Many have tried to disrupt home lending in a similar fashion in Australia, with limited success. But Wilson argues that banks will face a key competitive battle in the fight against non-bank lenders such as Athena Home Loans and Nano, both of which use technology to provide fast, low-cost mortgages through online channels. .
He says that over the next three to five years, the mortgage market could experience the kind of disruption Uber has inflicted on taxis.
To be fair to the big banks, they are starting from a position of enormous strength and they will not back down from a mortgage battle.
They have very established brands, cheaper funding than their smaller competitors, and huge budgets for technology and marketing. Major foreign banks such as Citi, HSBC and ING have competed in Australian retail banking for decades without making major inroads. So what is different today?
Those who are convinced that a great upheaval is coming say the essential difference is that the technology is more powerful and that the move towards digital banking has been accelerated by COVID-19.
Nano, a digital lender founded by former Westpac executives Andrew Walker and Chris Lumby, claims to have a fully digital process that can complete an approval for low-risk loans in under 10 minutes.
Walker says Nano can pump approvals this fast because it uses algorithms to sift through customer bank data, instead of requiring payslips and bank statements. It also targets low risk loans.
The argument is that automated approvals are disruptive because they are not only more convenient for clients, but also considerably less expensive for the lender.
All good points, but won’t banks with deep pockets just be able to deploy technology similar to that of their fintech challengers?
They’re definitely trying, thanks to multibillion-dollar tech spending and their own in-house venture capital units.
But those who predict a wave of mortgage disruption, like James Cameron, partner of Airtree Ventures, point out that banks have often struggled with major technological transformations. Cameron, whose fund is invested in mortgage lender Athena, says banks are in some ways “victims of their own success.” These are huge institutions that have been around for many decades, if not centuries, so rapid change doesn’t come naturally.
Banks are still scrambling to change, and analysts expect them to continue investing in their own fintech ideas, teaming up with fintechs, and potentially buying off competitors.
It should also be remembered that banks successfully responded to new competitors in the mortgage market in the 1990s, when brokers such as Aussie Home Loans and non-bank lenders such as Wizard and RAMS entered the scene.
Some well-respected banking observers, such as Jefferies analyst Brian Johnson, are also not convinced that banks are vulnerable to a wave of mortgage disruption. Johnson points out that the “neobank” model has barely turned off the lights and believes the real disruption will come in the small and medium-sized business sector.
Despite this, international experience and big changes in areas such as consumer lending suggest that mortgages will inevitably face a digital upheaval.
At the very least, the mortgage market appears to be on the cusp of a wave of digital innovation aimed at simplifying loan application.
Whether this takes some of the shine off the Big Four’s home loan profit factories will depend on how the incumbents react to the threat.
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