Does CBA’s direct play spell the end of retail lending?

Following the news that the Commonwealth Bank of Australia (CBA) is set to launch a digital-only mortgage offering for external refinancers, speculation has been mounting about whether this move is part of a longer-term strategy to shore up its mortgage flows amid falling flows from the broker channel and a shrinking proprietary branch network that is haemorrhaging experienced staff.

Currently, Unloan – the digital-only division of the major banking group – has been CBA’s direct-to-consumer digital loan brand (and had around $5 billion in lending balances as at 31 December 2023).

However, the new digital refinancing product is believed to be the major bank’s first ‘yellow-branded’ mortgage offering that is only available to consumers directly, not available to its proprietary bank staff or broker.

So, why introduce a new digital offering under the CBA brand?

A dwindling branch network

Australia’s largest lender has around 728 branches across the group – the largest branch footprint of any Australian bank. But the number of branches has been dwindling in recent years.

While the major bank has committed to pause all CBA regional branch closures (which account for around 40 per cent of all CBA branches) until the end of 2026, it recently announced that its subsidiary Bankwest would be closing all of its remaining branches and become a digital bank, after finding that 97 per cent of all its transactions are done digitally.

Indeed, in evidence to the ongoing Senate inquiry into regional bank closures, the Australian Prudential Regulation Authority (APRA) revealed that there had been an overall reduction of 424 bank branches across Australia in the financial year 2023 (11 per cent), including 122 branches (7 per cent) in regional and remote areas.

Over a six-year period, 2,106 bank branches have closed across the country, including 798 in regional and remote areas. Around half of these are believed to be major bank branches.

According to the lenders, the main driver in reducing the branch footprint has been the move to digital banking.

For example, in CBA’s half-year results for the financial year 2024, around 95 per cent of loan applications through both proprietary and broker channels are now settled digitally (via PEXA), with 90 per cent using digital loan documents. Moreover, approximately 70 per cent of the bank’s proprietary applications were auto-decisioned in 1H24 (using an automated credit rules engine).

Speaking to Mortgage Business, Phillip Tarrant, Momentum Markets’ managing editor for consumer finance and real estate, said that the move to offer a CBA-branded digital-only loan may represent the “beginning of the end of the proprietary branch network”.

He said: “The broker channel ain’t going to go away ... [but] maybe it’s the beginning of the end of the proprietary branch network. Maybe that’s what’s on the chopping block here.

“In 20 or 30 years’ time (and if the technology keeps up), most people that are happy to go direct will do it digitally with CBA. So this could mark the beginning of the end of the proprietary branch network.”

The major bank’s proprietary banking channel has also been plagued by a brain drain recently, with the bank saying last month that it would be increasing the bonus caps for its bankers to 80 per cent of base pay, in a bid to stop them from leaving to become brokers.

The move drew the ire of the financial services regulator given it breaches the 50 per cent limit brought in following the Sedgwick Review’s recommendation on variable reward payments (which was backed by the banking royal commission) to reduce conflicts of interest and reduce the risk of misconduct.

Alex Whitlock, director of mortgages at Momentum Markets, said that he was also concerned that other lenders would follow suit: “What fallout will there be with other lenders? There are other major banks that compete with CBA ... Is this the beginning of a new era of product offerings direct-to-customer and are we going to see this coming through other banks?”

A muddled strategy

The introduction of CBA’s new digital mortgage offer to borrowers means that the major banking group now has six avenues in which borrowers can access home loans - with most having its own pricing/discounting. They are:

• CBA branch network/proprietary channel
• CBA broker channel
• CBA digital channel
• Bankwest branch network/proprietary channel (albeit for a limited time until it goes fully digital)
• Bankwest broker channel
• Unloan digital channel

Speaking about the range of channels in which you can access home loans, Tarrant questioned whether CBA would be looking to run all these channels concurrently or streamline its digital offerings: “If it’s going to be a CBA branded direct-to-consumer offering, is Unloan not working? Are they going to scale that back, or wind that back, and actually just turn it into a direct CBA product moving forward? Because it sounds like they’ve got too many irons in the fire on that basis.

“That’s very, very confusing for customers. If you’re going to provide direct-to-consumer loans via a digital channel, you’d just do it through CBA. Why would you start a new channel?”

Whitlock said: “You’ve got, in no particular order of importance, retail bank distribution, you’ve got Unloan, you’ve now got your CBA direct, and you’ve got your third party distribution channel, which is not feeling very loved from CBA.”

However, CBA’s Michael Baumann, its executive general manager, home buying, wrote to broker partners this week to assure them of the major bank’s commitment to the channel.

In the email, seen by The Adviser, Baumann said that the new “basic featured mortgage product” had been designed to cater for “a segment of customers who are actively seeking a digital-only lending experience”.

He said: “At CommBank, we recognise that many customers still want to talk to someone and will continue to prefer the face-to-face support and guidance that you – our brokers – provide, and we expect this to continue into the future.

“We see our new digital home lending solution as a complement to our existing distribution channels. The broking channel remains an integral part of our business.”

You can find out more about the CBA move in the breaking news Mortgage Business Uncut podcast episode, below:

[Related: CBA launches direct-to-consumer refinance product]