Going beyond cashbacks and price-led offerings
Digital lenders have successfully positioned their businesses based on transparency and convenience with one lender even reporting a 128 per cent growth during Covid.
Tic:Toc CEO Anthony Baum (picture below right); 86 400 lending lead Melissa Christy (pictured below left) and Nano co-founder Andrew Walker (pictured below top left) came together on a panel session at the recent Australian Mortgage Innovation Summit.
With record low interest rates, there is no doubt that the mortgage market is highly competitive. Big banks are well positioned in the market given their access to low cost funding.
And while the first half trading result highlighted that these big lenders are winning market share, so too are the digital lenders.
Digital lender Tic:Toc reported a 128 per cent year-on-year growth
86 400 which began three years ago has secured a number of large mortgage aggregators on board.
As at 15 January 2021, the broker-led business had more than 85,000 customers, $375 million of deposits, $270 million in approved residential mortgages and 2,500 accredited brokers.
There is no doubt that these digital lenders have reshaped the way big banks now approach lending. Indeed, National Australia Bank even bought 86 400 while Bendigo and Adelaide Bank’s stellar first half results were in part due to its fintech partnerships including Tic:Toc.
But for these lenders, the proposition goes beyond price.
86 400’s digital home loan product has resonated with brokers.
Digital verification is a key part of the onboarding process as is digital signing. The lender only collects income expense data electronically.
Tic:Toc’s instant verification process was lauded by ASIC at a public hearing on responsible lending but for Baum, the best way to transform the industry is by offering a better customer experience.
Tic:Toc sells its technology to the industry with its first platform garnering Bendigo and Adelaide Bank as a service partner.
As highlighted earlier, the partnership has been successful and Tic:Toc is about to launch a second platform with a service partner.
And its technology that has underpinned the customer experience has delivered for Tic:Toc with the lender even growing during COVID as highlighted earlier.
What was interesting about this growth, is that Tic:Toc was able to tap into another cohort of borrowers.
Around 80 per cent of Tic:Toc’s inflow is from the refinancing market, however, by December, the lender was garnering a solid inflow from the first home buyers’ market.
“We are capturing younger customers across the spectrum, not just sophisticated refinances like we have done in previous years.
“We've actually seen a fundamental jump [in FHBs]. It has been really exciting for us.”
Importantly Baum notes that getting that significant FBH buy-in was not about incentives such as cashbacks.
“We can provide the customer with full approval subject to a purchase contract in a faster time. Our focus is all in making the process of buying a house faster and easier.”
We find such offers rather disingenuous and is not consistent with our philosophy which is about transparency and understanding our borrower’s financial situation, Andrew Walker, Nano
Nano is yet to launch in the market but has already secured a wait list for its product upon launch.
Walker discussed how Nano Home Loans has used the three D's: Digital, Data and Design, to create a home lending solution that is fast, simple and fair.
For Walker this approach combines data and technology to bridge the gap between the customer and home loan, that “dramatically improves the ‘time-to-yes’”.
This means loans can be approved within minutes not weeks. Importantly the technology allows loans to be written through the mobile phone.
Its platform evaluates properties digitally, uses analytics and data to do credit checks, centralises financial health and assesses income and expenses.
“Using data and technology, we’re bridging the gap between customer and home loan to dramatically improve the ‘time-to yes’. With Nano Home Loans, you can refinance your loan in minutes, not weeks,” Walker said.
Cashbacks as an incentive were debated by the panelists
According to RFi Group borrowers find cashbacks highly appealing.
According to RFi Group, one in five borrowers indicated that special offers – just behind lower interest rates – was the key reason behind refinancing.
Furthermore the research found that borrowers who took out their mortgage in the past 2 years are significantly most likely to have chosen their lender due to the lender offering a sign-up incentive such as a cash back offer.
Lenders have increased their focus on cashbacks with big lenders offering cash backs in the magnitude of $3,000.
“[Cash backs in my opinion are there to help organizations that don't have the customer experience proposition that new entrants have,” Tic:Toc’s Baum said.
He added that such incentives also favour more established lenders who can absorb the costs and not viable for digital lenders because it pushes origination costs much higher than is sustainable.
Baum believes legislation should support education around such offers, that will allow customers to make a genuine apples-for-apples comparison and also give them a more accurate view of how much they are really paying over the life of a loan when accepting those types of propositions.
Nano’s Walker has a similar view.
“We find such offers rather disingenuous and is not consistent with our philosophy which is about transparency and understanding our borrower’s financial situation.
“Our proposition is all around financial wellness and allowing our customers to take charge of their financial affairs. We are not about offering marketing bribes. Putting up a $1,000 bribe upfront clouds the waters and does not allow people to make rational economic decisions.”
For 86 400’s Christy, the digital lender has to confront a market where cashbacks are part of the norm.
“Being a broker led business, we are competing in a highly competitive market,” she said.
86 400 does offer cashbacks but even Christy acknowledges that in the 20 years of working with brokers she has never seen the market so competitive.
The competitiveness of cashbacks are so heightened that Christy said the lender is also confronting situations incumbent lenders to are paying customers to stay with them.
“I have never seen it this competitive in the broker market. But our focus remains on providing the best customer experience. That end-to-end customer experience always has to win.”