2019 Non-Major Bank Roundtable

Did you miss the live-stream? Read on to find out what MPA asked the non-majors

MPA’s Non-Major Banks Roundtable went o­ without a hitch last month, despite a couple of changes to the line-up the day before. Due to some unforeseen circumstances in Western Australia, Bankwest’s Ian Rakhit unfortunately had to step down from the discussion.

Another last-minute change saw Citi swap out its head of mortgage distribution, Matt Wood, for its head of banking, David Zammit.

The roundtable was also joined by Mark Vilo, head of bank intermediaries at Suncorp; Mathew Patterson, head of broker sales at ME; Glenn Gibson, head of thirty party distribution at ING; and Darren Kasehagen, head of third party banking at Adelaide Bank.

While the non-major banks will have felt some of the pressure over the past year with the royal commission in full swing, they were not as heavily scrutinised as the four major banks. Thus, with the release of the final report, the non-majors could breathe a sigh of relief.

You could see that relief as they chatted and took selfies ahead of the cameras being turned on, somewhat of a change from just several months before. Of course, they know there is still a lot of work to be done, but now at least they know more about what that work will involve in order to step in where the majors have failed.

Good customer outcomes and customers’ best interests were a key focus of the day. The other big talking point was of course the recommendation that broker remuneration should be changed to a borrower-pays model.

Both sides of government are taking a more cautious approach to this, and the non-majors had a lot to say about what they thought. Some of the non-majors that took part were involved in the Combined Industry Forum, which had already recommended a change to commissions.

It was good to get their insight from the perspective of a group that has already tried to remove potential conflict and strive for better customer outcomes.

The next few pages provide a snapshot of the discussion between these five non-major banks, but you can also watch it in full on our website at www.mpamagazine.com.au. MPA’s next live-streamed roundtable is scheduled for 17 May and will feature some of the industry’s biggest aggregators.

Join us then as we discuss the broking industry, with possibly more insight to follow the federal election.

Q: What do you think the landscape looks like for brokers going forward?

After the scrutiny of the mortgage broking industry and the subsequent recommendations from Commissioner Kenneth Hayne in the royal commission’s final report, it is no wonder brokers have been nervous about their futures. Not only did Hayne hold a microscope up to the potential conflict of broker commissions but he also questioned how much work brokers do, the occurrences of fraudulent documents, and the poor assessment of borrowers’ living expenses.

When the recommendations came out, Hayne focused on commissions and recommended the removal of both upfront and trail.

Immediately after the report was released the mortgage broking industry was understandably concerned about where its future would lie, particularly if commissions were to be removed. As it stands now, neither of the political parties are recommending outright banning of upfront commissions, but there is still a question mark hanging over trail.

The panel of five representatives of non-major banks at MPA’s roundtable gave a pretty positive picture of the industry. Mark Vilo, Suncorp’s head of bank intermediaries, started off the panel discussion by saying, “I think there’s every reason for brokers to feel pretty optimistic about the future”.

Vilo, who has been heavily involved in the Combined Industry Forum, agreed that it was a great time to be in the mortgage broking industry. “If I was a broker I’d be feeling optimistic, and I think that when you are in an environment of change, those that face into that change and do something positive about it are going to end up in far better position,” Vilo said.

Darren Kasehagen, Adelaide Bank’s head of third party banking, supported this view of the new environment for brokers. “There’s hardly been a better time to be a broker,” he said.

“I’m really positive about the broker industry going forward. I think, to be fair, that if you’d asked me that in early February, I would have answered it in a very different way because I think a consumer-pays model would not have been good.

“I’m really pleased that some sanity has prevailed and both major parties have actually come to the landing where they’re at at the moment.”

Commissioner Hayne’s recommendations did not just touch on broker commissions, however. Another recommendation in the final report included the introduction of a best interest duty for the customer. Speaking to that, ME head of broker sales Mathew Patterson said the royal commission was a very thorough process that had reoriented the focus back onto the consumer.

“I think the real opportunity for brokers is going to come through the introduction of the best interest duty,” he said.

“That’s going to give brokers a real competitive advantage in the market. In the current environment a broker can say their value proposition is, ‘I’m going to research the market, I’m going to look at all these different lenders for you, I’m going to find the best deal that’s available for you’.

To be able to overlay that with a statement to say, ‘And I’m also legally obligated to act in your best interests instead of mine’, I think it’s a very powerful statement that the branches can’t offer.”

Q: One of the biggest concerns is the effect of remuneration changes and what competition will look like between the majors and non-majors. Do you think there is a threat?

With the recommendation to change broker remuneration came the concern that the channel would simply not be viable any more. The argument was that, particularly if there was a switch to a borrower-pays model, the number of brokers would likely diminish as people avoided the heavy cost of using a mortgage broker at a time when they were already under the financial stress of buying property.

Those banks that use brokers as their shopfront or main distribution source questioned how they would be able to compete with the major banks. There was definitely more of a threat of reduced competition when the report was released, but not so much today, said David Zammit, head of banking and wealth distribution at Citi.

“I think the discussion is actually broader than the compensation piece, because the reality is that what a broker does is very different compared to a client going directly to a bank, and so you’re not comparing apples with apples,” he said.

“From our point of view, we like to partner with the best, so we’ve partnered with brokers and we will almost get to 100% through that channel” David Zammit, Citi

He listed three key reasons why Citi sourced 95% of its business through brokers: the access they provided to an array of options; the strategies that come with those options; and the level of service brokers provide.

“From our point of view, we like to partner with the best, so we’ve partnered with brokers and we will almost get to 100% through that channel because of that reason.” Asked how the non-majors might overcome any reduced competition, ING’s head of broker distribution and direct mortgages, Glenn Gibson, said that as a non-major competition was in ING’s blood.

“It’s what we’re all about, but it comes down to best customer outcomes,” Gibson said.

“So the best customer outcome is to have choice and to have a broad choice.”

Rather than focusing on their own banks individually, Gibson said the non-majors had banded together so they could work better to help the mortgage broker industry.

“We’re not talking about how do we as ING sell more loans, or how do we individually do more. It’s a case of, how do we support the broker network going forward? How can we make sure competition is there? How can we make sure there is always a choice? And we’ve come up with a range of ideas around that.”

Naturally, the banks and the industry are hopeful that, with policies as they currently stand, the threat to competition will no longer be there.

Suncorp’s Vilo said, “I think both sides of government have realised that following the path from some of the recommendations might not be the most prudent way to go, so I have a degree of confidence around where we are going; I think we’ve passed that point.” He added, “I think the work that’s been done is actually evidence of the fact you can get people listening if you create a form of movement.

“We’re all working together in a very constructive and meaningful way so that it’s not about us, it’s about the brokers that we’re facing into every day” Mark Vilo, Suncorp

All these guys here are part of a working group; we want to actually do things better for brokers.

“So, let’s watch this space. We’re all working together in a very constructive and meaningful way so that it’s not about us; it’s about the brokers that we’re facing into every day.”

Q: As credit has tightened, turnaround times have increased. What are you doing to help brokers and their borrowers?

In MPA’s recent Brokers on Banks survey, brokers voted turnaround times as the factor that was most important to them. After the increased scrutiny of banks’ lending practices, not only are brokers working harder to supply evidence but the waiting times have increased and the number of loans approved have declined.

Kasehagen was the first panellist to respond to the question, saying there were a few approaches to this from Adelaide Bank’s perspective.

The non-major has been carrying out extra training with brokers and pilot groups.

“Similarly, we’re doing a bit of a test bed with a group of brokers around allowing deals to go through at an accelerated pace rather than staying in the queue if they’ve got everything in order, which is something we haven’t done before,” Kasehagen said.

“We’ve changed a little bit in the way our documentation is categorised and sent through, and we’ve automated our serviceability calculators. So we’re continually trying to tweak things to actually improve there. We then dial it back to say, what can the broker do to actually almost help themselves? For me it just comes back to, ‘if it ain’t documented, it ain’t done’.”

Kasehagen added, “Credit is a little bit tighter than it was some periods before. As a general comment, we’ve seen turnaround times for us anyway be a little bit longer than we’d like.

But the more accurate the information that comes through to us the better it is for everyone involved.”

Vilo agreed that Suncorp had seen similar challenges, but the bank was working to improve and simplify its processes.

“Even to the extent of removing the BDM from the conversation and getting our lenders to pick up the phone and talk to a broker if they’ve got a question so they can resolve it without multiple layers of intervention,” he said.

“We’ve got a number of tools to help brokers understand what it is we’re looking for when it comes to living expenses, such as interactive modules and so on. So we’re sort of working through that at the moment. “I think going forward we’re going to be in a position where we need to streamline some of the other processes that we’ve got.

Credit policy and our lending guidelines are something that we need to be clearer on.

We’re in the process of delivering something on that shortly.”

Vilo said Suncorp was not just improving its own systems internally but also seeking feedback directly from brokers to find out how they could help. Nodding at this, Gibson said ING was currently in the process of receiving responses from a survey it had been running to find out what was most important to brokers, whether turnaround times or service or something else.

He said so far the responses had clearly said, “A fast no is more important than a fast yes”.

“I’m really pleased that some sanity has prevailed and both major parties have actually come to the landing where they’re at at the moment” Darren Kasehagen, Adelaide Bank

“The pressure on turnaround times I actually think from a broker perspective is the decision on ‘Is it going to proceed, or do I need any more? Because if it’s a fast no, I know whether to place it somewhere else’.

“So we’ve gone out and said, ‘OK, what is it you actually want? Where are your pressure points?’ What we’re going to be doing as ING is actually changing our workstream to match what that outcome is.”

At ME, Patterson said there had been a focus on technology, as there was across most lenders.

“We all know living expenses is a big issue across the industry at the moment, and there are a lot of lenders moving to electronic verification of living expenses.

“Credit scoring is a necessary evil almost. It helps in terms of getting the deal through the system. If the data’s right, if the documents are there, we can turn deals around and have them approved the same day if that deal fits that profile and we have everything that we need.

“As we go further down, electronic verification of living expenses is only going to help enhance the service proposition for all lenders. But it’s contingent on the broker getting it right the first time.”

Vilo finished the conversation on turnaround times by saying, “We’ve got to remember at all times that there’s a customer at the end of all of this. And so when there is a broker getting frustrated with us, we’ve got to accept that it’s their brand, it’s their reputation, that we’re dealing with, so – and that’s the reminder that we keep pushing through our business – guys, there’s a customer at the end here. Let’s make sure we can get the best outcome for them.”

Q: Do you see your market share continuing to grow?

Last year the non-majors’ share of mortgages grew to its highest-ever level, according to data from aggregator AFG. Asked whether they thought that would continue, the five panellists had varying viewpoints. With a more positive outlook, Vilo said, “I think the expectation is, and what would be fantastic would be, that the whole market would continue to grow. So, if we think about the growth of customers choosing a mortgage broker, we’re growing rapidly and we’ll continue to grow.”

“We’re so reliant on the broker channel as a distribution source, so if the broker share goes to 70%, yes, the non-majors are going to go up as well” Glenn Gibson, ING

Responding to that, Zammit said, “To be honest, I’d probably disagree.” He said he did not think the pie would grow.

“I think the challenge is that the pie is going to shrink given what’s happening in the regulatory environment, given what’s happening globally, given what’s happening with funding costs, given what’s happening with the lending that’s currently sitting in Australia.

“So, I think the challenge is, the pie is going to shrink, and so the question really for brokers and banks and lenders is going to be: how do I either maintain my part of the pie, or gradually increase that?”

Patterson’s perspective was back at the more positive end of the scale.

“The environment we’re in at the moment is unprecedented goodwill towards the non-majors, and I think we’ve got to take advantage of that,” he says.

“We’re trying to capture that and see how we can support brokers further, and see how we can take advantage of that positive sentiment that’s coming through.

“Whatever model is implemented needs to be channel neutral, needs to ensure sustainability of the channel, and it absolutely needs to encourage consumer choice” Mathew Patterson, ME

“In terms of market share, I absolutely see it growing. Going back to best interest as well, I just think it’s another layer of that value proposition that’s going into the broker proposition, which branch lenders can’t offer.”

Taking a more neutral approach, Gibson said he was “in between the two”.

“The market is contracting, but the broker channel is increasing. When you’re talking about the market share of the non-majors, there’s no surprise that the non-major market share has gone up when the broker market share has gone up,” he said.

“We’re so reliant on the broker channel as a distribution source, so if the broker share goes to 70%, yes, the non-majors are going to go up as well, because we are so reliant, and we have such a good partnership with the broker channel. I think the broker’s percentage of the market will go up; the market will come back a little bit.”