If you’re a broker, I’m a big fan.
Many of my friends have started their own shops, and I admire them for it. But after analysing the current trends in the mortgage industry, I hope for their sakes that they are thinking of additional ways of keeping their bank balance healthy.
One of my mates, Adam, told me that being a mortgage broker is a bit like selling fridges. There are lots of people that want to buy a fridge, and there is no shortage of businesses wanting to sell you one. What’s worse, you don’t need to replace your fridge that often.
I kind of see where he is coming from. Yes, there are plenty of buyers that want to own their slice of Australia, and there are lots of brokers willing to help them. The problem in our industry, however, is that the rate of new lending is currently flat, which means demand is slowing down.
Unfortunately, this hasn’t stopped new brokers from entering the industry — according to the MFAA, the number of total brokers increased by 3.3% to 16,009 in the six months to Mar 17. We’re currently in danger of too much supply.
Source: MFAA Industry Intelligence Service
Nationally, there is now one broker for every 1,523 people. If you’re a broker living in NSW, VIC or WA, it’s even more concentrated.
Worse still, houses turn over very slowly. Excluding refinances, Australian’s sell their homes every 18 years, so it’s essential that brokers have an extensive network and have the ability to close like they’re Harvey Specter if they’re going to be successful. Conversion is key.
So what would our fictional fridge seller do? They probably wouldn’t live or die by selling fridges. They’d sell toasters and microwaves. Although these are smaller ticket items, they are also lower involvement purchases when compared to a $1,000 fridge.
The bottom line is, these smaller items will sell more quickly. And if you can sell enough they might be just as profitable as selling fridges. Plus, once they’ve made that first purchase, you’ve now got some data. Their phone number. Email address. And most importantly, their aspirations (“Ok, so you’re doing a kitchen reno. Great!”). Chances are you’ll be in a better position to know if they’re interested in buying a fridge down the track.
You can apply some of this logic to mortgage lending. Many brokers have already added commercial loans to their playbook. Others are turning to small business loans. Now, unsecured personal loans are emerging. It’s no coincidence that these loan categories have benefited from the rise of ‘fintechs’.
In 2017, the number of fintechs generating revenue tripled. Adoption rates have jumped from 13% in 2015 to 37% in 2017. Supporting this growth, capital investment in Aussie fintechs increased 254% in 2016.
Source: EY FinTech Australia Census 2017
So what do fintechs have that traditional lenders don’t? Firstly, they are extremely motivated — there are significant start-up costs to get a new fintech off the ground. Secondly, they create platforms that are built for purpose — there are no legacy systems to maintain, integrate or upgrade. Thirdly, they tend to design platforms that are built for speed — think days for an approval instead of weeks.
I’m biased, but at MoneyPlace we built a product specifically for brokers. Launching in 2016, we grew at over 300% in 2017, and 2018 will no doubt be even bigger.
The future of fintech certainly looks auspicious.
Matthew Santosa is the Head of Broker and Marketing at fintech company MoneyPlace, an innovative marketplace for personal loans. He has 17 years experience across banking and startups across strategy, distribution and marketing.
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