In this episode of Elite Broker, industry veteran Brett Spencer explains that while the emergence of online players won’t run brokers out of business, brokers should continue to evolve with technology or risk being left behind. Tune in to hear Brett's thoughts on how technology is optimising the customer experience in a “spend society” and how brokers can work with fintechs to strengthen the industry at large.
In this episode, find out:
James: Hello and welcome to Elite Broker. I'm your host James Mitchell, editor of The Adviser, and we're joined once again by Annie Kane. How are you doing, Annie?
Annie: Fine thanks, James. How are you?
James: I'm very good. We've also got Brett Spencer in the studio, from Stargate. Bit a legend in the mortgage broking industry, especially from a technology perspective. We're going to be talking through a few things today, a little bit about technology in the mortgage space. And also about fintech and that sort of buzzword, and what brokers are doing in that regard. How are you going Brett?
Brett: I'm good thanks James, really good. Thanks for having me. Thanks Annie for having me.
Annie: Thanks for coming in.
James: No worries. A lot of people know you in the mortgage space. For those that may not know you, tell us a little bit about your history in this, in mortgage broking, in mortgages with Stargate and what you've been doing.
Brett: So it's been a long journey. 26 years in mortgages, right through the family business. The Stargate name's fairly synonymous with non-bank lending, having set up the original Advantedge business, which was called Interstar. Worked all the way through there, then set up Stargate, which is a technology, providing tech to businesses, brokers, mortgage originators, managers, right across the industry. Then ultimately selling that to Rubik Financial two and a half years ago. Now moving on and doing lots of other things in the fintech and regtech space, which is great, which is exciting.
James: Awesome. We were having a bit of a chat just before we kicked off today about the fintech buzzword, because it has become a bit of a buzzword. We've got a few different things happening in the broking space. We've got online broker-style platforms, comparison website to a degree, who call themselves fintech. You've got lead generators who work in the broking space who call themselves a fintech. Pretty much anyone who's got a website and has some sort of technology proposition is calling themselves a fintech. What are your thoughts on this?
Brett: It's a really difficult analogy to make, that just because you have technology you're a fintech. A lot of businesses today that call themselves a fintech business, really are something else. You look at some of those online lenders, they are ultimately a lender, but they've just got really good technology that backs their business up. Fintech really is a buzzword, primarily around it adds value to the business. Everyone looks and goes, "Fintech. Let's invest in fintech."
Brett: It's got a really broad ranging definition, and it really defines, fintech is financial technology. So when your business that's got some form of financial technology is using the word fintech, my personal view is, a fintech company is companies such as an IBM, such as a group who provide technology as a financial service. Not a company whose core business is lending, origination lead management. Those companies are lenders, originations, lead management businesses that are backed by technology. Which every company today, The Adviser in Momentum is the same, media companies backed by technology. But I don't think you guys call yourself a fintech, do you?
James: Well, not yet.
Annie: Fintech The Adviser. Yeah.
James: Tell us a little bit about how you came to be involved in the technology piece to such a degree. Was it the family background and that sort of thing? Has it always been technology related, or has it been more of the mortgages and finance side? What would you call yourself more, a mortgage man or a technology man?
Brett: I'd call myself a businessman more than anything, than pigeonholing either one. But really, the technology came about because when we had Interstar, we were a growing non-bank lender, the number one in the country at the time. I think we hit about 40 to 45 staff and my father, who was chairman of the business said, "I don't want more people. People can be, at times, hard to manage." So we invested in technology. We started building origination system, CRM systems for our own purposes, to mean less people. So we were a mortgage business that invested in technology, just like a lot of them are out there. Kim Cannon at Firstmac has done, did the same thing.
James: Of course, yeah.
Brett: To evolve and to grow, you did that. The aggregation businesses all did the same thing. Went from being an aggregation business to spending lots and lots of money on CRM systems and systems. When, in the mid '90s, we really saw the opportunity to say, well the mortgage broking industry is very paper-driven, and backwards to some extent back then. We invested in building technology platforms for suppliers and players in this, right across the board. We then evolved into a fintech, into somebody who didn't do mortgages, because we'd sold our mortgage business, purely did financial services technology. That's really what I think is the definition of a fintech.
Annie: But now you still have that mortgage aspect of your work. I know that you invest in a Canadian company that's doing quite a lot of interesting stuff in terms of mortgages. Can you just tell us a bit more about Lendful?
Brett: Lendful's a Canadian consumer finance business that provides easier opportunity for Canadians to get into finance. We finance anything from yoga studio loans all the way through to consolidated consumer debt. Mortgages in Canada is a much different proposition. It's a lot less regulated over there and it's very fairly broker dominated. Banks are a dime a dozen over in the North Americas. It's a really interesting business that's been built on building some really good technology that makes the whole application process with consumers much easier. And that's what a lot of mortgage businesses in Australia have done, and are continuing to do. I look at some players in the market, like Lendi, who have gone down that same, and Uno Home Loans, gone down those same paths and really investing in technology. That's what we did with Lendful overseas.
Annie: Obviously a lot of our listeners, most of our listeners are brokers. Some of them are in two minds about more technology platforms coming to the fore and thinking it's a threat to what they do.
James: Yeah, disruption.
Annie: What do you think to the people who say, "Fintech's going to kill mortgage broking and it's going to make brokers redundant." Do you think that's a valid argument? Or do you think-
Brett: No. I think it's a real silly argument, to be perfectly honest. The reason brokers are here and will continue to be here, and market share will grow, and I'm saying this from a technology perspective, is that the sheer proliferation of the number of mortgage products in the market today, thousands. You talk to any one lender, they go, "Yeah, we have three products, but there's probably 30 variations on those products." Joe consumer just doesn't understand it. And no matter how good an online platform you've got, no matter how good a technology solution you've got, Joe consumer still wants to talk to a broker, who is the expertise. So brokers will be here to stay. There's no question about it.
I've heard a lot of people say, "Oh, brokers will be out of the market in five years' time." I think that's absolute rubbish. I think in 50 years' time, brokers will still be here, and they will be doing the bulk of the loans. We're at 55, 60 per cent today, I think they'll be at 75, 85 per cent then. I don't think that they're going anywhere. What will make their lives easier and has made their lives easier is technology platforms. As regulation kicks in more around things such as responsible lending and the Sedgwick reports and remuneration reports, technology will be relied more heavily on. So fintechs will have to start focusing on those sort of aspects, and to help a broker write a better loan and help a broker give a consumer the right solution. Not just being a broker who sells two products and say, ANZ or Westpac or NAB, or whoever the lenders are. They'll have to provide the true comparison of the best price. Technology will assist that, but brokers are not going anywhere.
James: I was having a chat with James Hickey from Deloitte recently, and he was talking about the future of broking and what it'll look like. The ideal situation is brokers that can marry up the digital component and leverage technology with the relationships that they've got, and that sort of thing. People who can do that, those two things are going to do really well. In terms of mortgage brokers, do you think they're positioned well to innovate in terms of technology? In the same way that I suppose you did, where you're working in the non-bank space, you saw an opportunity there or something that you wanted to do differently and you actually innovated the technology yourself. Do you think that brokers are in a position where they can then do something similar?
Brett: In today's day, and in any day, to innovate you have to have two things. You have to be bold and you have to have some financial backing to do it.
Technology makes things easier, but technology is expensive to build. Just fundamentally, it is an expensive thing. You really have to be bold and go, like the old, this is corny, but the old Star Trek, to boldly go where no one else has been. There are some people in our industry who have done that. I like to think we were one of the early pioneers in the '90s, doing that with broker CRM systems, but now everyone has a CRM system. There are groups today that are still being bold and building things, but it takes capital. They're the restrictions from a broker, whether it's a five man broker or a one man broker or a 20 man broker, from being able to do that. The bigger groups, the aggregation groups, have been bold. You look at what AFG have spent over the years, and Malcolm Watkins has lead a great team thereof, in building fantastic systems.
The NAB group did the same thing, but it took boldness to do it. A small broker will continue to have to rely on others to provide the technology, but if they don't embrace it, then those will be the brokers that will be out of the system.
Annie: Just in terms of, actually, tech spaces we were talking about there. I know that a lot of mortgage brokers might think, "Okay, well I've been in this industry for 30 years and I've been fine. I haven't had to embrace any of this." Is there anything that you think, that there's maybe either something that's coming to the market, or something needs to come to the market, that would change the minds of those people who haven't embraced technology just yet?
Brett: I think when you look at some of the dinosaurs of our game, there is a place for them, certainly. What a lot of people fail to recognise is that the borrowing community, Joe consumer, ranges from 19 to 59. The 59-year-old consumer who still has a mortgage and is still working, because they have to, isn't technologically driven. Wants to talk to somebody who is, generally, an older person. There is always a market for the manual process, who knows exactly what they’re doing in the old-fashioned customer service. There is always position there. I think as a consumer market gets older, the technology is the key, is the under 40s today want technology. They sit at home, they use their phones, they gather a certain degree of information that they want, and they use that information as part of their process.
Those guys who don't use technology, the older brokers who aren't on those sort of platforms, I know I'm talking lead generation platforms, they're a dime a dozen today. And good quality, bad quality, it's a different discussion piece. But those guys who do it the old-fashioned way, come out with a piece of paper and a paper application form, they can't necessarily provide the breadth of advice that the consumer wants. The consumer has then looked online and seen 40 different products and has gotten confused and gone, "I'm going to call my broker." The older consumer rings up their brokers, the bank manager, and says, "Oh, I need a home loan. I've been referred to you by Judy," comes out and tells you two products, because they're the two products that that person knows. May not have been embracing technology. May have a PA or an EA back in the office doing the work for them on their aggregated CRM system, but don't know. So those guys will die out of the system and the technology will ... Is replacing that, and so they have to embrace that.
Annie: Okay. Just in terms of, we briefly mentioned there about Lendful. Is there anything like that, that you think Australia doesn't currently have, or that it should have? Or are there any other areas that you think, maybe the mortgage market could be disrupted and some new things could come in that would help consumers get a mortgage? And ideally with a broker alongside.
Brett: I think with growing property prices today, you hear a lot of stories about the consumer who's got a pre-approval for X dollars, goes to market and misses out by 20 grand. They come back and the broker's response is, "Well, you need to save." Or, "You need to go and ask your mum and dad to borrow money." But it's too late, you've missed the property. Saving today is a lot more difficult than saving was 15 years ago. Just people love to spend money, we're a spending society.
So I think if somebody comes into the market and has an add-on product, similar to the old mez debts that you could get – that doesn't affect servicing, that doesn't affect the ability of somebody to still obtain their mortgage, but gives them some comfort. Almost like a buffer and a cushion, to go to auction. I think you've got opportunities there. I think something that is there that can help bridge the gap between where they're at and what their actual goal is, I think is something that's really innovative. I'm sure somebody out there will do that and provide those type of solutions, that can help brokers effectively close more deals for their customers.
Because that client who misses out today has that nice property that they want. It could be in Surry Hills at 700 thousand. They miss out, they've then got to go and buy the property in the next suburb over. And it's not the suburb they want, because 12 months’ time, the property's out of their reach. I think, yeah, those sort of products. I think products that make, and technology that makes, the application process easier, is also going to be a big change, is going to be a big thing.
We all like to look at online stuff. I look at how credit cards have evolved, and even to an extent how some personal loans have evolved. Credit cards today, it's a simple online form. You fill it in, you're online, you fax off your ... Fax, faxes are dead nowadays. You scan and upload an email or something, and either you've instantly got an approval on a credit card or it takes 24 hours. Those sorts of technology, being able to have that. There are some players who are doing some of those things, but lender's regulations and compliance still insist on certain levels of verification, certain levels of slowness. The capability is there to do a full, five day digital mortgage. There are players, ones that I've worked with and ones that I've seen and explored, that will come out with that in the next six to 12 months. Those sort of things will be game changers.
Annie: Yeah. I think we're increasingly seeing that push towards the digitised mortgage. We've seen recently, with things like the virtual VOI, where some more apps are coming on. Where they're trying to make that identity process seamless for the user, in terms of actually being able to do it all remotely and do it all through your app. I think there are still some question marks over whether or not they're actually meeting some of the legal requirements there.
Brett: Yeah. I agree with you on that one.
Annie: And that's always what it comes down to...
Annie: Is, at the end of the day, having all this digital disruption, but it's to ensure that actually responsible lending criteria is being met. With the budget announced recently and ASIC being given more powers to have oversight over non-ADIs as well as major banks, hopefully we'll see a bit more of that sort of responsible lending area become first and foremost.
Brett: I agree, and I met with ASIC yesterday, with a company that I'm doing some work with, who've built a responsible lending engine. It was really interesting to listen to both sides of the story about what ASIC's view of responsible lending is, and expense management and verification of real-life expenses. And not just looking at, "Tell us what you spend."
Because, let's be honest, I don't think any of us really know what we spend on every single month.
Annie: Well, I'm married to an accountant, so I do.
Brett: Well I certainly do, but my wife certainly doesn't. Looking at what these guys have built, it's quite amazing. That when you compare their platform and their expense management and how they collect expenses directly from institutions. They've connected to 160 different institutions who have bought into this process, to be able to provide access to expenses. There are companies around that do it, I've not seen anything to the extent that these guys have done. Just look at that and comparing it to the current lenders' policy around HEM, which is statistical models, it's streets above. It will really, once ASIC start delving further and further, and they're dealing with the banks and the ADIs on this at the moment, that will be a game changer. It will really change about, no longer will it be, "I just tell you I spend this much money." You need to verify exactly what you're spending on and where you're spending, and what's discretionary and what's not discretionary.
James: Well, that might potentially change customer behaviours in terms of younger generations or just, like you said, it's a spend society now.
Brett: That's it.
James: And the avocado thing's always getting thrown around.
Annie: All that smashed avo. Yeah.
James: That's always in that papers.
Annie: I feel like people don't each as much smashed avo as they think we do.
Brett: Because they put coriander in it and that's like the devil.
James: Yeah. That's right.
Annie: Yeah. That's true.
Brett: It's like, sorry to all you coriander lovers out there. But...
James: Every time I order it I feel guilty now, I'm like - Oh, this isn't good.
Annie: Oh, I should've got that house instead.
James: That's right. I just want to talk a little bit about people who have come into the mortgage broking industry who are, or the mortgage space, from a technology perspective, but completely outside of finance, which I find quite interesting. So ZipID's one. They're from a variety of backgrounds, lawyers, marketing. They saw an opportunity for the VOI stuff and have obviously made their mark there. Then you've got groups like Lendi, for example and those guys, and Click Loans. They came from a marketing and fulfilment background. No experience in finance, but they saw what they were doing and they said, "This would work perfectly for mortgages." What are your thoughts on people outside the finance game coming in and setting up models?
Brett: I think it's great. I think it's refreshing when people see vacuums that need to be filled. Some of those spaces, and you look at how successful guys like Lendi and ZipID have been. They saw a niche that needed to be filled, and the way they set their operation up, and it goes back to what I said, to be bold. Both those groups were bold and both those groups were able to have capital behind them to do that. So as long as you have those two criteria, I think from anyone from any industry can create something that's great. Where there's problems is when you get someone from out of industry who thinks, "Oh, this is a lucrative market in mortgage broking," and comes in and sets up something that's half-baked. They don't have the full knowledge and full understanding of what they're doing.
I'm sure Zip and Lendi and Uno, and these other groups who have, HashChing. These guys who have set up these things that are out of industry people, have brought industry people in to their businesses as they've grown, but they have really done research about what they do. They're not just the, "Let's just start up and hope," so to speak. So guys and girls who come in from out of industry with really good ideas, it just makes our industry better, because they're also bringing ideas from out of industry. So you look at the Lendi, Click Loans guys. Their background in the marketing and the fulfilment has brought in a great business. Those things that they do, I'm sure a lot of people would want to replicate. Obviously, it's their IP and it's their own business model, but people would want to replicate those sort of things.
The same with ZipID. So they bring in things that we don't always think about. We look at our own industry and it's quite insular, the way we look at it. It's quite blinkered. To have other people come in and look at it and go, "I think here's a good idea." That's what we did 18 years, ago when we first built our first broker CRM was, how do we get the information from brokers? We looked at it and went, "Oh wow, this is an opportunity." And yes, we were industry people, but we looked at it from, what are other industries doing?
Annie: In terms of that, obviously the CRM model now, as you said, there are so many out there and every aggregator has one. What do you think that brokers should be looking for when they're choosing their aggregator? Or they're choosing a company in terms of their technology, When they're reviewing that side? What do you think they should be looking for, from being inside the industry yourself?
Brett: This will probably kill some of my old clients, but I think a greater propensity for re-insourcing the CRM system, the CRM system builds. You look at aggregators out there today, most of them are building their own internals. You look at My Local Broker, who is probably the most recent one who has come out with their Chief platform. Smart Loans always built their own, Mortgage Choice have kept their own in-house. AFG. They've all really built their own, because it does give them control. What they've all realised is that the ... A number of reports that both you guys had done in an industry, only 35 or 38 per cent of brokers leave their aggregator because of poor technology.
If you're relying on a third party, and unfortunately Stargate was in this same boat, who provided the same CASB platform to three thousand brokers. It's very difficult to maintain competitive advantage for 50 different broker groups who may be using your software, and give them a competitive advantage to be able to use, so they've got to rely on other things. As lender panels became homogenised, as commissions became homogenised, that thing became, it became a service proposition only. So by insourcing and having that control themselves, it gives them that real control. So from a broker who's looking for an aggregator, I think the most important thing that they need to look for is the support. Is really make sure that they've got a good [BD 00:19:42] and that you can look square in the eye and can trust, and you can build some trust at.
I think they need to look at what the technology is. But I think, today, a lot of the technology is becoming homogenous. They're doing the same things. It's about lodgement. Pretty much everything goes through NextGen's e-lodgement platform, so that's no longer a competitive aspect. It's around what the functionality is. But I think the key when it comes to technology, look at what alternative services are provided through that aggregator's platform. Does that aggregator have the ability to sell, cross-sell insurances? Does that aggregator have the ability to integrate with financial planning? Because our industry is converging between mortgages and wealth, and we're seeing that a lot.
If your aggregator doesn't have those capabilities, and you may not think about it today, but any broker that doesn't sell at least one or two insurances with every single mortgage is a fool. Because every mortgage needs house and contents insurance. Every consumer should be asked the question about life and TPD and mortgage protection. If you're not asking those, because you're really not being a ... Doing your job right, and providing responsible lending to them. Because you're prepared to give them a mortgage of half a million dollars, but you're not prepared to provide them with insurance to protect them from loss. In the event of loss of job, divorce, or any of those sorts of things. They need to look at those ancillary services as well, and not necessarily lead generation, because lead generation is really difficult.
I've seen some real rubbish, to real quality.
James: Yeah. Good point. We're almost out of time, but I just want to ask you one or two more questions. One of them was about aggregation. Given that we've seen these players from marketing, from fulfilment, from the legal field, all sorts of different areas look, at mortgage broking and see a gap and make a success out of it. Do you think there is a potential for someone who's technologically savvy to disrupt the aggregation model? Or do you think that the relationships aggregators have with the lenders will prevent, I guess, will be some sort of wall of preventing a technology player from going in there?
Brett: I think the aggregation market is so mature today that I don't think anybody can go in and disrupt it, no. I think with 16 thousand brokers, the maturity that the big boys have got, there is safety in numbers. No, I don't believe that a single technology play can disrupt an aggregation industry today, no. I think where technology can disrupt the lending is in lending, is if you get someone in a non-bank lending space who can go down that path. But I certainly think in the aggregation space, I don't see an AFG, a plain Fast Choice, Mortgage Choice, Aussie, any of these guys being disrupted and usurped as being the big boys. No. No matter how much somebody spends. I don't see a Google coming in and going, "Oh, we're going to do mortgages now." I don't see that happening at all.
James: That's perfect. Well thanks very much for taking the time, Brett.
Brett: No, my pleasure. It's always good to be wanted, to have a chat too.
James: Yeah. No worries. We'll have to get you back on the show soon.
Brett: Yeah, whenever you want.
Annie: Thank you.
James: All right. I think that's all we've got time for this week. Just a big reminder to all those listening, particularly new to industry brokers, we've got a new event that's called The Adviser New Broker Academy. Thanks to Heritage Bank and our generous partners, we've got a number of free tickets to give away. That event will be coming to Melbourne on the 11th of July and Sydney on the 13th of July. You'll be able to hear from some of the top young performers in the industry about how they survived those tough couple of years. So, definitely check out all the information on that on The Adviser website and we'll see you next time.
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