Feature by Tim Neary
IN A YEAR of ongoing change in the third party channel, one area that many agree on is who the best non-major banks are. This year the Momentum Intelligence Third Party Lending Report: Non-Major Banks attracted a record response, with nearly 1,500 brokers voting for the movers and shakers in the industry. Or shifters and wigglers, as the case may be.
The online survey, conducted from 7 to 27 July, asked brokers to declare which non-major banks they had written business with over the past 12 months and then score each of these banks across 23 metrics. The metrics were organised across product, commission, tech and support categories and the banks were then graded across the 23 categories and ranked according to their aggregated score.
All responses were collected through an online survey promoted through Momentum Intelligence's research partners.
Once again, it’s the usual suspects in the top five positions, with ING DIRECT maintaining its reputation as brokers’ best non-major bank for the fifth consecutive year.
Equally, the St. George Group has kept up its strong showing with brokers, taking out second place and pushing Macquarie Bank down to third. It’s a notable achievement for the group, which has been steadily climbing the ranks over the past few years, from sixth place in 2014, to third last year, and now coming in a strong second.
Suncorp and Bankwest rounded out the top five, holding the same positions as they did in 2015.
Head of client services and sales research at Momentum Media Group, Andrew Scott, says the strong level of interest shown by brokers in this year’s report is pleasing to see, and reinforces the significance of the non-major lenders in the third party channel.
“Brokers appear very happy with non-major banks, with the average score for banks overall improving by 9.64 per cent on 2015's figures,” Mr Scott says.
“No bank scored lower overall in 2016 compared with 2015.”
He adds that although ING DIRECT has proven itself to be the most popular non-major bank with brokers, others are catching up.
“ING DIRECT has scored consistently high across all 23 individual sub-categories. This hasn't gone unchallenged by the other listed non-major banks, however, with every other bank closing the gap on ING DIRECT's overall score in 2016,” he notes.
“In 2015, ING topped the rankings in 17 of the 23 metrics. This year that fell to only 8 of the 23 metrics. I imagine they'll be nervously looking over their shoulders if they want to remain the majority of brokers’ non-major bank of choice over the next 12 months.”
Mr Scott also says the research clearly shows that “the strength of the relationship between non-major banks and brokers is increasing”.
The introduction of a new breed of lenders, most notably the so-called 'fintech' lenders, has seen competition intensify across the entire mortgage landscape. The upshot is that, this year, the non-majors were required to fight hard for their territory.
In the third party channel the majority of mortgages are still written by the big four majors, and the AFG Competition Index for June 2016 reports that, in a bid to squeeze out their competitors, they are primarily pushing price to retain and gain market share.
For the rest, this puts the onus on what remains: service, support, tech and product.
So, it’s no surprise that these are the areas that inform how the non-majors perform in the market, and are the same ones the report homed in on.
AFG’s index mirrored the 2016 non-major survey results, finding ING DIRECT has delivered the strongest results – lifting its market share from 1.5 per cent to 4.3 per cent over the quarter.
At the other end of the scale, the index reported that Bank of Queensland slid during the quarter.
“After riding high at 7 per cent back in December 2015 they have dropped back significantly the past two quarters to be at 0.4 per cent by the end of May,” says Mark Hewitt, AFG’s general manager for sales and operations.
He points out that these types of significant drops are often the result of service levels blowing out.
“If a broker has a client that needs their home loan settled in a reasonable time frame, they are not going to risk placing the business where it will be held up by slow processing times.
“We have always said that a broker’s decision on where to place the client is driven by pricing, policy and service: a home loan that has a competitive interest rate, with a lending policy that meets the client’s individual circumstances and high-quality service that will ensure a smooth settlement.”
All three of these components must line up, Mr Hewitt says, for the recommendation to go a lender’s way.
Third-Party Lending Report: Non-Major Banks
On how they are lining up against these same three components, mortgage broker at Infinity Group, Sandra Djalo, has nothing but praise for the non-majors.
She has found the non-majors to be “extremely competitive” in the current environment.
“They offer great product flexibility, common-sense lending and competitive rates with superior service,” she says.
Ms Djalo adds that she has seen the non-majors broaden their offerings in response to the new disruptive and competitive challenges that are pervading the market, while maintaining focus on providing “timely and quality service”.
She says she has been increasingly leaning on the non-majors during the year, due to their flexibility and willingness to work with brokers.
“Speed of service is important and they deliver without brokers having to beg,” she adds.
“Non-majors’ credit teams are far more willing to talk to brokers and look for a resolution. Many have a broad product range with competitive rates, so are able to match the majors while offering better service.”
Third-Party Lending Report: Non-Major Banks
With as much as 90 per cent of all its mortgages written through the broker channel, it’s fair to say that ING DIRECT is well and truly broker-focused, as it eliminates channel conflict completely. As such, it is perhaps no surprise that the bank has been the broker’s choice for so many years running.
Mark Woolnough, head of third party distribution at ING DIRECT, says he is extremely pleased and humbled by the bank’s number one rating, adding that it is a credit to the relationships the bank has with its brokers, which are a “strong point” for the bank.
“Our industry is about relationships, whether between lender and broker or broker and borrower, and I believe this is a real strong point for us,” he says, asserting that things like products and pricing can be copied, but people and culture cannot.
He says it is ING DIRECT’s focus on communication that really sets it apart, such as “keeping brokers up to date with our business, being available, transparent and responsive, and working hard to understand and deliver on brokers’ needs and those of their customers”.
“We have a great, hardworking team, both on the front line and behind the scenes, and this top ranking is great proof of that,” he says.
“Ultimately, our number one ranking for the fifth year in a row is a testament to the true partnerships we have with our broker partners, built on our shared purpose of helping customers get ahead.”
According to Mr Woolnough, last year’s Momentum Intelligence Third Party Lending Report: Non-Major Banks showed how competitive the industry is, and has provided the bank with some good lessons.
He says: “We saw in last year’s report that efficiency was a big focus for brokers, and we responded to that with our investment in a new mortgage origination system.
“We’re part-way through this project and the efficiencies in turnaround times and processing will really start to shine through in the coming months.”
To that end, Mr Woolnough says the bank is very focused on technology.
“This is all about providing greater control to our broker partners in managing their portfolio and customers, and supporting them in diversifying their business and deepening customer relationships.”
He adds that ING DIRECT is also continuing to invest in its own people, in the hope of empowering them to do more for its broker partners.
A year in review
So aside from eliminating channel conflict, what has ING DIRECT been doing to make such a mark in the broker psyche?
Since the survey was undertaken, the branchless bank has tightened its credit policy for apartments and unit dwellings. For internal floor spaces of less than 60 square metres, the new underwriting policy limits LVRs to 70 per cent. And, where the floor space is greater than 50 and less than 60 square metres and the property is older than five years, to 80 per cent.
ING DIRECT has also been regularly reducing its interest rates in tandem with market and RBA fluctuations; in August, it reduced its Orange Advantage variable rates for existing and new customers by 0.12 per cent in the wake of the RBA’s historic cash rate decision, and all other variable home loan rates by 0.10 per cent per annum.
This came just a month after it had introduced its lowest ever variable rate for the Orange Advantage loan – reducing it by 15 basis points to 3.79 per cent for owner-occupiers. It also reduced a number of its fixed rates at the same time, with the one-year rate getting the biggest reduction, down 20 basis points to 3.89 per cent.
The non-major bank is also helping residential brokers looking to diversify into commercial lending by sharing knowledge of the commercial lending process and workshopping deals through its residential BDMs and credit assist team.
Noting that the latest RBA figures show a growth in lenders’ business loan portfolios – by 7.4 per cent over 12 months – the bank says a flood of commercial deals could be heading the way of the broker channel in the next few months.
In fact, its commercial property training program has already seen growth in demand, with more than 100 brokers across Australia participating in the course since its launch in January.
Third-Party Lending Report: Non-Major Banks
Heritage Bank has taken the title of biggest improver, rising from 10th position last year to sixth position in 2016.
Paul Francis, general manager for retail services, says Heritage Bank is “absolutely delighted” to be the most improved in the 2016 Momentum Intelligence Third Party Lending Report: Non-Major Banks.
“This is a very pleasing result,” he says.
“However, we are absolutely aware that we are on a continuous improvement journey.”
Mr Francis says Heritage has been “listening carefully” to what its broker partners have asked for – and is working hard to deliver on those requests. Like ING DIRECT, Mr Francis says that Heritage paid close attention to last year’s report.
“While we have had a significant improvement from last year, the key learning for us is that we still have to listen to all the feedback our broker partners provide us and work as hard as we can to match their needs.
“Our key focus has been, and will continue to be, on our service – both our processes and turnaround times.”
Heritage has recently been focusing on giving more structure to its broker offering to “build deep and lasting relationships with broker partners”. Earlier this year, the bank appointed Michael Trencher as the head of broker distribution, with a view to reposition the bank’s model and enhance its value proposition.
Heritage has also spent some time reviewing its loan processing structures and credit policies – both of which are linked to its broader corporate strategic growth strategy.
Third-Party Lending Report: Non-Major Banks
The non-majors are clear in their strategy of maintaining mortgage brokers as their channel of choice for business origination. Scoring and ranking well in the 2016 Momentum Intelligence Third Party Lending Report: Non-Major Banks makes a significant and encouraging impact on their offering to the third party channel.
Mr Woolnough says ranking first in the report has been a great boost to the ING DIRECT team, especially from an internal perspective.
“It’s an endorsement of all their hard work and commitment to our brokers and their customers,” he says, adding that the report can help the bank continuously improve, demonstrating where it is “kicking goals”, but also where it may need to put a little more focus.
From an external perspective, Mr Woolnough says the positioning is a demonstration of the professionalism and high standards that brokers and their clients can expect from ING DIRECT.
To this end, the bank has supported its brokers in deepening their customer relationships and diversifying by expanding its referral program. It has also put a lot of focus into its commercial business.
“We knew there was an opportunity for this sort of training, and the demand and feedback have been phenomenal. Ultimately, we’ve seen significant growth in this area of our business,” Mr Woolnough says.
ING DIRECT has also invested in its service and systems, introducing a new verification process and mortgage origination system – streamlining processes to deliver faster turnaround times.
So far the investment is paying off. In this year’s ranking ING placed first overall in the support category and second overall in both the tech and product categories.
Mr Francis is equally pleased with Heritage Bank’s showing in the report.
“The broker market is extremely important to Heritage and our goal of growing our brand on the national stage,” he says.
“We are looking to reposition Heritage in a number of ways with a key focus on improving our service levels and streamlining our credit policies and processes.”
The impact of this, according to Mr Francis, is that Heritage is becoming easier to do business with.
It has been a deliberate effort and, judging by how Heritage performed in the survey, it is paying dividends.