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The competitive edge

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The competitive edge

Steven Cross 6 minute read

Earlier this year, The Adviser assessed brokers’ level of satisfaction with both the major and non-major lenders. The results showed that while the majors’ dominance of the lending market remains entrenched, the non-majors are holding their own 

In the eyes of Australian consumers – including first-time buyers, property investors and upsizers – competition is one thing that the banking sector needs desparately. Typically, this viewpoint is expressed with reference to the major banks.

Nevertheless, when it comes to taking out a home loan, the majors’ slice of the pie remains huge. Reducing their market share to even 75 per cent would be a massive achievement.

So, what does all this mean for brokers and, equally important, for the way in which they write business? In their eyes, how does one sector stack up against the other?

Keeping up with the competition

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Lenders have become increasingly aggressive in their push to seize a larger slice of the market. A flood of highly competitive interest rates and commission hikes has demonstrated clearly that the major banks are intent both on securing borrowers and expanding into the third-party distribution channel.

“With lower credit and growth in the market hovering around four and a half per cent, I think all lenders are trying to take a piece of that market,” says head of third-party distribution at ING DIRECT, Mark Woolnough.

During and immediately after the global financial crisis, the big four all but took over the residential lending market, and since then have, naturally, been reluctant to yield any of the ground they gained, according to Charlton Nevis, head of non-major lender Wide Bay.

“My read of the market tells me that 80percent of business ends up on a big bank’s balance sheet in some way,” claims Mr Nevis.

“[However], I believe that mix should be moving toward a 70:30 split within three or four years. What that’ll do is put that competitive tinge in the market and remove all the complacency which has been growing since the GFC when the majors put a stranglehold on the market.”

Damian Percy, general manager of third-party mortgages at Adelaide Bank, agrees that the non-majors’ share of the lending market – achieved through the third-party distribution channel – is set to grow.

“Brokers are again returning to the non-majors and I expect that trend to continue for the next few years,” he says.

“It’s not necessarily about being an alternative to the majors; it’s about having a proposition that is of value in and of itself.

“We’ve got an incredibly strong funding position, a proven commitment to brokers and what they can do for homeowners, and a long-standing reputation for reliability, both pre- and post-settlement.

“For some borrowers, that’s what they want and we’ll be a perfect fit.”

That strong proposition not withstanding, Suncorp Bank recently announced an enthusiastic move to court brokers by promising a 48-hour turnaround time or the client would receive $500 cash back.

“We’re putting our money where our mouth is,” says Steven Heavey, general manager for intermediaries.

“We know that this is one area that we’ve had to focus on over the past few years, and so we have invested in getting deals out the door within that timeframe.”

Wide Bay is another lender that has made turnaround times top priority.

“We have a promise of 30-minute conditional approval so there is no more necessity for the broker to wait a great deal of time,” Mr Nevis says.

“In my experience, the range of broker types is so wide that there are different propositions that suit each one. So I think it’s important to have a range of propositions so the broker can decide what works best for them and their customers.

“Without that choice, there would just be a ‘sameness’ in the market.”

The importance of brokers

For non-major – as well as for non-bank – lenders, brokers are not just a distribution channel, they are an essential part of these lenders’ operations and in some ways brokers characterise the way they do business.

According to Mr Percy, this is why non-major banks tend to invest significant time and effort in their broker partners.

“It is the non-majors for whom thirdparty channels are usually as large as or larger than their proprietary ones,” he says. “As a consequence, there’s a mutuality of interest between brokers and non-majors that I don’t think exists with the majors.

“This means that to the extent that favourites are played, brokers are more likely to be the beneficiaries of investment and innovation rather than seeing proprietary channels at the front of the queue,” he says.

Mr Percy also claims the bond between broker and bank manifests itself in pricing and credit decisions – as most brokers will have experienced on several occasions.

Sam Ayliffe of Astute Financial writes a healthy volume of business with non-major lenders but says it’s not so much the rate that gets the lender over the line but the policy.

“They are competitive, they are consistent and they do deserve to be noticed as well,” he says.

Mr Ayliffe adds that while it is important to have a healthy relationship with the big banks, access to choice is what really gives brokers value.

“It’s important that brokers don’t write 80 per cent of their business with one bank,” he says. “Broking is about relationships, but it’s about product and price too.

“I’ve gone to barbecues and out of a dozen people, I would almost recommend a different product for each person depending on their needs and circumstances.”

According to Mr Woolnough, the non-majors know that the role they play in the marketplace is an important one.

“We truly believe that ING DIRECT – and indeed all second-tier lenders – has a deeper relationship with [the] customers. They generally have a longer tenure, which is good for the broker because it protects their income over time, and being an online branchless bank, we’re able to source feedback and act on it quicker than the majors.

“The non-major segment is critical to the future and the health of the market as well as the broker industry.

“Customers see brokers primarily for choice and to understand all the options available to them.

“The broker is encouraged, and empowered, to work through the various complexities and layers of lenders and their products to meet the needs of their customer.”

Head to head

Research conducted earlier in the year by The Adviser, shows the average level of broker satisfaction across several performance categories for both the major and non-major lender sectors.

While the results overall show little difference between the two types of lender, some categories do indicate a broker preference for either a major or a non-major.

On average, the non-majors performed better in the channel conflict, pricing, remuneration, and support categories. However, the big four performed better when it came to technology, training/education and web presence.

The results suggest that while the major banks have been able to invest their considerable resources in costly areas such as technology, the non-majors perform well in areas that are particularly important in the day-today work of brokers, such as support, sometimes regarded as ‘softer’ skills.

The competitive edge
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