Firstmac’s founder says the veteran company is still evolving, and argues brokers have to do the same
One of Cannon’s biggest focuses is competition. As a non-bank lender, Cannon said Firstmac is positioned well to provide alternatives to the majors. But Cannon argued that, due to the regulatory environment, non-banks often start on the back foot.
A big reason for this, Cannon said, is the bank obsession with “owning the customer”.
“I hear the banking industry talk about cross-sell and owning the customer. That’s just crap. I hear of brokers saying it’s their customer. What I’ve learned over the years is you don’t own the customer unless you own the account where their pay goes,” he said.
For the most part, this puts non-bank lenders at a significant disadvantage.
“If I’m putting them into a home loan with an offset account with Firstmac, that’s a different ballgame and I own the customer. But if I’ve just got the home loan and the account their pay goes into is with Westpac or ANZ
or the like, they still own the customer,” Cannon said.
With this in mind, Cannon said it behoves non-banks to evolve their offering. But, once again, the regulatory environment can stand in the way. Cannon said the barriers to evolving to take on banks on a more even footing are often onerous.
“If you look back in history, the likes of Firstmac have tried to get hold of a banking licence over the years, and haven’t had too much success with that. Firstly, that’s because of trying to partner with some of the entities out there that are just lost in time. Another major issue is that the most any private individual can own in a bank is 15%. It makes it difficult to come on as a shareholder somewhere and then be able to make a difference,” he said.
But Cannon indicated that Firstmac was far from giving up. With the upcoming Financial System Inquiry, he said the lender would again make its case to the government for broadening the competitive landscape.
“We’re going to submit to the [Financial System Inquiry] that bank ownership should be loosened up a bit and allow people like us to come in. I want to do what we did to home loans 20 years ago and provide competition to the banks out there. I want to pay people an honest day’s interest for their money rather than pay them nothing and charge them exorbitant fees.”
In spite of the regulatory barriers, Cannon said Firstmac would forge ahead in its goal to offer a broader suite of products to customers. A new partnership could help the lender achieve this goal, he said.
“We’ve now acquired a large 15% shareholding in a small ADI in Kalgoorlie called Goldfields Money. It’s a listed entity that does banking, and we’re working with them at the moment backwards and forwards to provide us with full banking products. That gives us the ability to go after that customer and own the customer,” Cannon said.
This partnership could open up new avenues for Firstmac, he said.
“It’s going to open up a lot of things. The customer’s money is still safe on deposit with the bank. We don’t need the money to fund home loans, because we do that through securitisation. It’s about getting that second and third product to the customer.”
In addition to the partnership with Goldfields Money, Cannon said Firstmac was also expanding its lending suite.
“We’re also starting up an asset finance business with equipment finance, car finance and that sort of thing,” he said. These developments mean a more holistic approach to the market, Cannon has suggested.
“Suddenly we’ve got a mix and match of all the market and what we can do.”
WORKING THE BUSINESS
Cannon argued that the new developments are indicative of Firstmac’s continuing growth and evolution as a business, from mortgage manager to securitiser and non-bank lender to eventual deposit taker. Cannon does concede, though, that mortgage management has become tougher since the GFC. While the industry used to be open to new entrants, he said he sees this changing.
“Over the years you saw brokers who wanted to expand their business, and they saw their future in becoming mortgage managers and maybe owning their customer and getting their brand out there. You don’t see that these days, and you haven’t seen it for four or five years. I just don’t think the natural progression is there,” he said.
And for companies already operating in the mortgage management space, Cannon argued that the move to become a true non-bank is a difficult one.
“When I first started securitising in 2000, you were able to step up from being a mortgage manager to being a non-bank funder. The world has changed a lot since the GFC. That barrier to entry is so high now with the capital requirements needed to support a business like this, skin in the game and the like. You don’t see new people coming through,” he said.
In fact, Cannon said traditional mortgage managers could face tough times if their businesses don’t evolve.
“Unless you’re a mortgage manager who has a direct source of business either through online or a retail network, just being a middleman mortgage manager taking loans from brokers and giving them somewhere else isn’t going to cut it in the future.”
But Cannon believes success in the mortgage industry is possible, he said, if companies are willing to continue working.
“I was what you call a first generation mortgage manager. We’re probably up to the fourth or fifth generation mortgage managers. What happens, and you see it in broking as well, is you can do really well in the marketplace but you have to keep working at your business to do well.”
He argued that this is where some companies in the mortgage industry fall down. Early success can breed complacency, he said.
“The biggest failing I see is a lot of people go out and do really well for a couple of years, and then go out playing golf and going on holidays and they come back every three or four years and basically get lazy in the business and stop working in the business. I still see people from the first or second generation of mortgage managers, they go away for a number of years and then come back and the world has changed around them. If you’re going to be in this business you have to work at it and keep at it and not just come and go because you’re making money,” Cannon said.