Why did the major banks enter the broker channel?

Amid speculation about the direction of retail lending (triggered by the Commonwealth Bank of Australia’s new digital loan offering that cuts out proprietary and third-party channels), we take a look at why the major banks turned to the broking channel in the first place.

Speaking on the Mortgage and Finance Leader podcast, Gerald Foley, managing director of aggregator National Mortgage Brokers (nMB), revealed that the major banks entered the broking channel to compete with Aussie Home Loans.

Foley, who managed the launch of ANZ Bank’s mortgage broker unit in 1996, said that mortgage broking became increasingly popular in the early 1990s with the emergence of Aussie Home Loans in 1992.

While mortgage and finance broking was around before John Symond launched the nationwide broking franchise, the emergence of Aussie Home Loans began to solidify the broking industry and become a competitor for the major banks.

The industry head said that the success of Aussie Home Loans had made the major banks “nervous”, as the broker franchise was “catching” ANZ, the fourth-largest lender in size at that time.

Foley said: “Mortgage broking was just starting to emerge, but major banks weren’t in it.

“Back then, banks [were] good at raising deposits. They [were] good at designing a loan product, but after 200 years of practice, sales [were] still a bit of a weakness.”

Foley revealed that a colleague who worked at ANZ asked him what the answer to competing with Aussie Home Loans was, to which Foley responded that the banks would need to get into the broking space.

The head of nMB said: “We set up the ANZ broker channel, really off the back of ANZ wanting to stay ahead of Aussie.”

He said that other banks “almost had to follow” and set up their own broking channels to remain in competition with ANZ.

The managing director said, however, that setting up a broking channel was met with resistance, as some members of ANZ said that the banks “would never do it”. Foley said: “That was banking at the time. Every bank had that group that said, ‘We’ll never do this’.”

Speaking on what he predicted for the broking channel, Foley said that others thought he was “a bit out there” by saying that the broker market share would get to 50 per cent of loans written in Australia.

With market share reaching a record 71.8 per cent in the October to December 2023 quarter, Foley said that he now expects market share to stay at the 70–75 per cent range for the foreseeable future.

Broker mental health

As market share has increased, brokers have taken on the responsibility of becoming business owners, typically moving from a lending environment.

Foley said that a lot of brokers “worked in lending environments and became a broker and became very good at it.” He said: [The] next minute, they’ve got people and premises and all those other things.”

The industry head said that brokers should be focused on developing as business owners, but also emphasised the importance of mental health in an industry where brokers are required to wear multiple hats when running their own businesses.

Foley said: “I feel that a lot [of brokers] in our industry look at others and think, ‘They’ve made it’, ‘They’ve done this’, ‘I haven’t, I’m not there’, and it plays on their mind.

“So the message is, just put your hand up. If you need help, call it out. We are a wonderful industry. We work together when there’s an industry crisis. We work together when there’s a personal crisis and we just need to be better at that.”

He said that there are a number of services that have been established to support brokers, including Mantalk (which launched in December) and R U OK? day (a nationwide mental health initiative).

Speaking on R U OK? day, Foley said: “I love what R U OK? does. I don’t always know if it’s the right measure. I don’t think okay is good enough. I need to say I’m good. You’ve got to be better than [OK].”

Find out more about why trail commission was brought in by ANZ and what Foley expects for the future of broking by tuning in to the Mortgage and Finance Leader podcast episode below:

[Related: MORTGAGE AND FINANCE LEADER: Gerald Foley on the history of ANZ’s broker channel and founding nMB]