Australia's second tier lenders are already benefitting from The Adviser's ‘Third Party Banking Report: Second Tier Lenders', released last month. The banks have identified different areas in which they can improve, but they are united by a common goal: to compete for the majors' market share
The Adviser's 2010 report on second tier lenders reveals how players within the sector have approached the mortgage distribution channel, and how they plan to improve broker sentiment in the future.
The future looks bright for the nation's smaller banking sector.
While the major banks have dominated mortgage lending in Australia, second tier lenders play a critical role in the third party distribution channel.
According to the 304 brokers who participated in The Adviser's ‘Third Party Banking Report: Second Tier Lenders', AMP, Bankwest, Bendigo and Adelaide Bank, Citibank, ING DIRECT and Suncorp have emerged this year as prominent challengers to the majors in terms of brokers' overall satisfaction.
The survey, organised by The Adviser in conjunction with data analyst Retail Finance Intelligence, revealed how broker sentiment towards the second tier banks in terms of product offering, technology, commissions and support capabilities has remained relatively consistent.
ING DIRECT dominated this year's report, achieving an outstanding 11 first rankings across 17 categories.
Meanwhile, the second tier overall has performed better than the big banks across several key areas, including broker interaction, training and education, and channel conflict.
For broker interaction, NAB and Westpac's scores of 2.33 and 2.94 respectively were no match for the second tiers' average score of 3.30.
For training and education, all second tier lenders scored above 3.00, while only one of the majors (CBA with 3.42) topped that mark.
For channel conflict, ING DIRECT smashed the majors' scores with a top score of 3.82 compared with ANZ's score of 3.24. Bankwest, rated lowest for channel conflict at 2.97, still managed to outperform the lowest-ranked major bank, NAB, which achieved 2.56.
ING DIRECT cracked the 3.00 average score for commission structure, while all but one of the major banks, ANZ, failed to top that benchmark.
The report revealed the second tier banking sector still has its work cut out if it is to beat the majors on products, technology, commissions and support capabilities, with broker sentiment split relatively evenly between the majors and the second tier in these areas.
In the diversified area of cross-sell, as well as in online lodgements, the major banks still remain in the lead.
For online lodgements in particular, the majors all scored higher than the leading second tier lender, indicating the significant ground the second tier needs to make up in this area.
A TOP PERFORMANCE
Fuelling growth through enhanced service quality is the key to successful lending, according to ING DIRECT.
2010 has been a top year for ING DIRECT, named the number one non-major lender in The Adviser's ‘Third Party Banking Report: Second Tier Lenders'.
The company's executive director of mortgages, Lisa Claes, says she was extremely proud and pleased with the rankings across all the criteria.
"The number one ranking reflects our dedication and passion for the broker channel. It was great to get vindication of a lot of aspects of our offering that we feel are industry leading," she says.
Ms Claes adds that the findings correlate well with the bank's own internal and external research on intermediary satisfaction with the lender's services.
"I was pleased to say there was an alignment there," she says. "For example, the Neilson NetRatings promoter score has consistently shown we are number one for customer satisfaction. We also use a number of other surveys that consistently place us highly in areas that relate to customer service and customer satisfaction."
ING DIRECT ranked first across 11 of the 17 categories, including product range, pricing, online lodgements, web presence, client support, broker communication, training, business support, channel conflict, structure and remuneration.
According to Ms Claes, positive broker sentiment and perception is an integral aspect of the third party distribution business: "I am pleased to see what we are doing in the third party space has a resonance with brokers," she says. "After all, 90 per cent of our business comes through intermediary partners."
Ms Claes adds that the report also identified some areas for improvement. The findings reveal how ING DIRECT's score in the credit assessment staff category - the only area to receive a low rank - was one that could be improved.
The lender is, however, already onto improving this aspect, she continues. "We have been very deliberate and open with our brokers in terms of getting their feedback on what we need to do to improve, going forward.
"It was a nice alignment to see what they told us in the survey, particularly around access to credit assessors. We recently began trialling a service through which brokers can have access to a particular credit assessor prior to lodging an application and then throughout the deal until settlement," she says.
"So I'm hoping to see an improvement in that ranking this time next year."
Regarding the lender's variation process, Ms Claes says the bank intends to expand that offering. "This is one of the organisation's top priorities," she says. "We aim to improve that experience to be on par with the overall experience."
The bank aims to take an aggressive strategy towards improving its service within the intermediary channel, she explains. It aims to generate growth through product pricing as well as through building on service quality via improved access to credit assessors, investigating pre-application valuations and improving the lender's overall credit appetite.
"It's a holistic approach - levers we need to pull to accelerate our growth," Ms Claes says. "We need to continue to challenge ourselves to ensure we're innovative and meet the customer need."
LOOKING RIGHT AHEAD
For runner-up Bendigo and Adelaide Bank, The Adviser's ‘Third Party Banking Report' findings reveal a focus on the future.
Bendigo and Adelaide Bank has had a stellar year, leading the pack on policy, broker interaction and turnaround times.
Third party distribution manager Damian Percy says The Adviser's report findings reflect fairly the bank's achievements this year. The report has also highlighted areas for improvement, he says - and next year the bank hopes to come out on top across all categories.
"Obviously, we'd prefer the number one spot but I think the results are a fair reflection of where we are at, and I'm not unhappy with the result," he says.
Third party banking is the name of Bendigo's game, Mr Percy says, so the bank tries to prioritise the fundamentals: useful products delivered quickly in a stress-free manner by friendly, knowledgeable and accessible people.
"Turning the deal around quickly has always been the main game, so we're pleased to see that reflected pretty clearly in the results," he says.
"Equally, this is a people-based business, so it's good to see that the quality and accessibility of our business development managers (BDMs) and, importantly, our lending staff is something brokers value and see us as doing pretty well."
Bendigo and Adelaide Bank scored highest in four of the 17 categories: policy (3.47), credit assessment staff (3.42), broker interaction (3.38) and turnaround times (3.38).
Bendigo also ranked highly with regards to BDMs and client support.
Areas the report suggests warrant improvement include online lodgements, web presence, broker communication, training and education.
"We're well aware that both our customer and partner-facing technology needs some work, and we are kicking off a number of pieces of project work at the moment to tidy them up," Mr Percy says.
"For example, we're moving to re-brand our customer-facing web presence to clearly position Adelaide Bank as the intermediary-only business for the Bendigo and Adelaide Bank group," he says. "In addition, we're refreshing the look, feel and functionality of our broker site."
The bank is also implementing a range of behind-the-scenes improvements for online submissions, Mr Percy says.
So what's in store for brokers over the next 12 months? Mr Percy says brokers can expect Bendigo and Adelaide Bank to keep shaping up with a view to be in the third party distribution channel for the long term.
"That hasn't changed and won't," he says.
"The next 12 months, like the last 12 months, is about continuing to do the things that matter as well as we can and make improvements as we go.
"We'll be making some minor product tweaks and relaunching the brand, but for the most part we'll be spending our time punching out approvals and moving customers' deals to settlement as fast as we possibly can," Mr Percy says.
STRONG AND CONSTANT
AMP'S positive ranking is a sign of good things to come, according to head of sales and marketing Steve Craig.
With an impressive final score of 55.31 out of 85, AMP is snapping at the heels of Bendigo and Adelaide Bank's score of 55.45.
According to Mr Craig, the report's findings closely align with the bank's own market intelligence, including areas identified for improvement. Due to strong and constructive relationships with its distributors, AMP seeks and receives feedback regularly.
"I'm pleased to see there are no obvious blind spots," Mr Craig says.
However, he adds the report went further than the bank's own research in that it highlighted AMP's performance against its competitors. "I think this survey adds a bit more to our own research in that regard," he says.
AMP led the pack in channel conflict, remuneration, cross-sell and policy, aspects of the bank's offering which it takes very seriously, according to Mr Craig. "Third parties are our key distribution channel, and there are no plans to change that," he says. "We certainly appreciate and listen to distributor concerns around this."
The report suggests it is an understanding of broker sentiment towards the importance of policy that has resulted in AMP's high ranking.
According to Mr Craig, there is often a policy niche, which may be great for inflows but can also be risky. Too much of one thing can complicate a bank's ability to raise funds and manage balance sheets.
"No doubt all our second tier peers would agree that we'd like to see more ‘vanilla' style business to go with the policy niches," he says.
That said, Mr Craig explains AMP constantly looks for niches - not just in policy, but also in product and price - to help achieve a spread of business.
"A good example of that," he says, "is our Basic loan package (fixed plus variable with offset) which has really worked well in recent months, together with our Master Limit feature on our Pro Pack range for the wealth creators."
Areas the report found AMP could improve upon included business support, product range, web presence and turnaround times.
"In weighing up all the other categories, being small means you need to focus on the most important things and do them really well and our research tells us that distributors want consistent, and timely turnaround of deals," he says.
"Our goal is to deliver this in line with distributor expectations and that will be a big focus for us in 2011," he adds. "We'll be working from our end to end process to deliver the improvements we and our distributors need."
Cross-sell capability is an area AMP will be working on more in coming years, he explains, noting that with a business like AMP behind the lender it makes sense to do so.
"We've stuck our toe in the water with deposits and life insurance, but there's a lot more we can do," he says. "The challenge is to do it in a way that complements the existing business, but also makes it as easy as possible for both the distributor and the customer."
Distributors can expect more from AMP in the areas of product, price and service over the next 12 months, according to Mr Craig. In particular, the bank will aim to focus on consistent and timely turnaround times, but with the same high level of BDM support.
"We want to be a real alternative to the majors in this space," he says, "but we know we need to earn it. 2011 is looking very positive and we hope there will be a return to real competition."
RAISING THE STAKES
Bankwest national sales operations manager David Ewens says the bank's eye for competition is revealed in its results regarding positive sentiment.
This year's ranking in The Adviser's ‘Third Party Banking Report' has given Bankwest valuable feedback about its performance in the third party space, says David Ewens.
Bankwest believes having a competitive broker offering is one of its main value propositions, he says, adding that the second tier lender space is integral to the longevity of the industry.
"Naturally, we would have liked to have come out on top overall, and our congratulations go to ING DIRECT for this achievement," Mr Ewens says. "While we are a little disappointed, it has demonstrated a number of things we do well and highlighted a few areas we need to focus on."
Bankwest led the pack in several areas, including product range, cross-sell, online lodgements, web presence and broker communication. It was rewarding to see the bank performing well in these areas, he says.
"They've all been a major focus and investment for us," he says. "We've always prided and positioned ourselves on providing unique and innovative products to the consumer, evidenced by the success of our tracker products.
"Additionally, we've worked extremely closely with - and will continue to work with - our broker partners in fine tuning an efficient and transparent cross-sale process."
Bankwest has invested significantly in its online platform and conducted a total overhaul of its broker website to make it more interactive and navigationally friendly. This has made it easier for brokers to remain informed during the mortgage process, Mr Ewens says.
While Bankwest scored well in some areas, it fell short in broker interaction, business support, turnaround times and channel conflict. The bank's internal surveys and information gathering paint a different picture, particularly regarding broker interaction, but the bank will continue to look at ways to improve these areas, says Mr Ewens.
"Our latest national broker interaction score was 80 per cent, which is slightly different from these results," he adds.
"While our service and turnaround times did suffer when we were at the height of our Rate Tracker campaigns, we've certainly learnt from those times."
"Submission quality has a major effect on our ability to turn deals around, and we will continue to work with our broker partners to further improve the quality of deals."
Looking to the next financial year, Mr Ewens says the bank will have an active focus on product, quality, cross-sell, and service.
"Our product suite is constantly under review to continually identify opportunities where we can design and deliver unique and innovative products. We're currently working on some exciting plans, so watch this space," he says.
In regards to submission quality, Mr Ewens says the bank is launching a ‘Quality Bonus' promotion that will aim to recognise participating brokers with an additional 10bps on applications lodged up to 31 December 2010, "as long as our benchmark on ‘right first time' is met".
Cross sales will also be an important strategy for Bankwest in the coming year. "Customers have many financial needs that extend beyond just their mortgage and we would like to be able to identify and meet these needs," he says.
Last but certainly not least is service: "We've worked closely with our service teams to implement system improvements and embed and reward the right behaviours," Mr Ewens says.
"We're piloting a premium service with a commitment to turn deals around within five business days if the deal is submitted right first time. To date the results have been extremely encouraging."
OPEN LINES OF COMMUNICATION
Open and transparent communication with brokers has been an integral part of Suncorp Bank's success.
Relationship building is the essence of mortgage broking, and according to Suncorp Bank's executive manager of personal lending, Tony Meredith, strong relationship building forms the core of how the bank chooses to do business.
With Suncorp ranked highly in broker communication, Mr Meredith says brokers are a critical part of the bank's business strategy and Suncorp has focused on growing its relationships with them.
"We're actively growing our lending portfolio as part of a deliberate strategy, following a re-shaping to focus on personal banking, SME and agribusiness," Mr Meredith says.
"The broker market is an important part of that strategy," he continues. "Incremental growth in lending - both mortgage and business lending - is evident since we really pushed the button on growth earlier this year. We've quickly moved up above system growth levels and that's really pleasing."
While staying mum on the bank's reaction to the report findings and its placing fifth among the second tier banks, Mr Meredith says over the past 12 months, Suncorp has invested heavily in improving back-office capability. This has led to significant improvements in Suncorp's service proposition and will also boost turnaround times.
"We've worked with broker industry participants to improve the overall proposition offered to the broker channel," Mr Meredith says.
"We're pleased the work we've done to improve our loan assessment and processing is starting to be reflected in feedback from brokers."
BUILDING BETTER RELATIONSHIPS
Citibank prides itself on its relationships: with customers, with brokers, with assessment staff and with BDMs, to name but a few.
Citibank director of mortgages Stephen Ramage says that with a predominantly affluent customer base, having a strong service proposition delivered via strong relationships with brokers is a key component of its mortgage distribution business.
In this year's ‘Third Party Banking Report: Second Tier Lenders', Citibank took top honours for broker sentiment towards its BDMs. The lender also scored highly for business support, credit assessment staff, training and education and structure.
There is, however, still work to be done, particularly in client support, says Mr Ramage.
"We acknowledge broker perception that client support could be improved and we need to change this perception," he says. "For me, this will be a critical focus for the lender over the next 12 months."
Citibank has invested significantly over the past two to three years in improving customer service, Mr Ramage continues. Positive sentiment around customer support has risen by 10 per cent over the last 12 months, the lender's internal research found.
Citibank's results in categories such as product, pricing and policy, in which the lender ranked behind the other banks, can be expected given the bank's "disciplined" pricing model, according to Mr Ramage.
"We haven't rated well on product pricing and we know why," he says. "We have a disciplined approach to pricing which is different from other businesses."
Citibank's pricing model is based primarily on the capital returned from the business, rather than on market forces. Having made a strategic decision to tighten bank lending during the GFC, Citibank committed to only writing profitable business during the last financial year - a strategy that saw its pricing rise sharply.
But that doesn't mean the bank intends to change its pricing strategy anytime soon.
"Brokers need transparency so they can be more confident in the process," he says. "They have to answer to their customers, so we need to make the process as open and as consistent as possible."
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