Analysis: Is the mortgage industry ready for disruption?

Hero BroKer

When The Adviser ran a piece about Hero BroKer last month, the industry’s reaction was significant. Twenty-five people commented on the story, which was shared 64 times on Facebook and 48 times on LinkedIn.

The idea that customers could broker their own home loan (and receive an upfront commission for doing so) seemed to fly in the face of the broker proposition.

Comments ranged from encouraging – “A work in progress that will face some hurdles but I'm looking forward to seeing how far Hero BroKer will go” to negative – “My bet is Hero to zero!”

A follow-up story revealed that the platform had signed an agreement with mortgage aggregator AFG.

However, Heritage Bank seemed confused after being told its branding was all over on the Hero BroKer website.

Heritage Bank’s general manager of retail services Paul Francis said he was unaware Hero BroKer had listed the bank as a lending partner on its website, adding that Heritage has no direct agreement with the platform.

Mr Francis said he does not believe the platform will make much of a dent in mortgage distribution now, but it could in the future. “There will be more of these types of operations that will be banking on the fact that this continued move to the digital age will become prevalent in this part of financial services,” he said.

A few weeks later, AFG revealed that it had terminated its agreement with Hero BroKer following a review of its business model.

Hero BroKer founder Clint Howen said AFG’s main concern was the commission going back to the borrower.

“If I was to give that up from the business model, they would want to continue their relationship with Hero BroKer,” Mr Howen said.

“But it’s not just the commission [going] back to the borrowers that they’re worried about either. They’re also worried that the process could take away the value of a broker.”

Which poses the important question: is the industry ready to be disrupted?

Non-bank lenders were an early disruptive force in the mortgage market, as were brokers. Together they have been responsible for injecting much-needed competition into the industry.

Whether new online players can deliver the same positive results remains to be seen.

Mortgage Business understands Hero BroKer has been in discussions with more aggregators in recent weeks.

Uno

Within days of AFG cutting ties with Hero BroKer, industry veteran Vincent Turner announced the launch of his new fintech company uno. Once again, the power is in the hands of the consumer.

The uno online service gives consumers access to the same tools and information traditional brokers use to find a home loan, providing them with the power to decide what is best for them. It also allows consumers to access real time home loan rates based on their personal situations – not just advertised rates.

“We think of this as the third wave. Traditionally, you’ve just had banks, going way back. Then you had brokers come into the market. We see this consumer-brokered mortgage as the next wave of what is possible,” Mr Turner said.

“I think there is a whole segment of consumers who will say, ‘This is how I want to get access to a mortgage because I want to use a platform’. They don’t want to do it alone, they still want help, but what they want is a screen.

“There is a whole generation of people who have a screen to access so many other services in other verticals.”

Mr Turner believes online platforms such as uno will not replace banks, nor does he see it replacing mortgage brokers.

“We think there is a whole generation of people and a growing segment of the market who want to do more of this themselves and expect that from their service providers.”

Mortgage Business understands a big four bank has recently invested in the platform.

Joust

This month, another new player announced it has gained traction in the home loan market. However, unlike the consumer-brokered model, Joust sees lenders bidding for a customer’s mortgage.

In its first two weeks, Joust has seen more than $43 million worth of home loans go through its system after more than 100 customers put their mortgages up for auction.

Joust founder Mark Bevan has made clear he is in competition with mortgage brokers, and so far a growing number of non-major lenders have signed up to the South Australia-based platform, including Bank SA, Adelaide Bank, Australian Unity, People’s Choice Credit Union, Bank of Queensland, Beyond Bank and Gateway Credit Union.

Mr Bevan said Joust will launch in Victoria in October, followed by a full national roll-out by January 2017, with plans to more than double the number of active lenders on the platform.

“We’re aiming to have up to 20 lenders on our digital platform to ‘joust’ by the time we launch nationally, which given the discussions and high level of interest received to date, we are confident this goal is well within reach,” he said.

The former major bank executive believes one of the reasons people are responding so well is the fact that Joust is not a comparison site, but a live and fully transparent auction platform.

“It’s a reverse eBay experience for home loans. There’s a lot of confusion when it comes to comparing home loan deals between lenders, and people don’t have the time or patience to do the hunting around and negotiating back and forth – and certainly not with numerous lenders,” he said.

“Our platform brings a new competitive edge to the financial sector, whereby we bring the lenders to the consumer on our terms, ensuring apples are always being compared with apples, which makes the process much easier for the consumer.”

Three local fintech companies have emerged in recent months. All of them have the same goal – to earn their place in the competitive mortgage distribution market by catering to the changing needs of consumers.

The rise of mobile technology and the rapid take-up of internet banking have placed the power firmly in the hands of customers.

There will always be people who will want their hands held and who will look for a human relationship when they are making major financial decisions. But there is a generation of customers (and generations to come) who is quite happy to receive a mortgage in a few simple steps on a screen.

Just as mortgage brokers and non-bank lenders brought competition to the market by offering an alternative, new online players will no doubt be the catalyst to drive innovation in both new and existing mortgage businesses.

[Related: Fintech adoption tipped to double in 2016]