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Speaking at the Macquarie Technology Summit last week, Nathan Walsh, chief executive of Athena, outlined his expectations for how increasing digitisation will change the lending industry.
He believes fintechs and niche players will present a sizeable challenge to the incumbent institutions, who could be weighed down by legacy systems.
Further, the ability to use personal data to compare products under open banking is anticipated to overpower the convenience that once came with using institutions as one-stop shops across financial products.
From Thursday (1 July), all non-major banks, building societies and credit unions will be required to allow customers to share bank account, savings account, credit card and debit card data. Consumers will be free to share their data with third parties, such as money management apps and investing fintechs.
All banks will be required to provide home loan, personal loan and mortgage offset account data from November. The final implementation phase – which will see banks obliged to share data across other products, including business finance, investment loans, lines of credit, overdrafts and asset finance – is scheduled for February 2022.
“The pace of change outside the large legacy players is only growing faster. And I think the legacy technology operations and operating models are just not well positioned to manage change at that pace required,” Mr Walsh said.
“I think what that leads to is real opportunity for specialised verticals in finance. It’s never been easier for a consumer to actually work with best-in-class players in different components when you’ve got real-time payments to shift money, when you have the opportunity, with things like open banking to really get an end-to-end view of your finances across providers.
“The advantage of going to a single provider to provide everything really diminishes if they’re not providing a best-in-class solution in each of those spaces.”
For Mr Walsh, open banking is an “opportunity to remove friction from the home loan process”.
Having access to data around income and expenses is expected to cut down dramatically on the time frame and to simplify the application process for customers.
“The traditional legacy process for a consumer, that was a very time-consuming, complex process. The real opportunity with digital, combined with digital access to data via open banking, is to make that substantially simpler,” he said.
“And this is an industry that has used inertia somewhat as a superpower, to charge excess spreads to consumers. There’s a very large and sustained gap between what customers who’ve had a home loan for a number of years would look like, versus those who’ve got a new home loan and that’s today, around 50 basis points for owner-occupies, nearly that high for an investor.
“It translates into billions of dollars of excess interest being charged every year.”
Similarly, David Hyman, CEO of Lendi, expects that lenders and brokers will have an opportunity to streamline the loan writing process, to refine the digital experience and to deliver certainty.
Meanwhile, Mr Walsh has said he anticipates that the direct digital channel will contribute to a greater share of new home loans, predicting that in the next 15 years, 30 per cent of mortgages will be originated online, surging tenfold from the current 3 per cent.
“Brokers are the majority of the market today, and I think that’s there for a reason. There’s a lot of value that customers have in terms of helping people make choices around understanding the options out there and helping them through that process. And we don’t see that changing,” he said.
“What I do think is the case, though, is there are a lot of scenarios where – if you’re doing a simple, like-for-like refinance, if you’re familiar with the process – I think there is a real comfort for consumers going direct and doing things digitally.
“So, we do see the shift, moving towards taking advantage of the simplicity of these channels, the access to data and those components and that’s whether that’s a migration towards a digital broking business, as per David’s business, or whether that’s a direct-to-lender.”
He stated that mortgages had also felt impacts from the wave of digitisation through COVID-19, with the direct channel benefitting.
“This has sort of been an unusual market, because Australians are early adopters of digital technology and in so much of their lives. And we’ll do a lot of research of home loans online, but then have typically gone back to an offline channel for the actual application and origination process,” Mr Walsh said.
“And so, we’ve seen a really strong uptake and growth in terms of customers going directly to a lender to get the benefit of simplicity and speed and service.”
[Related: DAIDEC launches AI home loan processing tool]
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