On Thursday, 3 August, The Adviser, in partnership with MSA National, held its inaugural Mutual Bank Roundtable at Sydney’s cavernous and cosy Restaurant Hubert. Find out what the heads of the mutuals head to say.
A word from MSA National
For over 27 years, MSA has been a champion for the broker and customer experience. And in 2016, we established ourselves as market leaders by launching a suite of digital innovations that is transforming the customer experience and making the documentation and settlement process faster and simpler than ever before. Most of all, MSA is known for its file ownership model that delivers legendary service from a team that has genuine empathy and humility for the customer.
It is no coincidence that lenders who partner with MSA have happier customers and happier brokers.
At The Adviser's Mutual Roundtable, sponsored by MSA National, the discussion was driven by a number of major changes taking place in the Australian mortgage market. Regulatory measures have impacted pricing and policy, making communication with brokers and aggregation groups a priority for lenders. Meanwhile, negative sentiment towards the big banks has created natural opportunities for alternative lenders. The Adviser was keen to find out how the mutuals view the current climate and how it is informing their third-party strategies.
In addition to MSA National managing director Sam Makhoul and CEO Ayhan Baba, our fellow diners included:
The roundtable was moderated by James Mitchell, managing editor of mortgages at Momentum Media (publisher of The Adviser). Here is how it unfolded:
James Mitchell, The Adviser: Broker market share is currently hovering around 53 per cent. There has been plenty of big bank bashing going on in the press and at a government level. Surely there is an opportunity for the mutual banks to step into the breach?
James Mitchell, The Adviser: What share of CUA mortgages are coming through third party at the moment?
Andy Rigg, CUA: We are keen to retain it at around 40 per cent. We have three broker groups we deal with and we see those as real partnerships. They give us quality loans and quality submissions, and we work with them as if they were one of our own distribution channels. They receive exactly the same products and are serviced in exactly the same way. As far as we’re concerned, they are an extension of our brand.
Richard Irving, Bank Australia: We’d cap our broker distribution at around 40 per cent. But new flow, because we only started 18 months ago, is about 50-50 between third party and direct. Our ideal mix is about 40 per cent broker and 60 per cent retail.
Mark Middleton, TMB: We are yet to reach 50 per cent broker origination, but we have had a great start in the market. It really is about providing that channel of choice. CUA has a much broader national representation, and for us coming in to the market, it enabled us to get out there and use brokers to the benefit of our members. We all would have seen members choosing brokers, and I think it is making it easier.
Another thing is the ethical practices that many of the mutuals believe in and how that translates in our customer satisfaction levels. The mutuals are always leading in that department, well above the majors or their subsidiaries, so when a borrower goes with a mutual, they are clearly very happy with that broker’s recommendation.
We’ve been recognised for being 100 per cent carbon-neutral, and there are customers out there right now looking for an alternative to the big four banks. Customers are becoming more conscious of leaving behind a better world for their children. That’s changing the way they choose mortgage providers.
Darren McLeod, Beyond Bank: A bit like Bank Australia and Teachers Mutual Bank, we have only been in the broker space for 18 months. In that time, we have grown our broker originations to almost 40 per cent, so you can see the demand over a short period of time. It has become a significant part of our business already.
James Mitchell, The Adviser: Outside your home state as well?
Darren McLeod, Beyond Bank: Beyond Bank has brand presence in WA, SA and the ACT. We basically started in those states where we had people on the ground and have gradually grown into the Eastern Seaboard. This year is a big push for us to consolidate and push into those areas where we do not have a brand presence. The demand when we first started the business went to one or two aggregators. Then, all of a sudden, a few more aggregators were interested. But we were very conscious about not blowing out.
Andy Rigg, CUA: We’ve got aggregators chasing us as well. It’s not a case of ‘Can we go on their panel?’ It’s the other way around. We simply can’t deal with the volume of lending that would come from partnering with too many aggregators, and it's important not to compromise on member experience by taking on too much volume.
James Mitchell, The Adviser: Turnaround times are a very important factor in a broker’s business, particularly when it comes to choice of lender and managing customer expectations. Are turnaround times an area of focus for you?
Richard Irving, Bank Australia: I don’t think it’s just about turnaround times. I really think it is about consistency of service. What brokers keep telling us is that if they know we can consistently deliver, then they can set those expectations for their customers. It’s not just about delivering consistently in terms of time, but also the quality, the conversation. It’s how you add value in terms of scenarios, so we do a lot of scenario analysis with our brokers up front.
One of the challenges for mutual banks is that we have to manage our limits from a regulatory perspective, just like the bigger banks do. Our communication with brokers has to be clear, and we need to set those expectations early.
Bank Australia is on four aggregator groups. [Although] we are on a list of aggregators that want us on their panel, we won’t do another one this year on the basis that we to service the four that we’ve got and do a really good job of building that trust.
I think if you can build trust and brokers can feel confident, then they talk to other brokers and begin to understand that the mutuals are a genuine alternative in the marketplace.
Darren McLeod, Beyond Bank: From our point of view, what we probably got caught out on a bit was how quickly the market moved with lenders pulling out of certain segments. I think we underestimated the fact that a broker, even though they don’t know your brand or much about you, will jump on you in this market if you have a product that nobody else has. You can quickly become inundated with applications, even if you haven’t been promoting a particular rate. The market can move overnight, and balancing high demand with your quality and service levels is important. The tap can really get turned on quickly.
Andy Rigg, CUA: When CBA pulled out of the third-party originated investor mortgage market, our applications went up by 20 a day, overnight. Think about APRA’s 10 per cent cap. We will write about $3 billion in mortgages this year, so 10 per cent of that is $300 million. You only need five days of 20 applications per day and it doesn't take long to be at your limit.
James Mitchell, The Adviser: Communicating these regulatory changes to brokers is clearly important. How are brokers responding to the constant changes in pricing and policy in the market right now?
Darren McLeod, Beyond Bank: Originally, there was a feeling among brokers that their business was really being hurt by the changes. But now they are much more in tune. You can’t over-communicate. When you make a change, it’s a matter of sending an email to all of our broker partners. When brokers have loans in the system, we try and individually call them, if we can. We communicate through the aggregators.
Right now, what is most important when a change is made is updating that aggregator software. Because the market is so complex and confusing now, brokers really rely on that. If a broker is sitting in front of a customer, they are completely reliant on that aggregator software to know which lenders are doing investment and who is doing interest-only and what LVR limits are in place.
Mark Middleton, TMB: We’ve seen a big influx of people looking for alternatives in the last few months. Traditionally, the brokers out there have probably looked at the big four and their subsidiaries, and when they have tightened that policy up, they haven’t had anywhere to go. As an alternative, they have had to go and seek accreditation and start looking at what else is out there . . . which has been beneficial and seen flow come through to ourselves and other mutuals.
Aggregators are also starting to encourage more mutuals onto their panels. They don’t want to be seen as wedded to the big four. They want to provide more alternatives.
James Mitchell, The Adviser: There is a natural synergy between brokers — who service their local communities — and the mutual lenders who focus on their community members. Is this being leveraged?
Darren McLeod, Beyond Bank: I think we underleverage it. That will be a key area of focus for us going forward. Nine per cent of our profits are put back into community activity. Some brokers know that. Others might not. When we do training sessions with brokers, we outline the differences between a customer-owned bank and a shareholder-owned bank.
But I think we can go further and really explain how we are investing in particular communities, especially if a broker is working in a particular region and may not know the things we do in those areas.
Richard Irving, Bank Australia: I think customers are starting to demand it, too. There is a bit of bank bashing going on at a time when the banking sector is very strong and competition is very strong. Yet customers are looking to understand how their bank is going to behave. There is a social conscience attached to it.
For brokers, they are driven by volume and have customers asking for competitiveness on interest rates. What we have started to do is build a whole toolkit around that social conscience piece. We are starting to show brokers, through heat maps, what customers are wanting.
It has even changed some of the broker fact finds, in terms of asking questions such as: "Are the values of the lender important to you?" or "Is a mutual bank important to you?" If it is — and a broker takes that into consideration — then over the longer term they will keep that relationship with the client. Your clients are going to want to know that you have provided the right thing by them.
James Mitchell, The Adviser: Where do the mutuals sit in terms of new digital solutions that might improve turnaround times and efficiency (such as verification of identity applications)? I know MSA National have been doing a lot of work in this area.
Sam Makhoul, MSA National: We have. The app that we developed, called IDme, was introduced because a lot of our customers come into our office to pick up documents or certificates of title, and we have to verify their identity. We have offices in every state, so we developed this app internally to control that risk and get standardisation. We showed it to a few brokers and they found it very impressive and wanted to use it themselves, with their clients. That’s how it started reaching the broker market.
Ayhan Baba, MSA National: In a typical scenario today, when a borrower meets with their broker, they choose the loan, the application is submitted to the lender and the process begins. The panel solicitor will produce paper documents and post them to the borrower. Usually, the credit process takes about a week. From the time the documents are prepared to the time the borrower receives it in their hand, [the process] takes two to three days. Completed documents take a further two to three days to be received by the panel solicitor. In all, we lose about five to seven days in transit.
Now, imagine a scenario where technology can replace most of these cumbersome processes. The borrower has met with their broker, the broker has submitted the application (including an electronic VOIN report), the lender's instruction automatically feeds through to the panel solicitor, and the documents are dispatched electronically in a video format. The borrower received the documents instantly, completes the signing process online and submits the documents (which are returned instantly). This has saved one week in transit time alone, as well as significantly reduced error rates. We now have examples where we are booking settlement the day after the loan application is submitted to the lender.
We can also deliver personalised videos to the borrower with customised messages, which ensures an 80 per cent engagement from the borrower. These are some of the things we've been working on for the lenders and brokers.
James Mitchell, The Adviser: It has been interesting to see the emergence of online broker models like Joust, LoanDolphin and uno. I know some of the mutuals have partnered with these groups. What are your thoughts on these online distribution models?
Darren McLeod, Beyond Bank: We dealt with Joust for a period; however, as we did not differ on price (through Joust, broker or first party), the model really didn’t work for us, and thus there was minimal uptake.
The thing with these bidding sites is that we have one product and one price; whether you go to a branch, a mobile lender or a broker, you get the same deal. It’s up to the customer how they choose to deal with us.
Mark Middleton, TMB: It comes back to service. You might get a rate that is 10 basis points cheaper, but is it the right product for the customer?
Andy Rigg, CUA: Some of these online broker models are only thinking about price. Other models, like LoanDolphin, for example, place it to the uniqueness of the deal. So, if the borrower needs something specific, it will match that requirement, rather than just going on price.
Richard Irving, Bank Australia: I think there is a place for these models and it does drive competition. But like others have said, we refuse to do anything that will have differential pricing between our channels. You are in a race to the bottom if you are going to start undercutting particular channels.
Mark Middleton, TMB: We don’t discount. The price is what it is for first- and third-party channels.
James Mitchell, The Adviser: Finally, I’d like to get your thoughts on an important topic that plenty of brokers are talking about: the ASIC and Sedgwick remuneration reviews.
Darren McLeod, Beyond Bank: The biggest thing for me is how they want to go away from paying commission on the loan amount. To me, there are a number of issues there: How do you calculate that as a lender? If they are basing it on a number of different things like quality and how many times a file has been touched, it’s going to be difficult to calculate. I mean, how do you calculate quality?
James Mitchell, The Adviser: You raise a good point, particularly the difficulties around measuring good customer outcomes.
Richard Irving, Bank Australia: There were no big surprises in the findings of the ASIC review. It made absolute sense to scrap bonus incentives and volume-based incentives. The findings were genuinely good for brokers and the broader community. But what Sedgwick has done has clouded the situation.
Mark Middleton, TMB: As mutuals, if we were unable to play in the broker space, we’d be dead in the water. Any big changes to commissions would also mean thousands of brokers could be without a job.
Tools of the trade
NewGen Digital Docs
On 6 October 2016, MSA became the first major outsourced service provider in Australia to go live with its New Generation e-Sign solution. This means that the complete home loan pack, including the mortgage, can be sent to the customer with the click of a mouse, signed with the click of a mouse and sent back to MSA instantly. No paper. No delays.
MyVideo — Great news delivered differently
Receiving news that your home loan has been approved is perhaps one of the greatest delights for home loan customers. Receiving it via customised video is something else. MSA has introduced MyVideo, an original concept and market first. Here are some of its key features:
IDme VOI app welcomes new lenders
More and more brokers are using MSA’s IDme app to conduct their verification of identity (VOI). MSA has recently welcomed NAB, Advantedge, MyState Bank and La Trobe Financial to the platform.
PEXA and MSA’s 'DigiSettle' solution
MSA is consistently featured in the top five on the PEXA leader board, only behind the four major banks.
“PEXA would like to extend our congratulations to MSA National who feature prominently on the invitation leader board and are working with their clients in preparation for the refinance compliance date of 1 August 2017,” PEXA CEO Marcus Price said.
MSA is committed to digital transformation with the ultimate goal of improving the customer experience and reducing the cost of getting a home loan. That’s what it’s all about — the customer. Everything we design is with complete empathy for the customer.
Who do you aggregate through?
Thank you for your vote, you can see the results here.
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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