White label loans have increased in popularity among brokers, with the market share of broker-originated business to white label lenders improving following recent decline. Lenders and brokers list choice and product diversification as key benefits of white label loans, but some cite lack of brand awareness among customers as an issue. We take a look at the ins and outs of white label loans.
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While the year 2020 had many challenges, one of the more positive outcomes of the year was that broker market share recorded its highest ever result, with brokers settling over 60 per cent of all residential home loans during the July to September 2020 quarter, according to MFAA figures.
These positive figures were also reflected in the market share of white label loans, with the segment continuing to recover with a second consecutive quarter of growth.
Indeed, market share of broker-originated business to white label lenders increased to 6.2 per cent in the January to March 2020 quarter, an increase from 5.5 per cent in the October to December 2019 quarter, and 5.4 per cent in the April to June 2019 quarter.
This followed two consecutive quarters of decline in 2019, with market share of broker-originated business dropping from 6.7 per cent in the January to March 2019 quarter to 5.8 per cent in the April to June 2019 quarter.
Given the increase, the value of white label loans has also been increasing. In the January to March 2020 quarter, white label loans settled by brokers totalled $2.8 billion, up from $2.6 billion in the October to December 2019 quarter, and $2.3 billion in the July to September 2019 quarter.
The MFAA has noted that “early indications show that the segment may have turned a corner and onto the road to recovery, after halting consistent declines dating back to the September 2019 quarter”.
“It remains to be seen if the segment can maintain its recovery and growth trajectory over the next six months,” it added.
White label partnerships galore
Part of the growth in white label loans may be down to the growing options available, with several brokerages and lenders announcing new white label loan partnerships and products in the past year.
In 2020, major brokerage Mortgage Choice and aggregator PLAN Australia launched new white label products.
Later in the year, Choice Aggregation services did the same. With more aggregators and brokerages looking to roll out their own branded products to broker clients.
When PLAN Australia launched its white label products, CEO Anja Pannek said they would provide brokers with more options for their clients.
Indeed, many lenders and aggregators say that the key benefit of white label products for brokers and their clients is that they offer more choice. When Connective launched its new white label offerings in 2019, the aggregator’s head of sales and business development, Michael Goerner, told The Adviser that having a white label loan under the Connective brand removed the risk of channel conflict or cross-selling.
He added that consumers demanded choice, and Connective wanted brokers to be able to offer more solutions to their clients through a white label portfolio rather than just a single funder.
What the lenders think
Daniel Carde, the general manager of distribution for non-bank lender Resimac, echoes the sentiment, telling The Adviser that white label products offer consumers “real choice” and “product diversification”.
“You find that, typically, the white label products or the products that we fund cover a greater range of needs, and we’ve got a wider shopfront of products,” Mr Carde says.
“We can do the prime loans, 80 per cent owner-occupier principal and interest loans, all the way up to credit-impaired loans that a lot of other lenders won’t look at.”
Mr Carde also points out that not every client (such as those with credit impairment issues, lower credit scores or self-employed borrowers) is able to meet the traditional credit criteria of some lenders.
“You’ll find that the white label providers can actually look at a broader cross section of borrower types than what you’d find going to the major banks,” he says.
“This gives brokers a bit of confidence and comfort that there will be a solution available for them.”
In December 2019, Resimac stopped offering externally funded white label products, such as Resimac MoniPower and Resimac Accelerate products for new business, and moved to exclusively sell loans financed by its own funding program through its broker channel and via mortgage managers.
This followed the discontinuation of the Resimac Ultra Plus and Resimac Optima products for new business in October 2019 and June 2018, respectively.
Mr Carde said at the time that the move was driven by the fact that the market now saw Resimac as a lender, and the decision to discontinue non-principally funded products supported this view and provided more clarity about Resimac’s place in the market.
“However, mortgage management remains a part of our DNA, with our role in this segment being focused on funding mortgage managers rather than being a mortgage manager ourselves,” Mr Carde said.
Resimac said it will continue to focus on the white label space in 2021, with Mr Carde describing it as “our grassroots”.
“That’s where we got our start in the mortgage market – through funding mortgage managers,” he says.
“It’s a very important part of our business structure. It does give us some greater distribution that we otherwise wouldn’t have.”
Elaborating further, Mr Carde says: “Many of them will have relationships with brokers that we don’t have, so it’s an extension of our distribution. But the mortgage managers manage the process and get remunerated for that.
“What’s driving the interest is they provide brokers with quite a number of options because they’re mostly multi-funded. You can put a loan with a mortgage manager that could end up at one of three, four or even five funders.
“You can take into account a multitude of attributes for the application to see which funder fits best.”
Barriers to recommending white label
For brokers, the process of writing a white label loan for their clients from a technical standpoint is no different to writing a regular home loan.
According to Mr Carde, they should approach white label loans like any other loan: research the product and its features, determine the needs and objectives of the clients, and ensure that the white label loan they recommend to clients are best suited to their requirements.
However, a lack of awareness about white label brands may prevent brokers from recommending them to their clients, Mr Carde says.
“Brokers may have to spend a little bit more time on the background of who they’re recommending than they otherwise would with a more known brand,” he says.
“There are no underlying barriers to recommending a white label product as such, but brokers do face that challenge of a lack of brand awareness. People want to know who they’re dealing with.”
From a lender’s perspective, Mr Carde says that Resimac (as well as other lenders) encounters similar challenges around awareness of their brands, as the lender largely relies on the broker channel to distribute its products.
“The brokers have to, in a way, sell the lender story as well as sell the product, whereas with some of the more known brands like the major banks, obviously consumers will know those brands and will probably focus more on the product itself,” he says.
“We look to create advocates in the broker market so that they do the selling for us to the consumer.”
Know your product
With brokers playing a pivotal role in originating the majority of loans in Australia, it is crucial that they need to have a comprehensive understanding of the range of mortgage products that is available in the marketplace.
It becomes a more crucial requirement with respect to white label products because of the lack of brand awareness, especially from a client’s perspective.
Mr Carde suggests that brokers who might not have explored white label loan options should contact their business development managers to discuss the available options.
“The solutions that are there are quite often a lot broader than what you’ll get through a major bank,” he says.
He concluded: “Just make sure that you understand the full product range that’s available.”
The upside of white label loans
According to Mr Newell, who mainly writes residential loans, companies that offer white label loans offer a full product suite and a diverse range of lenders on their panel, catering for clients with distinctively different needs.
“What I like about using the white label products is that you’re not just restricted to a square box, where if it doesn’t fit, then you have to go somewhere else,” Mr Newell says.
“When you’re talking to them, they’re talking about a whole product suite with options such as 100 per cent offset accounts, right through to very competitive fixed rates and high loan-to-value ratio (LVR) lending.
“There are some high LVR loans that some of the other banks don’t do. Not all of them offer 100 per cent offset accounts, or one-year financials for self-employed borrowers, for example.”
Turnaround times a deterrent
Mr Newell notes that customers in the past have traditionally leaned towards the major banks for their loans, but slow turnaround times at the major banks (which he suggests have been caused by generous cashback offers and incentives resulting in a surge in demand) has increasingly steered him towards non-bank lenders.
“Turnaround times at the moment with the top banks are awful. I’m in Queensland. Our customers buy in the 14-day finance clause market. You’ve got your major banks not even picking up the file for six to 10 days. That’s atrocious,” Mr Newell says.
“Customers risk losing deposits so you have to have really good alternatives,” he adds.
Explore all options
At the end of the day, however, Mr Newell acknowledges that the customer has the freedom to choose the product that they see fit for their requirements.
But he recommends that brokers should be open to informing clients about white label loan options, bearing in mind their best interests duty obligations, product metrics, and ensuring that they suit the clients’ requirements.
“If you’re not open to putting those options up to those customers, then the customer will never know about it.
“Discuss all options with your client. We’re going into a world of best interests duty. You’ve got to look at all options. There are some amazing options in there that satisfies a customer’s needs that I think brokers should be putting forward,” Mr Newell concludes.
Gold Coast-based broker Paul Newell has recommended white label products offered by mortgage managers such as eMoney and Better Choice (which Resimac funds) to his clients.
The Nectar Mortgages broker says that he is no longer hindered by barriers and challenges such as lack of brand awareness when recommending white label products to clients because this market has matured over many decades.
He also notes that clients have access to technology and information that allows them to conduct their own research about these products.
Speaking to The Adviser, Mr Newell says: “You suggest the product, they’ll go and do the reviews and see what their services and reviews are like.
“Customers have accepted that there is a lot of lenders in the market and there is more coming in. They are very well educated around who’s in the market.”
Mr Newell also says that brokers who have established trust with the client, as well as the white label product provider, will find it easier to communicate the uses of the product, if the conversations are steeped in fact.
Malavika Santhebennur is the features editor on the mortgages titles at Momentum Media.
Before joining the team in 2019, Malavika held roles with Money Management and Benchmark Media. She has been writing about financial services for the past six years.
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