Big lenders on competitive threats and why Macquarie is winning
New entrants achieving success with market segmentation are among the key challenges for big lenders as they mull the success of Macquarie Bank in mortgages.
These were among the key themes explored at a panel of lenders at the RFI Group Mortgage Innovation Summit on Thursday.
Moderated by RFI Group research director Kate Wilson, the panel included National Australia Bank head of business performance and insights Byron Donovan; Westpac head of customer engagement and home ownership, Joel Larsen and ME Bank general manager of home lending Andrew Bartolo.
“The days of the big banks being able to service everyone is getting harder and harder,” NAB’s Donovan said.
For Donovan the mortgage landscape is now being dominated by increasing competitors who are able to target particular segments of the market.
“The barriers to entry to a certain extent are now diminishing. There are new players like Athena that are coming in and are now able to isolate and target a segment of the market and do that very well,” Donovan said.
“For us that is a threat but equally we have to be conscious of staying true to our strategy model.”
The ease and increasing trend of borrowers to switch particularly in refinancing is a real challenge for the big lenders, according to Westpac’s Larsen.
Here he spoke about how the big lenders have been able to help people buy their homes, help them through their home buying journey only to eventually lose them once these borrowers eventually decide to refinance their loans.
“As more and more players are coming into the market, they are focused on moving mortgages round, ie refinancing not buying a home,” Larsen said.
“As a bank, we are structured around helping people apply for a loan and helping them buy heir home.
“As a bank we have a big back book of customers that have gone through the pain points [of buying a home].
“They realise that they can switch because they have built equity in their property. This makes it easier for them to get a good deal,” Larsen added.
For the big bank lender, he sees these businesses as focusing on the refinancing experience because the “cost is lower “compared with helping someone along the purchase journey.
“We do a lot of work early, helping borrowers get into the property, and then after a few years another business comes along and takes these customers.
“That's probably the biggest challenges Westpac and I suspect the other majors have.”
As the only non-major bank on the panel, ME Bank’s Bartolo also echoed Larsen’s experience even though the bank is more “in the middle ground” in terms of the market.
“It is also a challenge for us, absolutely. We need to be focused on how we can show value beyond just the price. We have to ensure we meeting the evolving needs of our customers and we need to ensure we are always getting it right for them.” He added.
The panel then responded an audience question: Why is Macquarie leading in lending.
In its recent quarterly update, the bank reported an 11 per cent increase in its mortgage portfolio underpinned by this new platform that the bank said delivered on speed and efficiency.
“I think the numbers speak for themselves,” acknowledged Donovan.
“They take up a bit of our time in trying to understand what they are doing.
“From what we are seeing, they certainly have a strong focus on service and a better proposition.
“They are also very transparent with what their strategies are, supported by a very strong digital offering.
“They are sharp in the way they price - above the line not discretionary pricing. They have been very clear in supporting the broker providing them with a sleek service.”
Donovan acknowledged that Macquarie did have challenges when it first rolled out its offering but were able to address and overcome the challenges.
Larsen added that Macquarie was very bold in backing the broker channel particularly “during the royal commission when the broker channel needed it, most which was very sensible”.
In fact, recent data from RFi Group reveals that Macquarie has been rated very highly by brokers.
Larsen also spoke about the effectiveness of Macquarie’s targeted strategy compared with the big banks who have to service the whole market in order to meet their lending obligations.
“They have been very clear with who they lend to and who they will not lend to. They have honed in on a specific segment of the market and have done it very well.
“By doing so they can direct the broker channels to that part of the market, targeting customers who would have normally gone to the big four.”
ME Bank’s Bartolo added that it is also a unique client and service culture that underpins Macquarie’s success, something that his bank is also trying to achieve.