Brokers and banks must let go of an "us versus them" mentality as the third party channel becomes crucial to the success of the industry.
NAB Broker general manager of distribution John Flavell has argued that banks no longer have an adversarial view toward the broker channel. Instead, Flavell says banks have now truly embraced the broking channel as a means of cooperative distribution, and a critical part of the banking matrix of the future.
“Our expectation at the NAB group level is that brokers will continue to provide a broader range of products to a larger proportion of the market,” he says. “Other channels will certainly grow as far as online and telephone are concerned, though the branch network will probably diminish over this period of time. That’s the trend that we see,” he says.
For lenders, Flavell says integrating brokers into their distribution model will enable them to reach more of the market and is crucial to the future success of their business.
“If lenders are out to shut brokers out of the market place - well that’s one thing they might endeavour to do. But if you’ve got consumers who are actually voting by their actions and making it very clear what their preferences are as far as where they access services and who they deal with, well then if you turn your back on 50% of flow then you’re doing so at your own peril,” he says.
Stepping back in time, Flavell said that lenders had initially tried to compete with brokers in the late 90s on price, and subsequently by providing more convenient service. However, he said that banks could not shut out the channel and it had increasingly grown market share.
“Back in ’97 lenders probably thought they could make a difference and close the brokers out, but it wasn’t true then and it’s even less true today,” he says.
In fact, brokers are now performing the same as banks – or even better – on key profitability metrics, such as conversions– which Flavell says is a ‘feather in the cap’ of brokers.
“If you look at some of the key indicators in terms of how a portfolio will perform, then there is the proportion of applications that are system approved, and between the broker channel and the proprietary channel there is no difference in that,” he said. Statistics show in 2011 64% of deals through third party were system approved, compared with 63% for proprietary.
“In terms of the quality of the applications being submitted there is no difference between the proprietary channel and the broker channel, and I think that is a feather in the cap for brokers. They have numerous lenders policies and processes to understand,” he says.