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Westpac puts strategic focus on franchising

03 October 2007 4:10PM
Westpac chief executive David Morgan said yesterday that the bank had a strategic focus on extending its retail distribution and the franchise model had increasing appeal.Westpac has offered $140 million for the Rams brand and a network of 53 franchisees operating 92 stores. Morgan said the acquisition, which is to be put to a vote of Rams shareholders at the end of November, would extend Westpac's retail distribution network by 10 per cent.He said the bank would drive revenue growth in the franchise network by introducing a bigger range of mortgage products as well as credit cards and general insurance.Morgan said the price Westpac was paying was a "relatively modest outlay" and most analysts agreed. The franchise network generated $1.7 billion of settled loans in the 12 months to March.Fujitsu Consulting managing director Martin North said the risk for Westpac was that the established Rams customer base was a mismatch for Westpac. The biggest selling product in the franchise network is Easy Start, a first home buyer product that steps up to the full rate over a three year period. The other big sellers are low doc loans. North said: "It is not the sort of lending business you associate with Westpac and I doubt that Westpac wants to extend its reach into that end of the market all that much."It is about extending its footprint and that is a reasonable strategy. But there is a portfolio mismatch and from that point of view it is a bit of an experiment."Morgan said Westpac was encouraged to get more involved in franchising as a result of the progress of the Magnitude franchise on the wealth management side of the business. One of the advantages of owning a franchise chain was that the bank could offer its more successful sales staff some career progression.Westpac will take over payment of trail commissions to franchisees, a decision that Morgan said was motivated by a desire to have a "full and close" relationship with the franchisees.

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