Volt Bank has been granted a full banking licence from the prudential regulator and will begin rolling out home loans through the broker channel later this year, its CEO has confirmed.
On Tuesday (22 January), the Australian Prudential Regulation Authority (APRA) granted an Authorised Deposit-Taking Institution (ADI) licence to digital lender Volt Bank.
Volt Bank, headed up by mortgage veteran Steve Weston, was the first organisation to receive a Restricted Authorised Deposit-Taking Institution (RADI) licence last year.
It has now been granted a full licence, which removes the deposit limits imposed on it under the RADI.
Speaking to The Adviser, Volt’s co-founder and CEO Steve Weston said that the licensing was a “landmark day for Australian consumers” as the digital bank is intending to “introduce genuine competition to banking”.
He added that the bank will now focus on rolling out a range of products this year, including mortgages.
Home loan offering and broker priority
He said: “We could have started offering products earlier under the RADI, but there were pretty significant limitations – we could only lend $100 million and only take $2 million total deposits unless we used someone else’s balance sheet. We wanted to do things on our own balance sheet so we focused fully on getting the unrestricted licence.
“We will now begin rolling out deposit products for the first half of the year, followed by personal loans and then move into home loans towards the end of the year.”
According to the Volt Bank co-founder, the bank will launch its home loan offering with “simpler loans” to test the bank’s operational capability.
He said: “We’ll likely start with lower LVR refinances, get those working, and then move into residential purchase before moving into investor.
“So, we will look to offer the full gamut of home loans,” he said.
Mr Weston, a former CEO of mortgages and managing director of retail lending at Barclays (UK) and a former general manager for broker platforms at NAB, said that as “broker blood ran through [his] veins” and that a number of the Volt Bank team were from the broker and mortgage manager communities, the bank had decided to “initially only use brokers” for its mortgage distribution.
He explained: “Brokers were never not an option for us. We’re now seeing 60 per cent of customers choosing to use brokers and the right thing to do is respect that customer choice. So, we will be partnering with brokers even though we are a digital bank.”
According to the CEO, the bank will choose “one or two brokers to partner with to test the proposition and make sure it works before [Volt Bank mortgages] go more broadly”.
Mr Weston suggested that the bank would likely first align itself with “digital brokers” and partner with brokers through aggregators to ensure that the broker offering is working smoothly before rolling out to other groups.
However, the bank CEO said that the bank would also look to offer mortgages direct to consumers too.
He said: “It’s an open question as to whether we do go down the direct path. It’s in the plan but it only represents a very small part of our business.
“We know that brokers are going to go from strength to strength and our business plan has Volt Bank having the lion’s share of its mortgage business being originated through brokers and not directly, even 10 years from now.”
Digitisation of mortgage process in focus
Volt Bank was launched to meet the “overwhelming desire from people to see change and bank in a new way,” Mr Weston said, adding that this desire extended to brokers too.
Noting that there was a current industry focus on “good consumer outcomes” and more responsibility being loaded onto brokers from the lending industry, Mr Weston said that a glaring hole in the lending landscape was that “most banks aren’t giving brokers, or their customers, the relevant information they need to do this”.
According to Mr Weston, this included whether a loan was in arrears or in advance and any outstanding balances.
He said: “If we, as an industry, are asking brokers to drive better customer outcomes, then you need that information in order to deliver that. There is no reason [banks] cannot offer that apart from the fact that it requires some technology changes from the banks and that is not high on their priority list. So, instead, they call it a privacy issue.
“While it would always require customer consent for that information to be shared (and it would be read-only so the broker cannot do any transfers on the account, etc.), there is no reason why that information cannot be provided much in the same way that many funds and share prices are provided to financial planners. There is no reason why that shouldn’t happen in mortgages. So, we will be working to provide that information to brokers.”
According to Mr Weston, the opening up of information to the broker and consumer channel and ridding the cumbersome processes of antiquated paperwork was a large feather in the cap for digital lenders such as Volt Bank.
He concluded: “We want to take the pain out of information gathering for brokers and then keeping them informed of progress, or giving them certainty with upfront decision making…
“We don’t want to put the broker and the customer through the ringer only to find out at the end that it doesn’t qualify and they have to send the deal elsewhere.
“Those sorts of things are pain points for brokers and their customers. So, a big focus on what we’re working with broker on now is having a smart system so that rather than them undertake quite a generic process, we will look for them to populate an application form and if it gets to the stage where we’re not going to be able to help, we will tell them at that point.”