Lenders say they are not worried if supermarket giant Coles expanded its financial service reach into the mortgage industry.
Coles, which operates more than 2,300 retail outlets, indicated in its submission to the Financial Systems Inquiry that it would like to expand its financial services offerings to include home loans.
It pointed to retailers in Canada, France and the United Kingdom to illustrate its argument that Australia’s retail market is not as developed as overseas markets.
UK supermarkets such as Tesco and Sainsbury’s have been financial services players for more than15 years.
In August 2012, Tesco added home loans to its array of financial services products and encouraged their customers to take out a mortgage with them by rewarding them with loyalty points as they repay their mortgages.
Coles, which processes almost 20 million customer transactions per week, is well on its way to becoming a valid financial services competitor. In September 2012, it trademarked the brand ‘Coles Money’ to widen its consumer offerings to include finance.
The supermarket chain has also applied to APRA for a banking licence that would allow it to take deposits from customers and provide other financial services.
The company’s major Australian competitor Woolworths also has a range of financial service products, such as insurance and credit cards, issued under the brand ‘Woolworth’s Everyday Money’.
But lenders do not seem to be too fazed by Coles’ proposal.
Greg Mitchell, Homeloans general manager of sales, thought if other countries’ mortgage markets had managed to survive when supermarkets entered the game, then so would Australia’s.
“This has occurred in other markets around the world, without dramatically affecting the landscape. As always, in a competitive and ever-changing industry, existing players need to adapt,” he said.
Anything is feasible, said Adelaide Bank third party lending general manager Damian Percy.
“That said, building a home loan business from scratch isn’t easy – creating a full service financial offering is even less so – and the experience overseas points to the difficulty in doing it quickly.”
While Adelaide Bank welcomes competition and the improved customer and community outcomes that generally follow, it would not feel threatened by Coles should they start offering home loans as each would service different parts of the market, Percy said.
“Our model recognises that home owners and potential home owners get better outcomes with good advice which is why we prefer to deal through the mortgage broker market. Still, there’s always room for innovative approaches and the more diverse the choices for consumers, the better.”
Percy wished Coles luck with their endeavour to expand into the mortgage market. “[I] am already wondering which Status Quo tune will form the base of the advertising campaign.”
Iconic Home Loans
managing director James Pibworth said with Coles’ large regular customer base and brand that consumers enjoy and trust, finance would be the next logical step – but Iconic would not feel threatened.
“Competition is welcome; it would be nice if Coles opened up to the third party intermediary channel.”
Pibworth used to be a broker in the UK and saw how supermarkets there tended to target the “absolute cream vanilla market” rather than anyone who needed a more complex offering.
“They are not going to help a first home buyer that is scraping together a deposit to build a home, a self-employed welder looking to refinance and pay out an ATO debt or a developer building a four-unit site.
“It’s no different to U Bank and such lenders that have fantastic offerings but for a limited part of the market – which is fine, that’s not our core business.”
The road will not be easy should Coles branch out to mortgages. In its submission, Coles blamed Australia’s complex regulatory environment for holding competition back by failing to accommodate new entrants and innovations.
“There is no international precedent that sees a prudential regulator extend its supervisory reach by applying banking prudential requirements to the non-banking entities of a retail group that holds a banking licence.”
Coles said given the increase in concentration in the financial services sector following the GFC, it is “critical” that any barriers to entry remain low to encourage new participants.
“Our main concern in this regard is the potential for Australia’s current regulatory framework to incrementally move to a significantly more conservative stance over time – driven either by international developments or by the inherent conservatism of Australia’s financial regulators.”
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