Brokers are using white-label products to deliver better service, differentiate themselves from banks and build greater client loyalty. The Adviser finds out what has been happening in the land of white labels.
Just as brokers are writing an increasing share of Australia’s home loans, so are white-label products occupying an increasing share of the national mortgage mix.
These two things actually go hand in hand, according to Advantedge Financial Services general manager Brett Halliwell, given that white-label loans are only available through the broker channel.
“Advantedge’s white-label products are now offered through approximately 85 per cent of Australia’s mortgage brokers. This figure is up from 35 per cent in 2014 – demonstrating that white-label is on a strong growth trajectory,” he says.
“Furthermore, according to the latest MFAA quarterly Comparator data, white-label now accounts for 6.6 per cent of overall home loans in the industry, a figure that has doubled in the last two years.”
AFG Home Loans general manager Chris Slater says his brokers are currently using the white-label option for 7 to 8 per cent of their mortgages – up from around 2 per cent just under three years ago.
Yellow Brick Road brokers are even more bullish about white-label. “Given the advice-based approach to the way our network does business, [and] the competitiveness and coverage of our YBR white-label products, our mix of business tends to vary between 25 and 40 per cent of overall lending settlements within the YBR retail business,” says group lending manager Andrew Rasby.
Why some brokers are wary
The moment brokers start using white-label products, they establish a point of difference from the banks. Brokers can now tell clients: “I have this better-value product, your bank doesn’t, so that’s why you should use me and not them.”
Nevertheless, some brokers still have their doubts about white-label lending. Choice chief executive Stephen Moore says some brokers are concerned about channel conflict. However, he notes that ChoiceLend is conflict-free: “Our members don’t need to worry about a bank selling to or poaching their customers,” he says.
FAST chief executive Brendan Wright says one challenge his group faces is to demonstrate the strong support services available to brokers if they use FASTLend. “They don’t have to sacrifice service for access to the simple, competitive, high-value product,” he says.
PLAN chief executive Anja Pannek says that PLAN also has to combat the misconception that white-label loans can only be used for simple transactions. “In reality, they are very versatile and can cater for self-employed, PAYG and construction. The flexibility of white-label means it covers trusts and companies, as well as personal lending,” she says.
The world of white-label
Many industry groups offer white-label products, including AFG, Astute, Aussie, Choice, Connective, FAST, Finsure, LJ Hooker Home Loans, Loan Market, PLAN, Smartline and Yellow Brick Road.
The three NAB-owned aggregators, Choice, FAST and PLAN, offer white-label mortgages through NAB’s wholesale funder, Advantedge.
AFG Home Loans has four products: Edge (funded by Advantedge), Options (Pepper), Icon (Macquarie) and Alpha (Adelaide Bank). AFG also sells a securitised product suite, called Retro, which is funded through AFG Securities.
Connective Home Loans has two white-label options: Essentials (Advantedge) and Smart Options (Macquarie). So does Aussie: Select and Optimizer (Commonwealth Bank).
Mortgage Choice brokers can use the group’s Mortgage Choice Home Loans offering (Macquarie), while Yellow Brick Road brokers can call on YBR’s range of Empower loans (Macquarie) for anything from basic loans and package loans to construction finance and SMSF finance.
Other white-label options include Astute Simplicity, Finsure My Loan, LJ Hooker Home Loans Connect, Loan Market Go and Smartline Select – all funded by Advantedge.
Getting borrowers on board
From a technical perspective, writing a white-label loan is no harder than writing a regular loan. Sometimes, though, it can be harder to sell it to a cautious borrower.
“Confidence is everything”, says Mr Slater from AFG. “I wouldn’t recommend a product to my family and friends without believing in it, so you can’t fake that. Your products and service must stack up.”
The good news is that many borrowers are familiar with the white-label concept through supermarket goods and pharmaceuticals, notes Mr Halliwell from Advantedge. So they’re open to being sold.
Mr Rasby from YBR says that because white-label products are exclusive to the third-party channel, brokers can use them to engender greater loyalty in their clients.
“We believe the primary advantage for our branches is that the client will return to our YBR network for future financing needs,” he says.
“The harsh reality when another bank loan is sold is that clients may approach the bank directly for future financing needs or other services. The main benefit is that clients are directed back to our branches and the cross-sale opportunity is preserved within the group.”
What the future holds
Mortgages currently represent the vast majority of white-label products. It wouldn’t surprise, though, if white-label became an increasing presence in other finance categories.
We may have seen a sign of things to come last August, when FAST launched the industry’s first white-label asset finance solution. FASTXpress, as it is known, is backed by Westpac, and offers SME clients “an attractive solution for financing cars and light commercial vehicles”, according to FAST chief executive Brendan Wright.
“Recognising that as many as 40 per cent of brokers’ existing clients are small business owners, FAST was able to identify this huge opportunity within the SME market for brokers to meet more needs of their clients by going beyond the obvious home lending opportunity,” he says.
Mr Slater from AFG also expects continued evolution in white-label products.
“I think we’ll continue to see funders who don’t have their own distribution or a footprint across the whole of Australia wanting to access channels that give them that. If white-label works in the residential broking space, it makes sense it can work with commercial and asset finance,” he says.
Meanwhile, back in the mortgage space, Mr Halliwell from Advantedge believes that white-label products will continue to grow in popularity as customers increasingly turn to brokers to provide alternative products at a great price.
“White-label is undoubtedly an important tool for brokers to have in their kit, and it empowers brokers by allowing them to offer a home loan product customers can’t get anywhere else,” he says.
ASIC ON WHITE LABEL
ASIC’s Review of mortgage broker remuneration, which was published in March, raised concerns about the white-label sector, although it did not make any adverse findings.
The regulator found that vertical integration is affecting loan flows, “particularly if the aggregator also sells white-label loans funded by the lender”.
Furthermore, consumers may not understand what a white-label product is or what links exist between credit providers, brokers and aggregators, according to ASIC.
The Review also found that the provision of white-label loans is an increasing focus for aggregators.
“In their dual role as aggregator (with all the attached responsibilities) and a quasi-lender, we would expect aggregators to carefully understand and assess whether these arrangements are resulting in good consumer outcomes,” ASIC said.
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