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This theme was discussed in a recent episode of Broker Daily Spotlight, with leading non-bank lender Firstmac. Here, the lender’s chief financial officer, James Austin, discussed just how important non-banks are for helping uphold a competitive market.
While the obvious benefit of more lenders is consumer choice, Austin said that there are significant benefits for brokers, too, and their ability to service clients.
“The non-banks provide that diversity of funding and ultimately create the competitive markets that allow the broker and third-party market to thrive,” he said.
“I think it’s probably fair to say that most brokers would have a natural suspicion of the banks and that the banks would like to take distribution back in house if they could. And certainly, they’ve got different retail channels attempting to do just that. So, the presence of an active non-bank market is quite crucial for third party distribution.
“Non-banks, and particularly the bigger five non-banks, have to compete with banks where [they] either cannot compete or will not compete. So often that’s driven by capital guidelines.”
Non-banks need to set themselves apart if they’re to be successful in an oversaturated market. This is where innovation and finding a niche can set lenders apart. Further to this, the constant evolution means constant competition and makes way for variety in offerings.
“Non-banks have to always be innovative; they always have to be moving and they have to be able to provide a point of difference to what your mainstream banks will do. And without those non-banks, the variety of product just wouldn’t exist,” Austin said.
One major benefit the non-bank market brings to brokers and borrowers is fast turnaround times. This was witnessed in a recent survey from Agile Market Intelligence, which highlighted much faster turnaround times for smaller lenders.
As of September, the average turnaround time for a business loan with the major banks was 7.5 days. Comparatively, the turnaround time for non-bank business lenders was just two days.
Other lenders saw varied results throughout September. Business bank ADIs had an average turnaround time of 7.4 days, more akin to the majors, and regular non-bank lenders’ was 4.8 days.
According to Austin, bureaucracy at the larger institutions is to blame for the slower turnaround times: a problem non-banks can often avoid.
“The major banks are heavily regulated by APRA and that does mean that there is a certain layer of bureaucracy that comes in and a much heavier layer of cost that’s applied. Now the flip side of that is that of course the banks have got more capital and can provide a cheaper funding offer,” Austin said.
“But then once it’s overlaid with their bureaucracy and their costs, it tends to manifest itself into slower processing times as well as a higher return required to cover all of those costs. So ultimately you do end up with a competitive market with these different dynamics at play.”
Further to this, however, Austin believes that without non-banks, the process across the board would be far slower.
“If the non-banks weren’t there the speed of processing of banks would slow down dramatically. The only reason that you’ve got the likes of Macquarie there with their famed turnaround times is simply because the competition that’s brought by the non-banks and that’s where they have to get in and compete,” said Austin.
“The non-banks are not regulated by APRA and that choice just wouldn’t exist if the non-banks weren’t there. And that’s largely because the APRA has this safety-first approach for dealing with banks which just makes them really large building societies with a very narrow focus of the type of product that they’ll write.”
Non-banks provide a valuable service to the lending space: choice. Choice for borrowers and choice for brokers. With the added bonus of spurring competition among lenders, the non-banks are a vital component in lending.
[Related: Small lenders providing the quickest business loan turnarounds]
The transcript of this podcast episode was slightly edited for publishing purposes. To listen to the full conversation with James Austin, click below:
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