Pepper Money eyes gaps left by big four

In mortgages, the lender has targeted specific customer segments including first home buyers, SME and self-employed, and those with credit histories impacted by minor or life events.

Pepper Money has also paid attention to the asset finance landscape, where the banks have retreated in recent years.

Executives noted the recent sales of businesses from Westpac and Macquarie, as well as ANZ’s decision to no longer take on new asset finance customers from December.

Ken Spellacy, general manager of asset finance at Pepper, explained that as the major banks have exited, the segment has experienced structural change.

“And with a wave of fintechs entering the market, technology is definitely the battleground where integration, time to yes and time to cash are critical,” he said.

“Pepper Money, as the leading non-bank asset financier, has an opportunity to leverage at scale appetite and technology to become the new major.”

Pepper Money chief executive Mario Rehayem told The Adviser the lender has traditionally sought to serve the underserved, with brokers having played a key role.

“Wherever banks are retreating, wherever banks feel that it’s too hard or too complex, for them to administer those loans, that is obviously presenting us with an opportunity,” he said.

Of the $2.2 trillion total addressable market in mortgages, around 12 per cent is non-conforming, with the remaining majority being conforming. Pepper has calculated that it has captured around 0.5 per cent market share.

In asset finance, Pepper has calculated it has captured around 1.7 per cent of the $186 billion market, including 3 per cent of the $59 billion consumer asset finance segment and 1.1 per cent of the $127 billion worth in commercial finance.

In the 10 months to October, the group had seen $5.1 billion in new loans in mortgages and $1.6 billion in the asset finance business.

Combined, the $6.7 billion worth of originations had exceeded its previous full-year forecast.

As a result, the group has raised its full-year net profit guidance, to $135 million to $138 million, from the previous outlook set at its initial public offering of $120.7 million.

Further, it has flagged new mortgage products for new year, including its first fixed rate offering.

Mr Rehayem hinted the fixed rate product will be “very different to what’s in the market today”.

Another incoming offering is Near Prime Clear, somewhat of a sequel to its Near Prime Home Loan product.

Pepper had introduced Near Prime to Australia in 2012, to target customers who had slipped outside of bank criteria and whose credit histories had been impacted by a life event, such as divorce.

“Now what’s happened in the last 12 to 18 months is there’s been another segment created and that is the customers that are in between prime and near prime,” Mr Rehayem told The Adviser.

“And that’s why we’ve launched Near Prime Clear.”

The product has been piloted and is set to roll out to the wider broker channel.

The growth strategy also includes plans to increase Pepper’s presence among brokers, Mr Rehayem telling The Adviser to expect a large shift in digital capability over the next 12 to 18 months.

A number of aggregators have reportedly signed up to have Pepper’s Resolve platform embedded within their CRM – with the lender promising a more seamless approach for brokers, to see indicative approvals.

“For us, it’s about widening our distribution footprint in a much more digitally enhanced offering. That is going to take all the work away from the broker and allow them to actually feel confident in recommending a product,” Mr Rehayem said.

The lender is also leaning on automation to increase the speed of credit decisions, across all segments – including non-conforming customers, with more complex loan structures and alternative documentation.

“What we’re trying to do is bring more automation in all the areas, that takes the brunt of the work off our underwriters, so that our underwriters are applying that human approach, but without the administration, that is usually tagged on to that or that part of that role,” Mr Rehayem said.

“But what we’re trying to do is be very different here. And where the difference will come from is we are not just doing this for prime mortgages, we’re going to do this for our self-employed customers, our non-conforming customers, so your most complex deals, that takes other lenders have three to four days to assess, which we want them to be assessed at the same turnaround time as a prime loan.”

In asset finance, the group is moving towards real-time payments and digital identification – aiming for settlement within minutes.

“We’re already using machine learning for retention analysis. And next year, we’re building analytics to reduce credit referrals for credit finance,” Steven Meek, chief information officer said.

[Related: ScotPac launches new mortgage offering through brokers]