Leading data company says “door is open” for neobank home loans
GlobalData says the time is right for digital disruption in home loans after the Royal Commission.
According to leading data and analytics company GlobalData, the timing has never been better for Australia's neobanks to enter into the home loans market. A release from the company, which was based on various sources, said the recent final report of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry "battered" the reputation of the mortgage industry and has forced them to review their business models.
The report included 76 recommendations in total and could fundamentally change the way Australians get home loans, with the report recommending a borrower-pays model for mortgage brokers. Brokers are incredibly important to Australia's home loans market. GlobalData's Retail Banking Insight Survey found that 40% of Australian respondents indicated that their choice of home loan provider was influenced by a broker in 2016, and in 2018 this number was 52%.
"Being a relatively complex financial product in the eyes of many, consumers prefer a bit of hand-holding when it comes to mortgages," said banking analyst at GlobalData Heike van den Hoevel. "Traditionally this has benefitted bricks-and-mortar providers, but this is changing as digital journeys become more sophisticated and simpler for consumers to navigate."
Steve Weston, co-founder and CEO of neobank Volt Bank, says that while the bank plans to work with mortgage brokers, it sees the future in technology.
"The model offered by mortgage brokers will not be the defining factor in our success," said Weston. "It's bigger issues at play like the breakdown of trust and frustration with archaic technology that will drive Australians from the incumbent banks to neobanks, like Volt."
"Volt will work with mortgage brokers, that is part of our strategy. We're now seeing around 60% of customers choosing to use brokers and the right thing to do is respect that customer choice. We see a future where technology enables mortgage brokers to deliver better outcomes for customers."
Andy Rigg from neobank Xinja says that while the Royal Commission has given anyone with a bank account "a solid reason" to think about how they're being treated, it may not drive uptake in neobank home loans.
"The reworking of mortgage broker commissions poses all sort of questions, but we feel it's a bit of a leap to assume that it will drive neobank home loan business specifically," Rigg said.
"We do believe there is a significant appetite for easy, fast, online application processes. The majority available to date have been clunky and unsatisfactory. This is changing and Xinja will be at the forefront of new digital experiences, so we do anticipate we will benefit from this digital demand."
GlobalData also found some potential for the future in digital home loan products and services. Its data showed that only 11% of Australian mortgage holders had applied for their mortgage online or using their mobile, but when asked what channel they would prefer if they were to refinance, 41% chose a digital channel.
Weston says that Australians are ready for home loan applications to go digital.
"At the end of the day, it all comes down to information and how you share it. Instead of getting customers to fill out a 15-page application to start the process, why can't banks assess what information they already have, and only ask customers to fill in the gaps? That is the future," he said.
"We want to take the pain out of information gathering for brokers and then keep them informed of progress. This will ultimately lead to better deals for customers."
Rigg said Xinja's home loans will be digital and supported by a very high standard of customer care for anyone who goes outside the purely digital process.
"Our focus initially will be on a rapid, frictionless, digital application process, using the best technology available at the front end to deliver a home loan approval within minutes rather than hours or days," Rigg said.
"With time, we see our difference being customer care and the data insights we provide further into the home loan journey. Our aim is to get people a great home loan, and then help them get rid of it."