A lift in support

The mutuals have seen strong growth over the last couple of years, with socially conscious customers increasingly asking their brokers about alternatives to the major banks – and brokers highly rating their overall experience with them. Annie Kane takes a look at why customer-owned banks are becoming increasingly popular.

The past 12 months have seen a radical shake-up of the finance sector. Following on from the banking royal commission, consumers were disillusioned with big institutions – and looking elsewhere for alternatives. One of the beneficiaries of this disillusionment has been the customer-owned lenders.

It seemed you couldn’t move for seeing posters, billboards and online adverts for mutual lenders last year – with the mutuals pushing their propositions forward loud and proud. Whether it was that their customers were always front and centre (because they are the stakeholders), or that their offering was generally fine-tuned to a specific niche (for example, teachers, police, nurses etc), or that the sector has some strong sustainability and altruistic policies – the mutuals were out loud and proud outlining their unique selling points.

It seems to have paid off, too. According to the Customer Owned Banking Association (COBA), in 2019 the credit unions, mutual banks and building societies lent more than $90 billion in housing to Australians. Fast forward to 2020 and the 67 customer-owned institutions now have $131 billion in assets and $107 billion in deposits.

According to COBA, the key for the growth comes down to trust. The CEO of the association, Michael Lawrence, noted that Roy Morgan’s latest Customer Satisfaction - Consumer Banking in Australia report (based on interviews with over 50,000 consumers per annum covering the six months ending May 2020) shows the mutual sector rating is 89.2 per cent, up by 0.7 per cent on a year ago. In fact, mutual banks took out the top five position in Australia overall.

Mr Lawrence outlined that the customer-owned lenders had also continued to deliver the highest levels of customer satisfaction for the banking sector during the COVID-19 pandemic.

He said: “From the outset of COVID-19, our members have been on the front foot of customer care. They have proactively contacted customers at risk of vulnerability, responded to requests for assistance with respect and sensitivity, and have pivoted operations to remote-work arrangements and digital capability where required, ensuring customers are never on their own.

“Rather than pay out shareholders, customer-owned banking institutions reinvest profits back into benefits for customers through lower interest rates, lower fees and innovative technology.”

Speaking to The Adviser, the head of broker distribution at Heritage Bank, Stewart Saunders, agrees that mutuals have a very strong proposition for borrowers.

Mr Saunders states: “Having worked for non-mutuals as well as the mutual space, it’s really clear to see the difference in what the focus of the organisations are. With the traditional banking model, there is a constant conflict in decision making on delivering shareholder returns versus value for customers. Whereas, with the mutuals, you don’t have that conflict because your members are your owners, and so your decision making is focused on delivering the best outcome for your existing members and future members, too. That makes decision making a lot easier, as you’re serving one master.”

Supporting borrowers during COVID-19

However, Mr Saunders adds that just because customers own the banks, doesn’t mean that they have free reign on how the lenders operate. “We are here to lend responsibly,” he says.

“We’re seeing it play out during the COVID-19 crisis and the approach to hardship arrangements. Just because our members own us, it doesn’t mean the floodgates are open. Yes, we do everything possible to alleviate stress for our customers, but we still need to make sure that we’re managing the business in a way that maintains viability moving forward.

“If you look at the statistics on mutuals versus some of the major banks on the number of customers in hardship, around 10 per cent of the industry is on hardship arrangements due to COVID, whereas the mutuals (and Heritage) are just over 5 per cent. That is because we are so close to our customers, and we can work very closely with them on an individual basis to deliver support required for them without putting in a blanket deferral (which pushes the restart down the road and may mean that customers are in further difficulty as interest is capitalised over the loan term),” he says.

Teachers Mutual Bank’s (TMB) head of third-party distribution, Mark Middleton, adds that TMB’s members are largely from sectors deemed “essential workers” and have therefore been protected from many of the job losses caused by the coronavirus and its associated economic downturn.

“[M]any of our members work in the education, emergency services and healthcare sectors,” he tells The Adviser.

“Fortunately, these key workers have maintained secure employment throughout the COVID-19 crisis,” he says.

“As such, the members on a repayment pause from their home loans represent 4 per cent of our assets. This figure is likely lower than other lenders.”

Paul Juergens, chief customer experience and delivery officer at Newcastle Permanent, also points to a successful COVID-19 assistance response, telling The Adviser that during March and April of this year (when the first stages of lockdown were rolled out across the country), the lender received approximately 1,750 enquiries about customer support programs and had about 1,200 customers take up the option to pause their loan repayments.

“Many of these customers have recommenced their normal repayments, and those we have supported have reported a 92 per cent satisfaction rating on the service we offered,” he reveals.

Why brokers value customer-owned lenders

Indeed, the level of hands-on communication is a key calling card for the mutuals at the moment, but it’s not just customers that are noticing it. Brokers are also seeing the benefits of having a close relationship with the decision makers.

The connectivity and support of the mutuals was a key reason why brokers rated mutual lenders so highly in the Third-Party Lending Report 2020.

Now in its 11th year of publication, the Third-Party Lending Report collated the findings of Momentum Intelligence’s annual survey of the lending experiences of mortgage and finance brokers in Australia.

The 2020 survey was conducted during the peak of the COVID-19 pandemic in Australia (24 February and 15 April 2020) and saw 879 mortgage and finance brokers rate the performance of the lenders that they have worked with over the last 12 months across 17 attributes (covering product, personnel, speed, support and technology).

Momentum Intelligence found that brokers’ perceptions of lenders had increased across the board this year, but this was particularly the case for the non-major banks, including mutuals (see the August 2020 edition of The Adviser for more on how the non-majors fared in the report).

While less than 20 per cent of the broker respondents used mutuals, the ones that did spoke very highly of them. Many of the mutual lenders were rated more highly than the major banks this year – with Newcastle Permanent (77.22 per cent), Bank Australia (76.73 per cent) and Beyond Bank (75.48 per cent) all scoring more highly than the majors. 

Moreover, Beyond Bank was rated as having the best business development managers (BDMs) of any lender this year (with a whopping 91 per cent approval rating), Newcastle Permanent came top of all lenders for broker communication (85 per cent rating), and Bank Australia was rated highest for its lack of channel conflict (92 per cent).

Other mutuals made rapid gains on their ratings from last year. Heritage Bank, for example, increased its rating in each of the 17 attributes – with a whopping 15 per cent improvement in its broker rating for channel conflict.

According to the bank’s head of broker distribution, this rating came in the same year as the lender opened its first branches outside of Queensland for 140 years. He suggests that while the bank opened new branches (one in Castle Hill and one in Parramatta), it was “done well”.

“We really engaged the brokers localised to those areas and looked at how we can additionally provide value to their customers through having the additional face-to-face service that our people can provide on the ground there,” Mr Saunders tells The Adviser.

“We held information evenings and welcome events with brokers to those new bank branches and received fantastic feedback, so it doesn’t surprise me that while we’ve expanded our branch footprint geographically, that hasn’t caused any issues for brokers because they are seeing the value that we can really deliver for them,” he says.

What kind of loan trends are customer-owned lenders seeing?

It’s perhaps unsurprising, then, that several mutual lenders have seen rapid growth over the past year. According to Darren McLeod, head of third party at Beyond Bank, the lender has seen a record number of submissions and settlements this year, stating that broker flows have increased by over 50 per cent on 2019.

While he attributes the overall growth to the bank’s expansion across the eastern seaboard and strong broker support team and BDMs, Mr McLeod adds that the fact that Beyond Bank has “largely kept [its] credit policy unchanged and ensured [it] take[s] a common sense and compassionate approach to lending” has also helped.

Owner-occupier loans made up 73 per cent of Beyond Bank’s loan applications, he reveals, noting that first home buyers have been the biggest contributor of the owner-occupied portion (and making up 35 per cent of broker submissions), largely due to the First Home Loan Deposit Scheme.

“The market has moved where people have cancelled holidays, weddings, or read an article stating housing prices will fall, and they have jumped at the chance to get in the market,” Mr McLeod says.

“Consumer preferences are changing as well. We are seeing a large shift in preference towards community-focused mutual banks like ourselves across all borrower demographics.

“Brokers are really understanding the true value of what a customer-owned bank has to offer and their customers are now seeing the benefits of this,” he tells The Adviser.

Likewise, Newcastle Permanent’s Mr Juergens revealed that the lender had seen a particularly “strong uplift in monthly refinancing approvals” from brokers.

Refinance activity has also been a major trend noted by TMB, whose head of third-party distribution, Mr Middleton, revealed that while refinances usually represent around a quarter of the bank’s book, it has recently ranged from 43-47 per cent.

Moreover, Mr Middleton noted a growing trend towards fixed rates, which are now sitting at record-low levels.

“Eighty-six per cent of our fixed-rate customers are on P&I repayments, which indicates that our members are looking to take advantage of these rates and reduce their loan as quickly as possible,” he says.

“2020 has been a busy year of lending for us. In April, we saw a 300 per cent increase in daily submissions, and this high volume has continued over the last quarter,” he tells The Adviser.

The mutuals have also been busy listening to and consulting with brokers on how they can improve their offering – with both Heritage Bank and TMB keeping the communication channels open with the third-party channel as they work to improve their turnaround times.

Heritage’s Mr Saunders says: “We really focused on the feedback we’ve received from brokers around inconsistency and speed to decisioning in the assessment process. We embarked on two key projects over the year that has seen us reduce our average time to unconditional by half. This has been really positive in terms of being able to deal with higher volumes in a much faster amount of time.”

With Victoria having entered a second lockdown period and concerns mounting given the economic downturn, more support will be needed for borrowers and brokers this year, and into 2021. As such, knowing that customer-owned lenders are listening and supporting brokers and their clients could help solve many lending headaches.

As Heritage Bank CEO Peter Lock recently said: “It’s simply about helping understand the different banking models in operation in Australia.

“That awareness is the critical first step in creating a more informed choice for Australia’s banking consumers.”

Supporting brokers during COVID-19

While brokers have been increasingly turning to the mutual lenders for their customers, the lenders in turn have been eager to support the broker channel. We find out how they have been supporting brokers during a trying year.

 

How has the bank been supporting the broker channel during COVID-19?

We have adapted to accept electronic signatures and electronic ID where possible to ensure customers and brokers are not put at risk to give the bank business. We also wanted to ensure that customers with new and existing lending were not going to be penalised for being on JobKeeper or reduced hours. Early on, we made it clear to brokers we would still consider these applications on a case-by-case basis. This enabled plenty of brokers to provide an option for clients that may have missed out otherwise.

 

How has the bank been supporting the broker channel during COVID-19?

A big broker pain point, particularly during COVID-19, has been the ID process. We’ve partnered with InfoTrack to deliver a non-face-to-face, digital ID process that brokers are able to utilise for Heritage applications.

We have also been building deeper relationships with our broker partners, and we’ve done this through investing in additional BDMs in both NSW and Victoria as well as establishing a priority broker proposition. This proposition has been really well received and means we are able to deliver a more consistent service proposition for those brokers that are using us more frequently and understand our application processes and requirements. These all assist in helping their customers secure a loan with Heritage faster.

 

How has the bank been supporting the broker channel during COVID-19?

We start by getting the basics right: answering the phone when our partners want to talk to us, in our broker team and helpdesk, with very strong technical support.

Another basic has to be great rates. We’re in a strong position financially to compete hard for brokers’ business, with some of the lowest fixed and variable rates in market, plus a cashback.

Then we’ve made it easier to order upfront valuations, get full pre-approvals, complete applications in person by phone or video, open accounts online and complete ID digitally. And our teams have always been here in Australia, with no offshore processing, so our time to yes has been around six to eight days through the pandemic.

 

How has the bank been supporting the broker channel during COVID-19?

We are proud to be offering the FHLDS for a second time to our third-party channel and their clients. This scheme is great in helping more Australians get their foot in the property market, and we have already seen a high demand for the second release.

During the period of high loan volumes, our SLAs have been impacted. We understand the affect this can have on our brokers. So, to support them, we keep transparency high and communicate throughout the application process so they can manage expectations with their client.

In response to COVID-19, we’ve introduced some lending policy changes to promote the sustainability of our book. When these are made, it’s our priority to communicate with our broker partners as promptly as possible. We see our broker partners as an extended salesforce and understand the importance of sharing news with them.