Borrowers are facing headwinds not seen in the Australian economy for many years. But although Pepper Money expects the ride ahead to be smoother than some anticipate, the non-bank stressed the need to stay abreast of issues to ensure alternative lenders have the right products for the market.
“What we’re trying to do is adapt to these changes. We’re keeping our eye on credit and investing in tech solutions to make [the process] as seamless as possible for our brokers,” said Barry Saoud, Pepper Money’s GM of mortgages and commercial lending.
And it’s not just the macro environment that’s evolving, but also the profiles of individual borrowers as the economy shifts to a post-pandemic equilibrium. Some of the demographic changes are working in favour of alternative lenders, especially with the growth of the gig economy.
“At the end of last year, what we quickly realised is that there are also different types of cohorts of new customers entering the market,” Saoud said. “We had a lot more self-employed contractor types.”
To cater to such groups, Pepper Money has rolled out new products as well as changed its credit policy.
The role of non-banks in supporting customers who fall through the cracks at major lenders due to anomalies in paperwork or irregular income is highly valued, especially following the disruption caused by the pandemic. In the case of construction workers, for instance, many such labourers continued to be employed over the pandemic but were unable to pay off bills due to late payments from customers.
“They were finding that their loans were going into default,” Smith said. “Whereas now, they’re back onto a roll, they’re back into their normal day-to-day working – they can go into a bank, but they’ve still got their [uneven] tax returns which are stopping them from doing that. Non-banks are the only option for such groups with truncated paperwork. I really appreciate that.”
Once these types of customers are on board, the retention rates are high.
“Pepper has really [evolved] to become a long-term lender or solution for many clients,” said Norman Isaac, of Organic Home Loans. “The tweaking of [its] product suite [in this regard] has been really, really good.”
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