First the retailers, now the banks?
The internet’s blowtorch that’s been searing retailers from book stores to electronics outlets is now turning the competitive heat up on the country’s biggest banks.
While customers have long had options to park their savings in online accounts - including those operated by the big four local banks - the offerings are now extending to mortgages, potentially cutting into some of the banks’ most lucrative profit streams.
Small online outfits like Loans.com.au, MyRate.com.au, emoney.net. au and StateCustodians.com.au are among those offering standard variable interest rates a full percentage point below those offered by so-called bricks-and-mortar bank rates.
Advertisement: Story continues below
The average of those mortgage loans offered by the big four banks on August 24 was 7.78 per cent, while an average of the four online-only lenders - unaffiliated with the established banks - was 6.77 per cent, 101 basis points less.The upstarts remain market minnows compared with the banking behemoths, whose collective profit takings exceeded $22 billion over the past year. Even so, the banks are likely to keep a wary eye on the fast-growing competition in one of their most profitable sectors.
“We’re really surprised by how much the Australian consumers are willing to purchase a home loan online,” said Loans.com’s managing director Marie Mortimer. “We started with five staff three months ago, we’re up to 50 now. We’ve taken over a whole floor of office space.’’
The Australian Bankers’ Association said that although it doesn’t represent the online-online lenders, it welcomes the competition.
‘‘The housing finance market continues to be a very competitive sector and banks welcome competition from all players in that market - banks, building societies, credit unions and other lenders,’’ said ABA chief executive Steven Münchenberg.
Cost gap
Queanbeyan, NSW-based Phil Mandl said he began looking for a better interest rate two years ago, concerned about the Reserve Bank lifting the cash rate and becoming disenchanted with the service level at ME Bank, then the source of his home loan.
“I started to look around and got on the internet and I came across State Custodians,” he said. After refinancing his $330,000 home loan, Mr Mandl describes himself as ‘‘happy’’ and ‘‘very likely’’ to stay with the new lender.
The online pricing advantage for lenders has evident for years in retailing: potentially much lower costs of distribution, marketing and sales. Customers also have the ability to make snap comparisons of prices.
Loans.com’s Ms Mortimer said the company charges about 6 basis points on top of the credit cost to cover its expenses, which includes the lower expenses for staff, office space, and websites.
By comparison, Ms Mortimer estimates that traditional banks and networks of mortgage brokers face staffing, shop front and other costs totalling 45 basis points.
Online lender State Custodians managing director David Westerman said his company counts among its customers managers from ANZ Bank and Commonwealth Bank.
“We can offer one of the cheapest rates and make money and that’s all off the back of not having to pay a broker,” he said. State Custodians has seen ‘‘big spikes’’ in activity on the site recently, Mr Westerman said, without elaborating.
Comparisons
As with retail consumers using comparison websites before making purchases of electronics or cameras, Australian can look to a host of sites including RateCity.com.au,Mozo.com.au, Canstar Cannex (www.canstar.com.au), and InfoChoice (www.infochoice.com.au).
And, it seems, more consumers are taking advantage of those offerings. InfoChoice, the largest rate comparison site by web traffic, said revenue for lead referral to lenders jumped 89 per cent in the six months to June 2011, helping lift its revenue 35 per cent to $2.7 million for the half.
Despite the rise in appetite for online loans, RBS Equities banks analyst John Buonaccorsi believes online lenders will only increase competition “at the margins” of the home loan market.
One reason is that smaller online lenders still face higher costs for wholesale funding, he said. In addition, the headline rates gap narrows when additional discounts are won by customers tapping loans from the major banks.
Back in the 1990s RAMS and Aussie Home Loans could access funding cheaply on global markets and offer loans 1.5 to 2 percentage points lower than the major banks, he said.
Those non-bank lenders, though, mostly disappeared in the global financial crisis as the cost of their funds made them uncompetitive with the major banks.
Online offerings
The major banks, meanwhile, are offering their own online offerings. For instance, National Australia Bank-owned UBank, launched in 2008, offers a standard variable rate at 6.79 per cent, well below the 7.67 per cent charged by NAB.
And many of the online lenders are in fact backed banks or non-bank lenders - MyRate.com is funded through ING Bank, while mortgage originator FirstMac provides loans for Loans.com.
The playing field is also becoming increasingly competitive with other entrants including Ratebusters.com.au, BetterOption.com.au, easystreet.com.au, Yellow Brick Road (www.ybr.com.au), headed by Wizard Home Loans founder Mark Bouris.
State Custodian’s Mr Westerman concedes there is a churn in the new players entering and exiting the business - visible in the mix of names offering the best deals on the comparison sites.
"A lot of people have tried this and have been seriously burnt and left the market," said State Custodian’s Mr Westerman. State Custodians - backed by non-bank lender Resimac - has been in business six years.
The challenge for the online lenders at this point, he said, is to get the right balance between low rates and remaining profitable.
"Anyone can offer a cheap rate with a low margin, but unless you can successfully convert that traffic you’re going to go broke.’’
czappone@fairfax.com.au
No comments:
Post a Comment