averse in coming years, with the scares of a COVID-19 recession lasting some time. While you could say residential lending has probably been more stable for brokers since “lockdown” earlier this year, albeit with delays and tightening due to increased risk, and commercial funding appetites generally fluctuate far more than residential lending in times of crisis, there has been an uptick in demand from commercial clients.
This means the need for broker diversification into commercial lending is now more essential than ever to stay relevant, as we may see home lending volumes flatten, particularly if unemployment growth goes higher and for longer than expected. There is still much work to be done on this front to empower referrer’s confidence in commercial lending and to really grow this sector of the industry, but we can see the potential.
All in all, I’m excited by an industry that is always up to a challenge, and I think brokers will continue to strive for new ways to improve their offering, enhance their customer experience and increase their capability in equipment finance, business and commercial lending.
Since inception, brokers have been the disrupters, but with 60 per cent of the market now going through brokers, we are truly the dominant channel. That also means there will be new players looking to disrupt our business model, and as brokers we need to keep innovating and ensure our businesses are the Ubers and not the taxis of the world.
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Matthew Johnson is the managing director of Sydney-based brokerage Simplicity Loans & Advisory as well as Marketplace.finance, a new digital solution for commercial finance.
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