In the past 12 months, second tier lenders have significantly improved the way they are perceived by brokers. However, The Adviser’s second annual Third Party Banking Report: Second Tier Lenders shows that head-on competition with the majors is a way off in some areas. The lenders’ responses to the report follow
While the road to success hasn’t always been smooth for Australia’s second tier lenders, the future does look bright
THE GLOBAL financial crisis prompted many Australians to flock to the perceived safety of the majors, lifting their market share in the process.
Since the GFC, the second tier has seen its collective market share fall from 15.5 per cent in July 2006, to 13.75 per cent in July 2011.
However, The Adviser’s latest Third Party Banking Report – Second Tier Lenders suggests these lenders’ cumulative market share could now be set to grow.
According to the report – which ranked brokers’ perceptions of the sector – the second tier outperformed the major banks in several important areas, including channel conflict, BDMs and commission structure.
In addition, Suncorp, Bankwest and ING DIRECT managed to secure a higher score than ANZ, NAB, Westpac and St George, indicating a level of broker satisfaction with the second tier lenders and the likelihood of their retaining brokers’ support in the future.
While the majors outperformed the second tier lenders across all product metrics, solid rate reductions and policy changes in recent months could see the second tier gaining ground in this area in 2012.
In recent weeks, for example, Citibank has cut its fixed rates by up to 40 basis points and introduced a promotion that included a $1,000 cash back offer. Meanwhile, ING DIRECT enhanced its maximum LVR, and gave its broker partners direct access to credit assessors.
A CLOSE RACE
The competition between Australia’s second tier and major lenders is heating up. Competition within the second tier, however, is also already running hot.
ING DIRECT dominated last year’s report, achieving an outstanding 11 first place rankings in 17 categories.
The lender performed well again this year, but the race for first place was far more intense, with Suncorp pipping both Bankwest and ING DIRECT to the post.
Suncorp dominated the support section of the report, winning six of the nine ranked categories, and achieving a broker ranking of 59.62 over Bankwest’s 59.23.
Not to be outdone, Bankwest claimed first place in five of the 17 categories overall, performing strongly in product, pricing and online lodgements.
Macquarie didn’t reach its usual heights with brokers this year, although it needs to be remembered the bank only recently rejoined the third party distribution space, following a GFC-fuelled hiatus.
THE CHALLENGES AHEAD
While all of Australia’s second tier lenders managed to improve their broker ranking on last year, The Adviser’s Third Party Banking Report – Second Tier Lenders revealed the sector still has its work cut out for it if it is to beat the majors on technology, commissions and various support capabilities.
In the diversification areas of cross-sell and online lodgements, the majors still outperform the second tier.
REPORT METHODOLOGY AND FINAL RANKINGS
THE ADVISER’S Third Party Banking Report – Second Tier Lenders was compiled from an online survey of 311 brokers who were asked to rank the seven second tier lenders on a scale of one to five.
In the report, one equals ‘very poor’; two is ‘poor’; three is ‘average’; four is ‘good’; and five is ‘very good’.
For example, a rating of 3.5 would indicate a broker perceives the bank as between ‘average’ and ‘good’.
Each lender was ranked across 17 metrics covering product, support, technology and commissions.
Subscribers to The Adviser were invited to participate in the survey, while the seven lenders covered were also given the opportunity to offer brokers who write their products the chance to take part.
The survey was promoted twice and remained open for two weeks, after which the findings were assessed and analysed by business research house RFi.
With a maximum 85 points available, the final rankings were as follows:
1 SUNCORP / 59.62
2 BANKWEST / 59.23
3 ING DIRECT / 58.61
4 ADELAIDE BANK / 56.24
5 AMP / 56.09
6 CITIBANK / 56.06
7 MACQUARIE BANK / 54.30
LEADER OF THE PACK
Suncorp was a standout performer in The Adviser’s 2011 Third Party Banking Report: Second Tier Lenders, rocketing up the rankings from fifth place in 2010 to first this year
THE ADVISER’S second annual report on the way brokers perceive second tier lenders proved a compelling read.
Last year, ING DIRECT dominated the competition, claiming first place in 11 of the 17 categories; this year, however, the competition for first place was far more intense.
All lenders performed well, but three stood out above the rest: Suncorp, Bankwest and ING DIRECT, with just over one point separating first from third place, although it was Suncorp that secured the top position.
Strong broker service was what propelled Suncorp to first place, with the bank achieving an outstanding six top rankings across the 17 categories.
Suncorp beat its competitors in BDM support, broker interaction, education and training, credit assessment, client support and business support – an achievement of which the bank is particularly proud.
“Suncorp Bank is strongly committed to the broker channel and has made significant investments over the last year in improving all aspects of our offering,” says Tony Meredith, Suncorp’s executive manager, personal lending. “We see our role as helping brokers to grow their business so we’re very pleased that brokers have recognised our efforts to better support them.
“We’ve increased our presence in terms of talking to and listening to brokers, which enables us to better understand the various factors that influence a broker’s decision to use a particular lender. This recognition confirms our own feedback that we’re on the right track.”
Suncorp has focused all its efforts on providing unparalleled service to its broker network – a move that has paid dividends for the lender, according to Mr Meredith.
“There are three key areas we target in the broker channel: consistent service from our BDMs, consistent turnaround times; and consistency in our decision making,” he says. “We are continuing to invest in areas such as the automation of our back office, simplified credit policy and the revamp of our ‘champion’ program for high volume brokers, to ensure we continue to deliver a service model that truly helps brokers be successful in their businesses.”
But while Suncorp performed exceptionally well across each support category, the lender fell behind in a couple of key business areas, including commission structure and remuneration.
The bank was ranked last in both these categories, something Suncorp hopes to change by this time next year, largely by simplifying its commission structure over the coming months.
The lender has made changes in this area in recent months, but Mr Meredith acknowledges Suncorp still has work to do.
“Suncorp Bank has made recent changes to our commission structure to simplify rates and better align [them],” he says. “We have further work to do, however, to ensure brokers understand the improvements we’ve made in this area.”
Broker support and communication are two other areas the bank plans to address.
According to Mr Meredith, there is no point in standing still: good lenders are pro-active and are always one step ahead of the competition.
“Brokers can continue to expect improvements to all areas of our business model. This will continue to be supported by strong customer offers and an expanding branch network,” he says.
“We are hearing some very positive feedback about the benefits of our local branches in supporting brokers... our brokers tell us this model makes the customer feel their broker has helped them make the right decision in going with a bank that prides itself on customer service and genuine conversations.”
LITTLE BANK, BIG BANK
Bankwest’s regional approach to banking has helped the lender secure a place in the hearts and minds of Australia’s third party distribution channel
BANKWEST HAS had a stellar year so far, leading the pack on product, pricing and cross-sell and lifting its overall ranking from fourth in 2010 to second this year.
Head of specialist lending Ian Rakhit says the improvements reflect an outstanding effort, one of which he is particularly proud.
“We will also take on board the [comments] in segments where we scored lower and use this to further strengthen our resolve and to improve how we deliver to our business partners.”
Some of the areas Bankwest will look at in detail include channel conflict, turnaround time, commission structure and remuneration.
Bankwest’s current commission structure failed to strike a chord with brokers, despite the bank recently giving more than $1 million in extra commission to its third party partners.
Meanwhile, Bankwest’s turnaround times are considered to be among the worst in the industry – something Mr Rakhit acknowledges.
“When you are consistently offering great product, policy and pricing, you can [face] a greater volume of business, and at times service levels can become pressured,” he says. “During these times, it’s imperative that both lender and broker be transparent and manage customer expectations when it comes to approval times.”
“Our service offer has undergone continuous improvement over the past 18 months, and we can now safely predict a four- to five-day unconditional approval when all required documents are submitted at the time of application,” he says.
“It would be remiss of me not to point out that one of Bankwest’s biggest focuses for the year ahead is the vital improvement of quality.
“The need for brokers and lenders to strive to improve business efficiencies and eliminate the waste of reworking loan applications due to error-ridden submissions is crucial.
“At Bankwest, we are placing an increased emphasis on receiving error free applications to ensure a happier customer experience by reducing both processing costs and, more importantly, speedier turnaround times. We are committed to working more closely with our broker partners, providing more coaching, education and training to ensure we achieve quality on a consistent basis.
“Amidst growing concerns among brokers that the increasing competition between the majors is leading to greater channel conflict, we remain committed to the brokers as a key distribution channel and we have a very clear and mutual understanding with our store network around this. When any incidents of channel conflict have arisen they have been in extremely isolated cases.”
Bankwest did, however, manage to secure first place in five of the 17 categories and, according to Mr Rakhit, was humbled by its success in the product metrics area.
“We are extremely proud of our product innovation with a product suite that offers life of loan discounts, with both short- and long-term attractiveness for brokers and their customers. The year ahead will be no different, we will continue to innovate and stay ahead of the market with sharp products and great offerings,” he says.
Some of these offerings include a nil application fee on Bankwest’s variable home loan products and lending of up to 95 per cent LVR plus capitalised LMI.
CONSISTENCY IS KEY
ING DIRECT may have dropped in the rankings this year, but that certainly doesn’t mean to say the lender has fallen foul of brokers
ING DIRECT remains upbeat about its future, despite slipping from first place in 2010 to third position in the 2011 Third Party Banking Report: Second Tier Lenders.
The lender’s head of broker distribution, Mark Woolnough, says ING DIRECT is pleased to see its overall score improve on last year’s results.
“Obviously, we would prefer to retain our number one spot, and given the number of initiatives we have implemented this year and the improvements that are still in the pipeline, we look forward to seeing a return to the top position in the next rankings,” he says.
Last year, ING DIRECT scooped the pool, placing first in 11 of the 17 categories.
However, while the lender continued to perform well in 2011, the other second tier banks managed to make significant strides in the product, pricing and technology areas.
This year, ING DIRECT took top honours in four categories, including broker interaction, web presence, remuneration and channel conflict – an achievement of which Mr Woolnough is particularly proud.
“These results are a great testament to the ING DIRECT business model,” he says. “As a branchless bank we’re committed to a strong relationship with the broker channel, and each of these categories reflects success in operating a branchless model where over 90 per cent of mortgage production is from intermediaries. We’re very happy that our commitment to the channel is not going unnoticed by the brokers.”
ING DIRECT did, however, lose ground in the credit assessment staff, product policy and BDMs areas.
Mr Woolnough says that while it is disappointing not to win every category, ING DIRECT is realistic and he notes that the Third Party Banking Report: Second Tier Lenders accurately mirrors the bank’s own market intelligence.
“Our active year of engaging the broker channel for feedback has meant we’re now aware of many areas where brokers would like to see improvements. Each of these survey areas is either being addressed, or there are imminent plans in the pipeline,” he says.
“Feedback around improving credit assessment and policy has been a consistent theme across the year. Most importantly, we have had very positive feedback around our recent initiative of giving a segment of our broker partners direct contact to our credit assessors, both outbound and inbound.
This has been so successful that our entire broker network will have access to our credit assessors by the end of the year.
“We have also rolled out a number of enhancements to our products and policy this year to ensure we remain a strong option for brokers,” he adds. “In addition, we are assessing the structure of our broker distribution to ensure we are maximising the service available to brokers, and ensuring they are getting exactly what they need from us from a sales and service perspective.”
The bank has plans to advance its technological platforms as well as to gain a better understanding of the brokers’ relationship with their customers; to further automate mortgage processing; and to create more competition.
BIG PLANS FOR THE FUTURE
A fresh, new approach to commissions is just one of the many initiatives Adelaide Bank plans to implement in the next 12 months
ADELAIDE BANK’S consistent approach to mortgage broking helped the lender achieve a very respectable fourth place in The Adviser’s second Third Party Banking Report: Second Tier Lenders.
Despite this solid result, however, Scott Erickson, head of mortgage broking, says the lender will not rest until ranked first in every category.
“Overall, Adelaide Bank has improved in terms of the scale result on last year’s survey, so in that light we are pleased,” Mr Erickson says. “Ranking highly for the second consecutive year in turnaround times, credit assessment staff and channel conflict was fantastic.
“We have worked very hard at continuous improvement and our processing centre staff must be congratulated on this result. Obviously we would prefer to be ranked number one across the board; however, again, we are working on those areas that have let us down.”
The Third Party Banking Report: Second Tier Lenders found that Adelaide Bank failed to strike a chord with brokers in business support, training and education, web presence and online lodgments – something that failed to surprise the bank.
Mr Erickson says the report closely aligned with the lender’s own market intelligence. “The perception of brokers is accurate and we are currently addressing these various problem areas,” he says.
“This is a people-based industry and our focus going forward is very much on appropriate communication and support.
“Last year’s report showed us we had to improve our commission structure and we have endeavored to do just that. In September, following many conversations with all stakeholders, we made significant changes to our commission model.
“This gave aggregators the opportunity to make a choice between four options which, in three instances, was an increase to their and, in turn, to brokers’ remuneration.”
So with commissions addressed, what’s next for Adelaide Bank?
Acording to Mr Erickson, the lender will continue to look at ways to improve its broker support – first stop, Adelaide Bank’s processing centre team.
Without a good processing team, a bank is literally dead in the water, he says.
“Unless you have a strong processing centre team, one that looks ahead to constant improvement, you will not receive any loyalty from your network,” he says. “We have always worked hard in this regard.”
ON THE RECRUITMENT PATH
AMP has taken away a lot from The Adviser’s Third Party Banking Report: Second Tier Lenders, including the need for a larger broker support team
DESPITE SLIDING from third to fifth place in this year’s ranking, AMP Bank’s managing director, Mike Lawrence, says the lender is still generally pleased with the result and the improvement to its broker score overall.
In 2010, AMP scored 55.31 overall, while this year it was 56.09.
“The whole AMP Group philosophy is a “customer back” approach to business, so we actively listen to what the customer has to say and develop and improve our products and services accordingly.”
Mr Lawrence says the bank decided – off the back of last year’s report – to significantly invest in areas such as fulfilment/origination, with improved turnaround times, product enhancements and the BDM teams.
“Our model is geared to third party (i.e. broker and planner) origination,” he says, “so we have a clear focus at AMP Bank on continuing to strive to be the best in all areas in which we compete.
AMP’s commission structure, however, is complex but this is something the bank aims to address in the near future.
“As I said, our model is geared to third party origination, so we have no channel conflict. We have undertaken considerable consultation with broker groups to ensure we have carefully structured commissions and remunerations that are competitive and simple,” Mr Lawrence says.
“AMP Bank continues to develop and deliver cross-sell opportunities to the brokers that will enhance their product offering, diversify their income and provide greater relevance to their customer base.
According to the report, however, AMP also ranked second to last in BDM support – a performance the lender is working on improving.
“BDM, broker interaction and turnaround times are vitally important to us and are areas where we want to be considered best in market,” Mr Lawrence says.
“We have invested considerable time, effort and money in these areas of late and the market feedback has been noticeable. This is also evident in the increased volumes we are achieving in 2011, so watch this space in 2012.
“We’ve recently restructured the sales force and recruited new BDMs in Queensland and NSW. The bank actively and continually looks to attract top talent and supports existing staff with ongoing coaching and training.”
Citibank may have ranked second last in The Adviser’s second tier report, but the lender remains optimistic
CITIBANK’S COMMITMENT to the third party distribution channel, as well as the lender’s determination to grow market share, has over the past 12 months helped Citibank to significantly improve its broker ranking.
This time last year, Citibank ranked last in The Adviser’s Third Party Bank Ranking: Second Tier Lenders, scoring 54.30 out of a maximum 85 points.
The bank only climbed by one place, finishing sixth this year, but it did improve the way it is perceived by brokers, scoring a solid 56.06.
Belen Lopez Denis, Citibank’s head of mortgages - strategy, marketing and product, says while the lender still has a long way to go, Citibank is relatively pleased with its score and progress over the past 12 months.
“We are pleasantly surprised by the significant shift in our results regarding pricing, policy and commission structure,” Ms Lopez Denis says.
“It is very pleasing to see that our initiatives to improve our value proposition through our new pricing structure of rate for risk, flexible and timely review of our fixed rates and marketing campaigns are already giving such great results for our brokers.”
According to Ms Lopez Denis, the findings of the report largely correspond to the lender’s own market intelligence.
“We currently give brokers direct access to all of our staff so that they can respond to any new enquiries in a timely manner,” she adds. In fact, providing brokers with good support and access to BDMs is something the bank has been focusing on over the past 12 months, she says.
Obviously the strategy paid off, with the lender ranking high on BDM support.
“We are very well known in the industry for having a strong and knowledgeable BDM team,” she says. Brokers know that if they contact a Citibank BDM their calls and enquiries will get answered in a timely fashion.”
While Citibank managed to improve its ranking across some key business areas, however, the lender fell behind its competitors in a number of others, including client support, turnaround times and web presence.
Ms Lopez Denis, however, says the bank welcomes constructive criticism. “We plan to further enhance our business support model for our brokers,” she says. “We expect to see better results around this particular category in 2012.”
In the future, brokers can expect a lot more from Citibank than simply improved client support, Ms Lopez Denis.
“We’ll continue to refine our product and policies, ensuring their relevance to our target segment. We have been working in the background, implementing key initiatives to further enhance our broker support model and the results of this effort should be visible in next year’s survey results.”
Despite ranking last in the Third Party Banking Report: Second Tier Lenders, Macquarie Bank is optimistic about the road ahead
ACCORDING TO the lender’s head of mortgage sales, Doug Lee, Macquarie’s ranking in the survey did not come as a surprise, given that the bank was forced to pull out of the third party distribution space following the GFC.
Macquarie was not included in last year’s ranking because it had only recently re-entered the marketplace. Macquarie failed to strike a chord with brokers in this year’s report, however, placing last in seven of the 17 categories.
Brokers have long memories and it will take more than one year for the lender to win back the industry – something Macquarie understands.
“A lot of the findings were in line with feedback we have received from our own internal surveys, and we have already addressed or are addressing that feedback,” Mr Lee says.
“What was pleasing to see was that we scored quite well in most areas where there was a ‘human interface’; this is always a key focus for us. We acknowledge we still have some further work to do and we have further plans in place to continue to enhance this part of our proposition.”
The bank is currently in the midst of reinventing itself and it will take time for brokers to adapt to the changes, according to Mr Lee. It will also take time for the bank to reconnect with brokers, he says.
“It is for this reason that feedback is incredibly important, and we regularly talk to our brokers through day-to-day BDM conversations, broker advisory boards and broker satisfaction surveys,” Mr Lee says.
“This report adds to the information we gather and assists us in ensuring we focus on the areas that matter most to our brokers.”
Macquarie fell behind in product range, policy, pricing and cross-sell. However, Mr Lee says the bank is planning to roll out new product initiatives.
“We are committed to providing competitive rates for our brokers and their clients; however, we are mindful that it is not just about price and that it’s important to get the mix right between product, price, policy and service,” he says.
“Brokers are essentially our shop front and we will continue to work closely with them to listen to and support their needs and to provide them with the alternative that they’re seeking,” he says.
“We will also continue to promote our ancillary offerings which are geared towards providing real value to the broker’s business, such as our Macquarie Practice Consulting services and our COIN mortgage software platform.
“Our relationship offering will continue to focus on a broker partnership approach, supported by a dedicated and experienced team of BDMs coupled with a pro-active credit and relationship support team,” Mr Lee says.
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