While competition and collaboration are often considered mutually exclusive forces, one can actually strengthen the other. Tas Bindi speaks to industry leaders about how collaboration can improve competition and customer outcomes.
The leading 19th century economist Herbert Spencer once likened the economy to a jungle, in which only the fittest survive.
Especially in highly competitive industries, such as the financial services sector, this mode of thinking often leads people to fall into the trap of thinking that the opposite of competition is collaboration, and that the two are mutually exclusive forces.
Yet thinking this way could potentially be a mistake. According to brokerage, aggregator and lender leaders, there are many circumstances where it makes sense for competing businesses to band together for a mutually beneficial common end.
Examples include when small and early-stage companies partner with each other to secure an initial sales channel or strategic investment, when businesses join forces to set standards of best practice, or when big businesses and fintechs work together on developing technology.
Some of the benefits of collaborating in such situations, according to leading industry figures, include lower barriers to entry, the ability to persuade the public and policymakers against reforms that could have adverse consequences, improved standards of practice, and better customer experiences and outcomes.
Andrew West, national sales manager for property at broker lending company Global Capital Commercial, notes that large companies can help small and early-stage companies scale quickly, for example, by providing “an initial sales channel, strategic investment, product development input, and eventually a potential exit route”.
“And a large company can access new product or tech that could not be developed in-house, a new funding opportunity and market insight,” he adds.
Meanwhile, Ray Hair, executive director at The Local Loan Company, says that finance customers are “often time-poor and therefore appreciative of integrated services that provide a comprehensive solution”.
He explains: “It has to be more than a ‘do you want fries with that’ approach. Collaboration with businesses that can deliver products or services that enhance your own business’ service, efficiency and/or product range can add value to the customer experience and customer retention.”
For example, mortgage marketplace HashChing joined forces with Proviso for its bank-scraping solution BankStatements, as well as Ezidox for its cloud-based document collection and management software, in a bid to create a better user experience for brokers.
HashChing COO Siobhan Hayden notes that by integrating BankStatements and Ezidox into the company’s broker portal, the “broker is not required to then [leave the portal] and go into another software platform or subscribe to other services independently”.
“Why not provide all of that in one service flow rather than the customer having to go in and out of a flow?” she says.
Lenders are also offering brokers with specialised tools to help provide enhanced service to their clients and make their businesses run more efficiently.
Speaking on The Adviser’s webcast, The changing lending landscape, Pepper Money’s director of sales and distribution, Aaron Milburn, said the Pepper Product Selector and Resolve tools were designed to assist brokers in diversifying their business.
Mr Milburn said: “We’ve got to give [brokers] the tools to be able to diversify… from just prime lending to near-prime and specialist lending, then into SMSF lending, into small business lending. [We’ve got to] give them the tools and coaching and learning around that.”
He added: “All of the tools and services we all offer are designed to help brokers stay relevant to their client base. So, ask us for the assistance and we’re more than happy to be out there and supporting [brokers].”
With the likes of Google, Amazon, Apple, Alibaba and Tencent moving into the financial services market, collaboration forged between financial services providers could be the key to adapting to evolving customer expectations, such as increased personalisation and speed of delivery.
As technology consultancy firm Capgemini and banking association Efma last year warned, bank customers could ditch them for large tech players in pursuit of a better experience.
According to their World Retail Banking Report 2018, which was based on a survey of more than 10,000 retail banking customers and interviews with 60 senior bank executives around the world, the common denominator in the next wave of banking is believed to be a “commitment to place the customer at the centre of the value proposition” – a commitment that is core to the broking industry.
The research found that banks are eager to treat technology firms as colleagues rather than competitors. Senior executives said they could “generate non-traditional revenue” via collaboration with technology firms, such as by jointly developing a new service or distributing third-party products via a marketplace.
Capgemini’s head of financial services in the ANZ region, Philip Gomm, cited NAB’s ongoing work with cloud accounting software provider Xero and REA Group as positive examples of collaboration within the industry.
“NAB working together with Xero as an SME/ERP financial manager is a great indication of a major being on the front foot in terms of embracing the emerging model,” Mr Gomm said.
“A couple of recent acquisitions and strategic partnerships, including ANZ/RealAs and NAB/REA are also indications that both are thinking creatively around how they can position an ecosystem of service partners in support of the critical mortgage marketplace.”
Graeme Holm, director at Infinity Group, believes collaboration and competition “go hand in hand”.
“The more we collaborate, help each other improve, and challenge each other, the more competitive we are [as a broader industry],” he says.
“Rather than being in our own little worlds thinking we all have a niche in the market, [through] collaboration, we’re upskilling ourselves, improving our standards, becoming more aware of what other people are doing, and exposing ourselves more in the market.”
The general consensus is that there are untapped opportunities to use data to develop better customer journeys, relationship-based pricing, personalised loyalty rewards, and lifecycle-stage products and services.
The open banking regime, set to come into effect on 1 July this year, is expected to make data sharing between entities easier, which in turn is anticipated to increase innovation, strengthen competition, and improve the efficiency of processes such as income and expenses verification checks.
Under the regime, individual and business consumers will be able to access their own data or direct custodians to share their data with accredited entities – such as banks, telcos, energy companies and comparison service providers – thereby paving the way for more targeted products and services and competitive pricing.
Ms Hayden believes open banking will create “an expectation of data sharing on other entities, particularly government entities, [such as] myGov, the Department of Births, Deaths and Marriages, the ATO... and local councils with rates notices”.
“If I could scrape my bank statements, tap into the ATO, tap into my rates notices at the council, if I can check the identity of the lands and titles officers, all in seconds, then suddenly that data collection component is much quicker,” she continues.
Mark Haron, director and principal at Connective, says collaboration and competition are not always mutually exclusive, especially when it comes to establishing industry and minimum consumer service standards as competitors often have shared mutual interests.
In this scenario, Mr Haron says collaboration is “essential” to a healthy, competitive broking industry.
“We need to work together to constantly build trust with consumers, then compete with each other to get their business. By doing this, the mortgage and finance industry will be sustainable and will continue to grow and improve,” he adds.
Significant collaboration and cross-sector workings in recent years have offered a glimpse into how mutual assistance between competitors can strengthen an entire industry.
For example, the Combined Industry Forum (CIF) – a consortium of lenders, aggregators and industry bodies – was formed off the back of scrutiny from the ASIC remuneration review, the Sedgwick review, the Productivity Commission’s inquiry and the banking royal commission. The consortium took into account the concerns raised – for example, around “conflicted remuneration”, governance and customer outcomes – and developed a package of reforms to lift standards of practice.
The CIF crafted a “customer first duty” for the mortgage broking industry, which NAB last year noted “establishes a positive, objective, measurable test and, if appropriately applied, will result in an outcome that is in the interests of the customer”.
The duty also incorporates a “good customer outcome” definition that would hold the mortgage broking industry to a higher obligation than the current “not unsuitable” obligation. The definition includes that the loan is of appropriate size and structure, meets the customer’s requirements and objectives, affordable for the customer, and applied for in compliance with responsive lending requirements.
The power of collaboration has recently been demonstrated by major political parties backpedalling from their initial commitment to implement commissioner Kenneth Hayne’s 76 recommendations, which included the abolition of lender-paid commissions and the introduction of a borrower-pays broker remuneration model.
Following widespread campaigning and lobbying by the broking industry, the Liberal Party announced that, if re-elected, it would look at reviewing the impacts of removing trail in three years’ time rather than abolishing it next year as originally announced, while the Labor Party proposed that lenders instead pay brokers a standardised upfront commission as a proportion of the loan amount. It suggested that commissions be capped at a fixed rate of 1.1 per cent.
The development of the Online Code of Lending Practice for fintech lenders, who have been criticised for not being as stringently regulated as authorised deposit-taking institutions, is another example of collaboration among competing businesses in pursuit of the common good.
As Matt Bauld, general manager of sales and business development at Prospa, said during The Adviser’s webcast: “Where there was not a lot of regulation, we absolutely said let’s be regulated… So, we came together with our peers and we created a code of conduct.”
Key elements of the code include:
Fintech lenders Capify, GetCapital, Moula, OnDeck, Prospa and Spotcap are the first six signatories to the code.
Mr Hair flags that collaborating with competitors is not risk-free but says that the risks can be mitigated.
“It is critical to address issues such as the right to communicate and market to customers during and after the collaboration period, and the right to any ongoing revenue, repeat customers and referrals,” The Local Loan Company executive director says.
“True collaboration should add value to both parties and remove the incentive to encroach on each other’s business.”
Anthony Landahl, managing director at Equilibria Finance, says the broking industry has been collaborating to great success for some time, with aggregators and lenders hosting networking events and workshops to discuss product improvements and industry best practices.
“There’s an openness around the sharing of ideas that ultimately create a better outcome for the customer who will then reuse and promote the broker channel,” he says.
“So, it becomes a self-fulfilling continuous improvement loop where, as an industry, we collaborate and create a more competitive service proposition for consumers.”
On the other hand, Mr Holm would like to see more get-togethers in “different catchments and areas of the industry”, saying these networking and educational events are largely left to the aggregators to organise.
“We need to not just do that now because we’re worried about trail. We need to be doing this continuously to improve our industry,” the Infinity Group director insists.
Mr Holm believes the key to establishing strong partnerships is by “offering something unconditionally”.
“You can connect someone or share something to help educate them or help streamline something in their business. Don’t reach out to people expecting something in return. You need to be reaching out to people offering something unconditionally, so they want to connect and interact with you,” he says.
“When I’m giving value to people and offering solutions and sharing information, I found that that’s come back tenfold in the very short to medium term.”
Before establishing partnerships, Ms Hayden suggests that businesses start with contemplating the questions: What is the pain point that we’re trying to solve? Can we genuinely solve it together?
“In my experience in the industry, brokers have often said, ‘I need a software that does XYZ, [but] no one’s delivering. So, I’m going to go and build it.’ If you have a background in building tech, fantastic. But if you don’t, you should definitely do your research before you go off and build the platform because it’s very expensive,” she says.
Further, the HashChing COO recommends that brokers conduct an analysis of their business to understand where they’re spending the most time, and then compare the dollar value of the time spent on these tasks to the cost of a solution that will automate them.
Meanwhile, Mr Landahl’s advice is to take the time “to find the right people with consistent values” and to “be open to sharing ideas as much as to listening to others”.
“But I think what’s critical in terms of getting the balance [between competition and collaboration] right is businesses being cognisant and respectful of each other’s market space,” he says.
Tas Bindi is the features editor for The Adviser magazine. She writes about the mortgage industry, macroeconomics, fintech, financial regulation, and market trends.
Prior to joining Momentum Media, Tas wrote for business and technology titles such as ZDNet, TechRepublic, Startup Daily, and Dynamic Business.
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