Opinion: The customer is always right

by 05 Apr 2018

Pepper Money’s director of sales and distribution Aaron Milburn, reflects on the UK’s approach to financial reform

My two recent trips to the UK and New Zealand confirm for me that the work our industry is doing to transition to a customer-first approach is not only on trach but set to benefit all stakeholders.

During my trip I met with Pepper colleagues and industry contacts in England, Ireland and New Zealand to understand how they operatte and to gain a better sense of how changing regulatory settings have altered their markets.

The thing that struck me instantly was that all three markets are working towards similar outcomes, but those similarities are punctuated by marked differences in each of the various operating markets.

For instance, while we operate based on largely the same broker distribution model as in the UK, they operate in largely fixed-rate lending market. There is an upfront fee on mortgages, a trail (about 30 basis points) with no clawback for some lenders – mainly because it’s a fixed-rate market. It isn't uncommon to hear about average turnaround times in the UK of 12 days. One bank I visited in the UK offered interest-only loans on the proviso that there was an LVR of at least 65% and the applicant had an income of over £100,000.

When brokers lodge an application in the UK and Ireland there is often an upfront application fee as part of the lender's process.

Rebuilding trust is at the core of all change

Since I last worked in the UK back in 2008, the industry has fully transitioned to a customer-first model. At the time of the GFC, banks didn't just lose their balance sheets, they lost the trust of their customers. The only pathway back had to be a focus on the customer in order to win customer trust and loyalty.

The unintended consequence of the £30,000 bank guarantee implemented during the GFC meant that customers intentionally spread their nest eggs across various financial institutions. When the economy recovered, trust in banks was at an all-time low.

It was up to the banks to win back customer loyalty. This forced banks to change their process. In order to engender trust and attract new deposits, they had to change their strategy completely.

The customer must be at the core of any decision taken, recommendation made or product created

I spoke to a number of branch staff about the changes they'd witnessed. Overwhelmingly, they cited the renewed focus on the customer and on finding the best outcome for the customer. Changes to staff incentive schemes have meant that the historic focus on sales has been replaced by a focus on the customer– that means no lead targets. Instead, staff now have an annual performance review with no bonus payments. Performance is measured by file quality, service, colleague behaviours and productivity.

We are all on the CCR journey 

While While Australia and Ireland are only at the beginning of their comprehensive credit reporting journeys, the UK and New Zealand are more advanced in their own versions of CCR.

In the UK and New Zealand, customers are very aware of the concept of a credit score and what it means for them when they are applying for a loan. For instance, Pepper Money in the UK has naming conventions for its products that clearly highlight for the broker who the product is meant for. For example, ‘Pepper48’ is targeted at and suitable for clients that haven’t had a credit event or default in the last 48 months.

Ireland is moving from a single, bank-owned credit bureau that only reports the past 24 months’ worth of behaviour, to a Central Credit Register that will collate and calculate a customer’s credit score based on current behaviour. Like in Australia, it will take approximately two to three years for this to be fully comprehensive.

Lessons learned

As has been observed by others, the reform path we are on here in Australia has its genesis in many of the changes in the United Kingdom. The changes adopted in the UK aren’t a million miles away from the recommendations made in last year’s Sedgwick report.

The customer must be at the core of any decision taken, recommendation made or product created.

It’s not lost on me that profit is a driver of shareholder return. However, more than ever before, for brokers and lenders alike the focus on customer has become even more important. And as we all know, when the customer benefits we all benefit.


Aaron Milburn
Director of sales and distribution,
Pepper Money

Aaron Milburn has more than 15 years of financial services experience and is a highly accomplished leader, with a passion for education and contributing to change in the mortgage broker industry.