Brokers Ride The Wave

Mortgage brokers, after several years in the doldrums, have an opportunity for growth.

DFA tracks the flow of new mortgages including the channel of origination in its market model. Third Party (aka broker) originated loans are on the rise, both in absolute terms as volumes increase, and in relative share terms compared with bank originated loans.  The first chart shows the trend of loans via brokers, and a projection, based on anticipated volumes. Note this is based on the number of loans approved, not their value. It covers all lenders, including the non-banks who have a growing share of business, and who are very reliant on brokers.

Broker-Share-DFAAPRA provides data on this also, but looks only at ADI’s (so does not include non-banks) and shows the value of loans approved, not volume.

Broker-Share-APRAWe also model the commission flows from new loans, and following recent improvements in commission rates from some lenders, plus the stronger volumes, commissions are up. The chart below shows the relative commissions paid, using the peak in 2007, when the first time buyers were active, and commissions were more generous, as the baseline. It shows that whilst commissions are up compared with recent months, they are not back to their 2007 levels. Overall the number of mortgage brokers in the industry have fallen in recent years.

Broker-CommissionThe final picture overlays the DFA segmentation broker preference analysis from our household survey.  Refinancers, and Investors are the most likely to use a broker, and with down-traders are likely to transact at the moment. First time buyers, whilst likely to use a broker, are frozen out of the market because of high prices. So brokers who want to grow their business will need to tailor their targeting, and lenders should consider changing commission levels for different types of business.

Broker-SegmentBoth brokers and lenders are under an obligation now to ensure that the loan is “not unsuitable” (thanks to ASIC), and the “not unsuitable” criteria may well vary by segment. But the bottom line is brokers, after several years in the doldrums, have an opportunity for growth now.

DFA 2013 Channel Preference Analysis – Are Bank Branches Obsolete?

The results from the DFA 2013 Channel Preference Research Program are just in. This program captures data from our 26,000 households over 12 months on their current and ideal channel preferences. This is segmented analysis, and we are already finding some strong themes emerging as we complete the data dive. The final report is some weeks away, but here is our initial take on what we are seeing.

First, we see that households are on average more connected than ever. The Young are connected for more than 100 hours each week, up 10% on the 2011 baseline, whereas Self-Funded Retirees have doubled their time online, to about 30 hours a week. We know what proportion of time is spend in social media sites (up), online media (well up) and other web sites (down).

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We also looked at household preferences with respect to bank channels. Many segments are now rapidly moving online, and the young are leading the way. The way we show this is using the DFA proprietary Channel Preference Radar. We look at sales and service preferences by channel, and map these against the average. Our take-away is that bank branches are now obsolete for some of the most online and profitable segments. It is a challenge for banks and other financial institutions because the branch will increasingly become the ghetto of less profitable and older Australians.  This same digital migration is also having an impact in Mortgage Brokers and Financial Advisers. It seems to us that households are voting with their devices (mostly smart phones and tablets) and are way ahead of most of the industry in terms of migration. There are profound economic implications for the banks, and a potential impact on the high street, and on the customers of these financial institutions.

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SMEs Are Going Digitally Mobile

As part of the DFA Small and Medium Enterprise (SME) Survey, we asked them about their banking channel preferences. Since we last ran the study, there has been a considerable shift to using mobile devices as the preferred access device for banking services. Use of a fixed PC is down. EFTPOS service by mobile device have also proved popular. Many now use on-line payments more, have multiple mobile devices and also use social media in connection with their business. Our view is that players now need to prioritize the deployment of mobile solutions for SME customers, as they are prepared to switch providers to get more comprehensive digital services. This should replace an omnichannel strategy.

SME-Chart-DFA

Channel Preferences Are Changing Fast

DFA’s Channel Preference research examines how different customer segments are fast migrating from traditional banking channels to the digital channels across the range of sales and service transactions. However, not all segments are moving as fast, and the most profitable segments are moving to digital fastest. As a result unless channels are optimized and adjusted on the fly, banks will be left with significant stranded assets  and costs. Omnichannel strategies need to be changed to put digital at the top of the priorities.

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