Commonwealth tells brokers to lift their game
Australia's biggest home loan provider yesterday warned mortgage brokers to improve their efficiency if they wanted to hold their place in the bank's value chain.
Commonwealth Bank's executive general manager for third-party and mobile banking, Kathy Cummings, said lenders were looking to increase their returns to shareholders and brokers had to play their part.
Earlier this week, the bank said it was targeting a 35 per cent cost-to-income ratio for its Australian retail banking business (the current level is 39 per cent) through its core banking modernisation program.
Speaking at the AB+F Mortgage Innovation conference, Cummings said: "For brokers to grow in the distribution world they will have to add value and compete with the lower cost base of our proprietary channel.
"Current margins are the best you are going to get. They are only going to go one way from here."
She said aggregators were looking for opportunities thrown up by the National Consumer Credit Act, such as taking on an expanded advisory role or diversifying their product offerings, but the things they needed to focus on were compliance and quality.
"That is the big issue for all of us. If you don't get that right you destroy efficiency."
Cummings also made it clear that Commonwealth Bank had no plans to develop online mortgage sales. The bank had an online business called Homepath, but this never accounted for more than about one or two per cent of home loan sales.
In light of NAB's move into online sales, via UBank, there has been speculation that the other big banks would follow suit.
"We did online. We appreciate that it is not where people want to make their major purchase. When people are buying a home they still want to look in someone's eyes."
Other speakers at the conference were more positive about the prospects for online sales. Homeloans' general manager of third-party business, Tony Carn, said his company's view was that the investment in online was worthwhile.
Carn said: "Online does not mean online only. There are other aspects to the service. Online is an important point of capture."
The principal of Alexis Insurance Broker, Christina Kalantzis, said the challenge to brokers was not only coming from lenders demanding greater efficiency. Financial planners were looking at the loan broking market.
Kalantzis said: "A lot of groups holding Australian financial services' licences are applying for Australian credit licences. They have all the compliance and reporting systems in place that brokers are having to set up now, and they can see a new revenue stream."
Mortgage & Finance Association of Australia chief executive Phil Naylor agreed that brokers would have to provide value to lenders if they hoped to grow their businesses.
But, he said, brokers were much further along the path to professionalism than most commentators allowed.
"We have been improving standards in this industry for some time. It is not something that came along with the new legislation.
"The legislation provides a base; the regulations are not hard to comply with."