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The sophistication of technology among Australia’s lenders is helping “level the playing field” and ultimately push out brokers, said a report from S&P Global Ratings credit analyst Simon Geldenhuys.
The intense competition between brokers and banks’ proprietary channels has caused speculation on the future of lending in Australia.
With broker market share at a record high of 76.8 per cent, banks are becoming increasingly frustrated with the state of home lending, said Geldenhuys.
The favouritism borrowers show brokers is eating into the profit margins of the big banks in an increasingly competitive sector.
With estimates from CBA claiming proprietary loans are 20–30 per cent more profitable than broker-originated loans, it’s unsurprising that banks would put more attention into these products.
There is also constant competition between lenders as the modern borrower is consistently looking to refinance.
This has resulted in a struggle to generate the pre-COVID-19 profits that many lenders were accustomed to.
“Borrowers see little difference between a mortgage from one bank to another and it’s increasingly easy for borrowers to switch lenders. This stems from a combination of better technology, ongoing competition and brokers’ incentive to have borrowers refinance their mortgages. Price consequently becomes the determining factor in winning new business,” said Geldenhuys.
He believes banks are attempting to turn around diminishing profits and “regain ground” from brokers through the investment in the proprietary channel.
While this may seem like a losing battle for the banks as broker market share continues to rise every quarter, Geldenhuys said there will be a “gradual” shift towards digital mortgages.
Banks are reportedly taking advantage of the tech-savvy borrower and leveraging this segment to turn the tide on the dominant broker channel.
AI is reportedly helping give banks a fighting chance by improving speed, efficiency, and customer experience, all while cutting costs.
Banks are poised to “dilute the mortgage broker value proposition” by offering quick and simple products via proprietary channels with greater price transparency.
“If banks want to jump the middleman, customer behaviour will need to shift dramatically. We believe pricing transparency is key. Most borrowers prefer brokers because they simplify the loan application and approval processes. They also have a clearer view of actual market pricing than what banks advertise,” Geldenhuys said.
While there is an opportunity for banks to capture direct consumers, there are also challenges with legacy technology, reportedly creating hurdles for lenders.
Geldenhuys described a banking “rebellion” underway in the modern lending market, highlighted through the separation of proprietary and digital channels.
Some lenders may try to differentiate prices between proprietary and digital, but this can backfire as brokers may begin discouraging banks’ products.
While each lender is approaching these issues independently, he said that the big four have the capacity to influence real change in the future of lending in Australia.
[Related: Mortgage broker market share hits record 76.8%]
