The fintech transformation

by AB09 Jul 2018

According to one fintech expert, brokers could soon be replaced by smart speakers. But will customers embrace such a technological leap?

Until the early 2000s, the process of booking a holiday involved trips to multiple travel agencies, hours thumbing through glossy brochures, and more sit-down meetings than the average mortgage currently requires. Today it’s a task that can be completed on a mobile phone during a coffee break.

There are many reasons why the travel industry experienced such a shift, from the lure of competitive prices to the convenience of consumers becoming their own armchair agents. People simply wanted to take more control.

Seeing the same demands echo throughout the finance and mortgage space, the co-founders of Australia’s first “cloud-native digital bank” – ex-NAB execs Nathan Walsh and Michael Starkey – believe it’s time the finance industry saw the same shake-up.

“Athena’s mission is to make the journey to homeownership faster, cheaper, and less stressful,” says Walsh.

“To create the best mortgage experience and savings benefits for borrowers and investors, we’ll bypass the banks to connect borrowers to super-fund-backed loans at much lower rates. Australians don’t need more debt. We need help to pay off our home loans faster. In as little as 15 minutes online, a borrower can apply to refinance their mortgage and get conditionally approved at a great rate.”

While it’s good news for consumers, it’s another innovation that could be bad news for brokers. Last month, Moven co-founder and CEO Brett King predicted that even smart speakers would be inching in on the broker space in the future as customers look to limit the number of transactions in the homebuying process.

Speaking to Australian Broker, King says, “Ideally, what would happen is by the time you walk into the display home or village we know where you are and there’s a good chance you’re in the process of buying a home. So then we have to look for the behavioural trigger that indicates you’re ready to make a purchase on the home.

“Pre-approval is a very important construct here. If you think about lowering [transactions], one of the key data competencies that financial organisations will have to have is the ability to approve in real time. If you have to wait to approve someone for a mortgage or a line of credit, you’re going to miss out on future business.”

Moven and Athena aren’t the only fintech platforms making headlines this year. Recent months have also seen the launch of Australia’s first digital bank, volt, which promises to develop “better, more honest products and services” to give consumers greater control of their money.

“If we look ahead, online broking has a place, but we don’t know where it’s going to land” Anja Pannek, CEO of PLAN Australia

Both Athena and volt have specific plans for the $1.7trn nationwide mortgage market and boast some heavyweight credentials. In May, Athena raised $15m in Series A funding from Macquarie Bank, Square Peg Capital and Apex Capital, and APRA introduced a new restricted ADI, or RADI, licence to enable the launch of volt. Other start-ups, such as BlockX, have also received backing from the majors.

Anja Pannek, CEO of aggregator PLAN Australia, says, “Every month there is another article on a new digital disruptor in the market, and we have a number in the market at the moment who have built significant platforms and have quite a bit of backing.

“When I speak to our members the first thing I say is that you have to understand how these businesses actually operate, because in my view they are testing broking in a digital form. Naturally, there will be significant learnings through that process, and if you’re a broker you need to understand what they are doing and how.”

The hybrid broker

According to data from MyState Bank, 13% of surveyed brokers believe online platforms do not pose a serious threat to their business models and 47% plan to remain focused on their current models. However, more than 22% of brokers are adopting new technology and software to remain competitive, and 5% are looking to partner with fintechs to improve their client offerings.

Such findings underline the different levels of fintech adoption currently seen across the industry: while some brokers remain true to their traditional approach, others are leveraging new tools to offer hybrid services that blend old and new.

“If we look ahead, online broking has a place, but we don’t know where it’s going to land,” Pannek says. “Brokers should be aware of what’s going on in the industry and how they should engage with their customers, and I think there are lessons in productivity, too – where fintechs fine-tune elements of the broking process and are able to do it very efficiently.”

In banking, major lenders are both backing and competing with the fintechs.

In May, NAB unveiled its QuickBiz for Broker platform that enables brokers to digitally apply for unsecured business finance of up to $100,000 on behalf of their small business clients. The bank’s tandem introduction of the ApplyOnline tool will also help brokers offer their customers.

It isn’t the only innovation from the big four. ANZ has partnered with Loanapp, a new e-lodgment tool for brokers to submit residential mortgage applications, which Simone Tilley, GM of the bank’s residential broker division, called “transformational”.

But NAB’s general manager of broker distribution, Steve Kane, maintains there is still a place for traditional, branded banking – as well as brokers – and that will be the case for some time yet.

“The issue is conversion. The fintechs have leads, they have people interacting with them, some have in-house brokers, but they struggle to commercialise that,” says Kane.

“Some of the biggest and most successful fintechs are generating enquiries and profiles on customers, but where they fall over is that they have to use brokers for the face-to-face element because the customer wants validation of the decisions they have made, and that will continue. We see this as the broker’s opportunity for their customer relationships to flourish.”

The synergy between lenders and their apparent fintech competitors may seem disparate at the moment, but the fact that several majors have taken stakes in digital banking start-ups may signal where the industry is heading: the nimble and independently branded companies will be funded to test drive tomorrow’s software ahead of a major acquisition further down the line.

What remains to be seen is how the hybrid broker model that is emerging in the interim will fit into the equation.