Fintech businesses are cropping up all over the place, eager to establish themselves as legitimate distribution channels and alternative lenders. The Adviser explores whether these new players are a friend and foe of the third-party channel.
It’s easy to shrug off the threat of new tech-savvy entrants as a fad; flash-in-the-pan operators who don’t understand what borrowers really need. Besides, how can these guys keep up with the pace of policy changes, or even provide ongoing service to their clients? Do robots even have ‘clients’?
Any new, innovative or disruptive force from the fintech realm has been met with mixed feelings from brokers.
When The Adviser ran a piece about Hero BroKer in May, the industry’s reaction was significant. Twenty-five people commented on the story, which was shared 64 times on Facebook and 48 times on LinkedIn.
The idea that customers could broker their own home loan (and receive an upfront commission for doing so) seemed to fly in the face of the broker proposition.
Comments ranged from encouraging – “A work in progress that will face some hurdles but I'm looking forward to seeing how far Hero BroKer will go” – to negative – “My bet is Hero to zero!”
A follow-up story revealed that the platform had signed an agreement with mortgage aggregator AFG.
However, Heritage Bank seemed confused after being told its branding was all over on the Hero BroKer website.
Heritage Bank’s general manager of retail services Paul Francis says he was unaware Hero BroKer had listed the bank as a lending partner on its website, adding that Heritage has no direct agreement with the platform.
Mr Francis says he does not believe the platform will make much of a dent in mortgage distribution now, but it could in the future. “There will be more of these types of operations that will be banking on the fact that this continued move to the digital age will become prevalent in this part of financial services.”
A few weeks later, AFG revealed that it had terminated its agreement with Hero BroKer following a review of its business model.
Hero BroKer founder Clint Howen says AFG’s main concern was the commission going back to the borrower.
“If I was to give that up from the business model, they would want to continue their relationship with Hero BroKer,” Mr Howen says.
“But it’s not just the commission [going] back to the borrowers that they’re worried about either. They’re also worried that the process could take away the value of a broker.”
Which poses the important question: is the industry ready to be disrupted?
Non-bank lenders were an early disruptive force in the mortgage market, as were brokers. Together they have been responsible for injecting much-needed competition into the industry.
So, are the disruptors about to become the disrupted?
Within days of AFG cutting ties with Hero BroKer, industry veteran Vincent Turner announced the launch of his new fintech company uno. Once again, the platform aims to put power is in the hands of the consumer.
The uno online service gives consumers access to the same tools and information traditional brokers use to find a home loan, providing them with the power to decide what is best for them. It also allows consumers to access real-time home loan rates based on their personal situations – not just advertised rates.
“We think of this as the third wave. Traditionally, you’ve just had banks, going way back. Then you had brokers come into the market. We see this consumer-brokered mortgage as the next wave of what is possible,” Mr Turner says.
“I think there is a whole segment of consumers who will say, ‘This is how I want to get access to a mortgage because I want to use a platform’. They don’t want to do it alone, they still want help, but what they want is a screen.
“There is a whole generation of people who have a screen to access so many other services in other verticals.”
Mr Turner believes online platforms such as uno will not replace banks, nor does he see it replacing mortgage brokers.
“We think there is a whole generation of people and a growing segment of the market who want to do more of this themselves and expect that from their service providers.”
The Adviser understands a big four bank has recently invested in the platform.
Taking business from brokers
In June, another new player announced it had gained traction in the home loan market. However, unlike the consumer-brokered model, Joust sees lenders bidding for a customer’s mortgage.
In its first two weeks, Joust saw more than $43 million worth of home loans go through its system after more than 100 customers put their mortgages up for auction.
Joust founder Mark Bevan has made it clear he is in competition with mortgage brokers, and so far a growing number of non-major lenders have signed up to the South Australia-based platform, including Bank SA, Adelaide Bank, Australian Unity, People’s Choice Credit Union, Bank of Queensland, Beyond Bank and Gateway Credit Union.
Mr Bevan says Joust will launch in Victoria in October, followed by a full national roll-out by January 2017, with plans to more than double the number of active lenders on the platform.
“We’re aiming to have up to 20 lenders on our digital platform to ‘joust’ by the time we launch nationally, which given the discussions and high level of interest received to date, we are confident this goal is well within reach,” he says.
The former major bank executive believes one of the reasons people are responding so well is the fact that Joust is not a comparison site, but a live and fully transparent auction platform.
“It’s a reverse eBay experience for home loans. There’s a lot of confusion when it comes to comparing home loan deals between lenders, and people don’t have the time or patience to do the hunting around and negotiating back and forth – and certainly not with numerous lenders,” he says.
“Our platform brings a new competitive edge to the financial sector, whereby we bring the lenders to the consumer on our terms, ensuring apples are always being compared with apples, which makes the process much easier for the consumer.”
Hero BroKer, uno and Joust are just three local fintech companies which have emerged in recent months. All of them have the same goal – to earn their place in the competitive mortgage distribution market by catering to the changing needs of consumers.
The rise of mobile technology and the rapid take-up of internet banking have placed the power firmly in the hands of customers.
There will always be people who will want their hands held and who will look for a human relationship when they are making major financial decisions. But there is a generation of customers (and generations to come) who might be quite happy to receive a mortgage in a few simple steps on a screen.
About to explode
Just as mortgage brokers and non-bank lenders brought competition to the market by offering an alternative, new online players will no doubt be the catalyst to drive innovation in both new and existing mortgage businesses.
CoreLogic chief executive Graham Mirabito says that while fintech players are still in their infancy in Australia the sector is “about to explode”.
“We are very excited with where it is going. In the United States, CoreLogic provide services to Wells Fargo and Quicken Loans. They are all big customers of ours, as are the peer-to-peer lenders,” Mr Mirabito says.
“The key here is that digital enablement has to back it up with fulfilment. It is no good doing a mortgage application online and then filling in a bunch of forms afterwards,” he says.
“I think ClickLoans is probably one of the best examples we’ve got here in Australia; just as good if not better than Quicken in the US in terms of their speed and the way they go about their business. That is the new norm.
“This may be in its infancy but it is about to explode.”
Behind the scenes, CoreLogic has been doing extensive work around machine learning and artificial intelligence. Mr Mirabito says these and other new technologies such as voice recognition and the internet of things (IoT) will speed-up the digital delivery of mortgages over the next few years.
However, while the digital distribution channel continues to grow, fintech lenders are also using smart technology to deliver better outcomes for brokers – particularly in the delivery of SME loan products. The fact that brokers are small business operators themselves has not been lost on lenders such as Prospa, who is now developing purpose-built digital solutions for the third-party channel.
Intermediaries like mortgage brokers, financial planners and accountants play a critically important role for fintech lenders.
In the UK, the Bank of England and the prudential regulator have been instrumental in boosting the online lending space. They’ve been keen for consumers to have an alternative – but more importantly they’re using it as a way of de-risking the financial system by making borrowers less reliant on big banks. The central bank was also driven by the need to stimulate small business in the UK following the financial crisis – fintech lenders were the perfect solution.
The rise of alternative lenders in the UK in recent years has coincided with a significant increase in broker market share – from around 50 per cent in 2011 to over 70 per cent today.
“I don’t think we will see in Australia a similar government initiative that the UK has implemented where the banks are ultimately asked to handover a small business borrower to an alternative lender,” Moula chief executive Aris Allegos says.
“I don’t think we actually need that government support. The alternative lenders in Australia are playing in a space where really the big four don’t have the desire to participate. They are not geared to do the unsecured lends and aren’t really focussed on anything under $250,000 from a profitability perspective.”
Case study: Moula, with Aris Allegos
Moula signed a deal Liberty Financial last year, which included a $30 million debt and equity funding agreement. Since then the relationship has proven to be successful, according to Mr Allegos, who says Liberty’s advice has been integral to the development of Moula as a leading alternative lending platform.
More than 50 per cent Moula’s new business comes from intermediaries. Not surprisingly, SMEs look to brokers for trusted advice when seeking an appropriate finance solution.
“We experience higher conversion – due to a higher quality lead – when coming via the broker channel,” Mr Allegos says.
“We support our brokers with dedicated BDMs and lending support teams that assist with every facet of the application process.”
The company works with brokers beyond Liberty Network Services via a partner program, a simple accreditation process that can be completed online.
“To date, we’ve had amazing engagement with the third-party channel. Many of our top brokers are members of different aggregator groups,” Mr Allegos says.
Just a few years ago the alternative online lending space was sparsely populated with a sprinkling of emerging fintechs. Today it is fast becoming a saturated market. Being one of the first in market, Mr Allegos says Moula has been fortunate to have an established brand, a tested platform and importantly, a strong balance sheet.
“Moreover, our unique approach to underwriting ensures our pricing is the most competitive in market,” he says.
When it comes to remuneration brokers are paid ongoing commission on the notional borrowed for each and every loan funded by Moula.
“Our pricing and service ensure customers keep coming back, so rather than a one-time commission, it becomes analogous to a trail commission,” Mr Allegos says.
“Our rates range from 0.75 per cent to 1.50 per cent per fortnight (on the outstanding balance); in other words, APRs starting at 20 per cent,” he says.
As one of the few lending platforms with technology built in Australia for Australian SMEs, the company has the option to evolve its product suite. For the moment, Moula continue to explore solutions its SME customers are most interested in. However, Mr Allegos confirmed that a new product will be launched in September this year.
Case study: Prospa, with Beau Bertolli
Prospa launched in 2011, the brainchild of joint CEOs Beau Bertoli and Gregory Moshal. The platform now assesses approximately $40 million a month in business loan applications. Importantly, the group has over 2,800 partner introducers. To date the group has lent over $170 million.
A pilot phase with Westpac last year saw Prospa working with the major bank to see if it could deliver a unique offering. However, the third-party channel is where the group has been a big success.
“We have direct relationships with brokers and with all the major aggregators,” Mr Bertoli says. “We also have relationships with about 1,000 individual brokers.”
Prospa’s core offering to consumers is in the provision of fast and effective access to finance for SME customers, which fits well with the broker proposition.
“A lot of Australia’s small business owners have very long-term relationships finance brokers. It may be someone who has helped them out with their mortgage or a car loan or a refinance deal. What we find is that brokers are a trusted adviser in many ways. So when a broker puts forward our product to their client, it is coming from a trusted source. That is very powerful to us,” Mr Bertoli says.
At just under five years old, Prospa is still very much a new kid on the block. Mr Bertoli admits that some small business customers are hesitant about deal with a non-bank directly.
“We are always trying to figure out how to build the credibility of our brand. The partnership with Westpac was part of that,” he says.
Prospa takes a proactive and supportive approach to its broker partners, according to Mr Bertoli. Where other lenders might just provide products, support and training, Prospa actively helps brokers in marketing their business, lead generation, client retention and comprehensive product knowledge.
Unlike the banks, Prospa is a specialist in SME funding – so it knows its market, and also knows that brokers are SMEs themselves, Mr Bertoli says.
“We provide the most useful and complete set of resources and tools, enabling those who are interested in diversifying to tackle commercial lending easily,” Mr Bertoli says.
One of the key tools for reach and acquisition is PUMP (Prospa Uplift Marketing Portal), Prospa’s recently launched intuitive online marketing resource for its broker partners.
PUMP enables brokers to:
This “value add” as Mr Bertoli calls it, saves brokers their two most precious commodities: time and money. It also gives them complete control of a high-quality customer communications platform. All the creative assets have been professionally designed and image licence fees are covered.
Fintech is often framed as a disruptor where the players are aiming to dethrone brokers as the leading force in the mortgage market – but with some companies actively working with brokers to disrupt the current model, but also assist in growing the third-party channel, one can’t help but feel that by working together, brokers and fintechs will become both a disruptor of big banks and an enabler of small businesses.
James Mitchell has over eight years’ experience as a financial reporter and is the editor of Wealth and Wellness at Momentum Media.
He has a sound pedigree to cover the business of mortgages and the converging financial services sector having reported for leading finance titles InvestorDaily, InvestorWeekly, Accountants Daily, ifa, Mortgage Business, Residential Property Manager, Real Estate Business, SMSF Adviser, Smart Property Investment, and The Adviser.
He has also been published in The Daily Telegraph and contributed online to FST Media and Mergermarket, part of the Financial Times Group.
James holds a BA (Hons) in English Literature and an MA in Journalism.
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