White-label lending has grown significantly since it first started making waves in the Australian mortgage market. The Adviser’s James Mitchell explores how these products are transforming the third- party channel
Three years ago, white-labelling was really just establishing itself. Brokers were gradually becoming educated about its benefits, which are now well known throughout the third-party industry.
White-labelling has evolved. Aggregation groups are beginning to see the benefits of working with experienced funders such as Advantedge to launch branded home loans that meet the needs of brokers and their clients.
Today, white-label lending is a disruptive force in the $1.3 trillion Australian mortgage market.
In the past six months Advantedge has partnered with heavyweights AFG and Connective as well as Astute Financial to help reach even more borrowers with a competitive product that meets everyone’s needs.
“The thing I like about white-label is it ticks a box for all of the stakeholders involved,” Advantedge general manager Brett Halliwell says.
“Consumers tend to get very sharp rates, there are competitive commissions for brokers, there is something in it for the aggregator and we are happy with our returns as a lender as well,” Mr Halliwell said. “So it is unique in that way.”
It is the nuances of this product type that make it so much more effective as a finance option and a powerful instrument in a broker’s toolkit.
For a start, white-label is exclusive to the broker channel. This has huge benefits not only for individual brokers looking for a point of difference, but also the broader third-party industry; white-label loans give customers something special that they can’t get by walking into a bank branch or going online. Kudos to brokers.
Over the past four or five years white-label lending has really moved from niche to mainstream, says Choice chief executive Stephen Moore.
“It provides a fantastic opportunity for customers outside the major brands; to me that’s important because it gives brokers another alternative – but the beauty is, it is only available through brokers,” Mr Moore says.
“That point of difference is one that is particularly valuable for broker businesses.”
The main intention is that a white-label product is a broker exclusive offer, designed by brokers for broker clients.
“Almost by default, because of that they are typically very competitive and because they are very competitive, they help drive competition,” Mr Moore says. “It is almost a self-fulfilling thing. That in turn drives lender competition which promotes good outcomes for consumers.”
As the head of a growing aggregation group, Mr Moore sees a responsibility to ensure Choice continues to provide a breadth of service and support to its members.
The provision of a product like Choice Lend – the Advantedge-funded white-label option that has been in place for more than five years – is simply that: an expansion of the support the group provides to its members.
The level of adoption is staggering, with Choice Lend now ranking as the second-highest lender in terms of broker satisfaction among the aggregator’s panel of 34 alternatives.
“Ultimately, its success is being driven by broker satisfaction and brokers and their clients voting with their feet towards this alternate option,” Mr Moore says.
By brokers, for brokers
Advantedge is funding one of AFG’s products, called the AFG Home Loans Edge, which launched earlier this year.
The aggregator did a pilot with about 200 brokers in Sydney back in December before rolling the product out nationally at the end of January. So far, it has been a huge success.
The support from AFG brokers has been strong and the group is impressed with the offering, says AFG Home Loans general manager Chris Slater.
“In March we finished with the product fifth on panel, which is huge,” Mr Slater says. “We took just under 8 per cent market share with that product from a standing start, so there is no doubt there’s an appetite for it out there.”
“We think that is about broker affiliation.”
Before rolling out the product, AFG engaged with brokers to identify what they and their clients were really looking for in a home loan.
“We did a lot of work initially talking to our brokers and worked with Advantedge and our marketing teams as well as an independent research team,” Mr Slater said.
“We just wanted to make sure that we had everything right before we unleashed it Australia-wide.”
AFG has spent 20 years trying to bring competition to the market, so it comes as no surprise that the group wanted a product that would be competitive and help brokers attract new customers.
“Our main thought process is that we have given brokers a product to enable them to win new business, not just steering existing business from one lender to another,” Mr Slater says.
“This is a product that they can take to the marketplace and win business from their competitors.”
The AFG Home Loans Edge is a broker’s product, designed by brokers, for brokers. Their clients don’t get marketed to or cross-sold. It’s allowing brokers to offer their clients a product that they know they can’t find themselves.
Mr Slater believes that from a broker’s perspective, it really reinforces the relationship they have with their customers: “We are giving them a product that their customers couldn’t otherwise get.
“It’s a good point of contact. The relationship sits with the broker and not the actual funder.”
Mr Slater says that over the past few years he has seen the likes of Aussie and some of the NAB-owned groups whose brokers actually have pride in the products and feel an affinity with them.
“I have seen Aussie do that really well.
“It is very early days for us, but our view for the business is to make our brokers feel proud that they’ve got a product they have an affiliation and association with, and that it is a good product their consumers like.”
An important tool
White-label is a recognition of the critical role brokers play to drive the lending landscape and hence competition. Having a branded product has upside because brokers have a direct influence on the shape of those products, which is directly influenced by their clients.
In this way, a bottom-up approach to product design has seen these types of loans fast become a weapon of choice for brokers across the nation.
Mortgage brokers have the unique benefit of being at the coalface and interacting with clients’ day in, day out. They understand customer needs on a far deeper level by interacting daily and identifying what clients are after.
As broker Steve Milligan says: “There’s no use having a white-label product unless it actually suits what your client wants.”
The WA-based broker and finance manager at Launch Finance works in the lower- to middle-income demographic, where the cost of funds is particularly important to his customers.
“My clients are very keen on saving money,” Mr Milligan says. “The white-label product is probably one of the most important tools I’ve got in my bag.”
These days, with such intense competition among mortgage providers, it can often be difficult to differentiate one product from another, particularly on things like flexibility.
Years ago, turnaround times on white-label products would blow out and there would be problems with the credit department, but these days they are as good as any major lender, according to Mr Milligan.
“Their service levels have certainly got better,” he says.
Mr Milligan admits he writes a fair bit of business through PLAN Lending.
Over the past few years he has averaged about 14 different lenders, but says PLAN’s white-label solution gets about 30 per cent of his business – about $30 million last year.
“ANZ is about 25 per cent, followed by CBA and Bankwest. With those plus asset finance deals, I have about 14 different lenders this year,” Mr Milligan says. “I’m not one of those brokers who will only write with three or four lenders because that’s all I know. It’s got to fit the mould.”
The easy sell
As a PLAN broker, Mr Milligan is accredited with the group’s Advantedge-funded white-label products.
Both funder and aggregator are owned by NAB, a key piece of information when selling an unknown brand, he says.
“One of the things about white-label products is that they are owned by the majors,” Mr Milligan says. “I tell my clients that they are buying NAB money and I certainly don’t have any issues selling it.”
After using PLAN Lending for two or three years, Mr Milligan is now reviewing clients. He says that he hasn’t refinanced one client out of PLAN Lend to another provider.
“You don’t want to be churning clients,” he says. “When I make a recommendation to a client on a home loan, I want to make sure they are still with that product in a few years.”
Chris Slater from AFG Home Loans sees the broker’s skill set in client acquisition, generating new business, which is one of the key drivers behind the group’s new white-label offering.
“If you put the four major bank products in front of a consumer, that’s not where the sell is for a broker,” Mr Slater says.
“The sell is their skill in actually going out and finding those customers. I think that’s what brokers do best. A lot of a broker’s sales skills are in acquiring clients.
“To put one of the big four banks in front of that client in all reality probably doesn’t need a lot of hard-core selling. It still needs a lot of technical selling. But if they put an unknown brand in front of a client, a broker has to be very confident selling that product.”
Mr Slater admits it is more of a challenge for a broker to sell a brand that is less known. “Our staff must believe in it, our brokers have to believe in it and at the end of the day our customers have to believe in it.”
The hard sell
Not all brokers see white-label as an easy sell.
Peter Reber, a FAST broker and managing partner of Victoria-based First Point Group, has observed the white-label play now getting pushed out to other aggregators.
As a result, he says, his competitive advantage with FAST becomes dissipated.
“While we have early mover advantage and we are up the experience curve, it is quite a journey.
“It takes a long time to get used to white-label. There are some brokers I know who just can’t do it. They just can’t handle it. There are a lot of nuances and tricks to handling it.”
Brokers must realise that white-label players are not a bank, Mr Reber says. “So a lot of things a bank product can do – for example, to cross-collateralise securities – in white-labelling you can’t do.”
It can be a peculiar product and that puts a lot of people off, he says.
With 25 years’ at NAB and the past 14 running his own broker business, Mr Reber has a deep understanding of white-label lending and where it has come from.
“Those that don’t get it will never play in it because they expect it to be like a bank and it won’t be,” he says. “The systems won’t allow it to be.
“White-label is not as easy to sell to the needs of the client, that’s for sure.”
However, the advantages far outweigh the technicalities for brokers and their clients.
White-label mortgages are often price competitive because they are specific to brokers.
“You don’t pay for the broker unless the transaction is complete,” Mr Reber says. “You don’t have full absorption costing that the banks have.”
In addition, because white-label lending is a dedicated channel, brokers usually find a more superior service catered to their needs.
“We are quite big writers inside FAST Lend,” Mr Reber says. “We use them for the lack of channel conflict, the pricing; we get dedicated service – direct access to credit.
“You are getting really quick turnaround with that particular play.” Strategically, he adds, it also gives brokers a spread.
New growth areas
White-label lending will remain a key part of the lending landscape for some time.
Its role in stimulating competition and having choice of lender – that key component of mortgage broking – and flexibility really does help create a viable broker market.
Choice’s Stephen Moore says he can certainly see a future to expand white-labelling beyond resi and into commercial lending, small business in particular.
“Commercial and asset finance are a key growth segment and that will continue to grow for some time,” he says.
“There will be a logical process to move into white label solutions off the back of that. You can certainly see a future where there is more to white labelling than home loans.”
WA broker Steve Milligan agrees. Back in 1992, while working as a bank manager, he recalls a conversation with his boss – who also now happens to also be a broker based out of WA.
“We noticed that we were losing a lot of business to brokers,” Mr Milligan says.
“Speaking to some of the larger lenders, some of them haven’t realised just how much business these white-label products are generating and they are burying their heads in the sand a bit, to their own detriment.”
Mr Milligan says he has seen NAB, through its broker businesses, start down the commercial and asset finance road and believes the future of white-labelling is in these growth areas.
Other lenders are sure to follow, he says. “I would think that before too long, all the majors will have a white-label offering.”
WHITE-LABELLING: A HISTORY
Advantedge’s Brett Halliwell shares the history of the mortgage funder and provides his views on how white-labelling has evolved since the GFC.
How was Advantedge born?
Advantedge started 15 to 20 years ago as a business called Interstar, which was one of the pioneers in the mortgage manager space back in the days when Aussie John was doing his thing as the alternative to the banks. It then became part of the Challenger group and through that it really grew enormously; it industrialised what the business did. It was under Challenger’s wing that the three aggregators, Choice, PLAN and FAST were purchased.
During the GFC the pool of funds for securitised lenders dried up. So from Challenger’s perspective we were looking for a new funding source. From NAB’s perspective they had made a decision that they wanted to be far more active in the third-party space. By bringing together Challenger and NAB, it really worked perfectly for both parties. From the Challenger side, it was access to funding and to continue growing the business, and from NAB’s side the ability to make a serious step into the third-party space by having the different aggregators.
Our whole focus over the past four years has been growing white-label as a space and a category in the market. White-label just offered something completely different to brokers. They were used to selling different brands, the majors in particular. White-label gave them something completely different that they’d never had before. It was the right price, the right product and the right service.
White-label actually drove a lot of competition in the industry. You saw the other majors, Westpac and CBA in particular, using their multi-brand strategies as a way to have different offerings in the market to appeal to brokers. In my view, it was white-label that drove a lot of that competition.
The journey in the past year or so, particularly for us, is that we have achieved enormous success under PLAN, Choice and FAST in terms of establishing a white-label category, but also gaining market share, which is down to brokers liking what they’ve experienced. As a result of that we have had success rolling out to new customers like Astute and AFG over the course of the past six months. Both the feedback and the results have been overwhelming in that regard.
How many white-label partners does Advantedge have now?
Seven in total: PLAN, Choice, FAST and an additional four.
Would you say white-label lending is an affirmation of the broker channel?
Yes, absolutely. That really comes down to the question: why do customers seek out brokers? The answer in my mind is because brokers have expertise, capability, will help and guide the customer in terms of introducing a broad range of products to suit their needs. White-label introduces a new dimension because it is something different exclusively available through the broker channel.
The endorsement is the customer can’t get that themselves – brokers can offer something that is exclusive and different that is hopefully better than alternatives through other lenders.
Where do you see the future of white-labelling?
In the long term we would certainly like to look at opportunities in commercial lending. At the moment we are continuing to refine the composition of products that we have in market. I see that remaining competitive on price and product, but most of our focus over the past year and into the foreseeable future has been around service – how can we give a service offering that meets the broker’s needs – and building relationships. That’s about having on-road BDM support and access to our underwriting staff.
In terms of niche plays, it is not my desire to be a niche player. I am more about targeting mainstream, quality lending. Other lenders can do niches better than we can. I have no aspiration to get into other areas like SMSF or high-LVR lending. But commercial is certainly an opportunity in the future for us.
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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