Major banks are ramping up AI partnerships and internal lending teams in a bid to claw back market share. But the numbers tell a different story, says Phil Rice from the Business Advice Agency.
The big four banks are increasing their focus on proprietary lending and technological adoption in the quest for higher margins. But beneath the headlines, the numbers tell a different story – one where brokers remain the cheaper, smarter, and safer distribution model.
The moment of change
The broker channel continues to prove its strength. According to the Mortgage & Finance Association of Australia (MFAA), mortgage brokers settled 76.8 per cent of all new residential home loans in the March 2025 quarter. A few months later, that share climbed to 77.6 per cent in the June 2025 quarter – its highest-ever level.
At the same time, major banks are publicly pivoting. The Commonwealth Bank of Australia (CBA) announced a multi-year strategic partnership with OpenAI aimed at embedding generative AI tools into banking services, including mortgage lending.
In short: broker share is high, competition is intense, and big banks are clearly feeling the heat.
The myth: In-house is cheaper
One of the key industry narratives emerging from major banks is that shifting mortgage origination in-house is a cost play. The logic: pay salaries, support the team with tech and infrastructure, and you cut out the broker commission.
But this narrative misses critical cost layers. When you look under the hood, the broker proposition still offers a compelling value equation for the bank – and for consumers – that the in-house model struggles to match.
The reality cost model
Brokers fund their own marketing, generate clients, and provide best interests advice, with access to multiple lenders. They’re paid only on settled loans – typically 0.6 per cent upfront and 0.15 per cent trail.
When a loan exits early, the bank’s exposure drops to zero, while the broker absorbs the entire financial hit. No internal model can replicate that level of cost protection.
By contrast, banks hiring in-house lenders face fixed costs: salaries around $125,000 plus, plus 12 per cent super, payroll tax, workers’ comp, bonuses, and overheads, such as a car, management infrastructure to manage the additional staff, fully set up offices (real estate costs) with computers, phone, and more regardless of settlements.
What was once absorbed by the broker – document collection, client communication, verification, office space, and platform uploads – must now be paid for internally. Every $1 saved in commission becomes $2 spent on wages and workflow.
Where tech and proprietary strategies play a role
There is absolutely a role for in-house teams and for AI/automation. The CBA-OpenAI deal is evidence of this. CBA aims to use generative AI for fraud detection, faster documents review, and better customer experience. But these tools are enhancers, not replacements of the core value brokers deliver.
Even if a bank uses AI to reduce processing cost or improve turnaround, it still must solve for lead generation cost, compliance/advice liability, product complexity, churn risk, and maintaining customer trust – all areas where brokers presently excel.
What brokers bring to banks and consumers:
- For banks: The broker channel expands reach (including regional, niche, first home buyer segments) without the bank shouldering full cost of acquisition and risk.
- For consumers: Choice of lenders, best interests duty (BID) compliance, and personalised guidance make broking a strong value proposition. The MFAA reports that brokers not only arrange finance, but assist in making borrowers “finance ready”.
- For the sector: The broker channel supports competition. When brokers deliver approximately 77 per cent of new residential loans, it signals strong consumer preference and functioning market choice.
The spin v the substance
The narrative that banks can simply “pay staff + technology” and become cheaper than brokers is alluring – but incomplete. The broker channel remains heavily favoured by borrowers, dominates market share, and transfers key acquisition and early-exit risk away from the lender.
Regulators and consumers should ask: does the internal model preserve best interests duty, independent advice, and product choice?
Because if the bank is simply substituting its own salaried staff, the original advantage of brokers (choice + independent advice) may shrink.
In the end: the broker channel isn’t an easy target for cost-cutting spin. It remains a highly efficient, scalable, risk-aware distribution model – one that major banks would do well to recognise, rather than simply try to replace.
Until banks publish a like-for-like cost analysis that includes staffing, infrastructure, and churn risk, the claim that ‘in-house is cheaper’ remains marketing spin – not financial reality.
Phil Rice is the CEO of the Business Advice Agency (BAA).
He has more than 27 years of finance experience and has been advocating a “fairer deal” for brokers when it comes to clawback, including by raising the issue with AFCA, ASIC, the small business ombudsman’s office in Queensland, and the broker associations.
