Mortgage brokers have lower churn than CBA, says Sherlok

Fintech provides AI-powered solution to prevent customers leaving

Mortgage brokers have lower churn than CBA, says Sherlok


By Ryan Johnson

Comparative data reveals that mortgage brokers boast a distinct advantage over industry giants like Commonwealth Bank when it comes to customer churn. The data underscores the pivotal role mortgage brokers play in developing relationships with clients.

While CBA may have boasted record a net profit of $10.18 billion after tax in its FY23 results on Wednesday, a closer look at the numbers show that the major bank may have a “leaky bucket” when it comes to churn, according to Adam Grocke (pictured above), CEO and founder of fintech Sherlok.

CBA’s numbers show that Australia’s biggest bank wrote $149 billion worth of new loans in the financial year, a positive result in any bank’s book, especially with home loan arrears remaining low at 0.47% (90-plus days).

However, CBA has only grown its book by $28 billion.

“That suggests that there is a significant leakage point,” Grocke said. “For all the new business they get they are losing a significant amount due to churn.”

“CBA churn is approximately 20.7% or around 18% if I exclude amortisation. This is what we refer to as a leaky bucket. All that effort and cost to acquire new customers only to lose them out the back door.”

In comparison, Grocke says mortgage broker churn is around 17% meaning that brokers would lose $17,000 per year in trail income for every $100,000 in revenue generated through their trail book.

“The total average cost for brokers is about $37,000 and $40,000 per year through the current churn that exists,” Grocke said.

However, Grocke said he expected this number to increase to 20% over the next 12 months due to the fixed rate cliff, moving rate cycle, and the refinancing process becoming more digital.

“More customers will look to the direct digital channels if brokers are not proactive in retaining clients.”

How banks and brokers can get ‘sticky clients’

The main aim for banks and brokers, said Grocke was to develop “sticky clients” who would be unlikely to leave. However, both parties have different strategies for achieving this.

“Commonwealth Bank’s relationship is built on brand, technology, and multiple products whereas brokers rely on their personal relationships to make clients stick,” Grocke said.

The other strategy for brokers is to keep proactive, as reviewing and repricing your clients’ loans keeps them on a competitive rate.

“When you do that, you take out the financial benefit of that client leaving to another lender, which is the number one thing that significantly reduces churn for both brokers and direct,” Grocke said.

Brokers can also use technology to help achieve this strategy.

Sherlok uses artificial intelligence to predict churn so the broker can know which client is going to leave first in their book.

“Not every client is going to leave in the next month but there might be 5% that might. If you can talk to that 5%, you are maximising effort and the return on time for protecting those clients who might leave,” said Grocke.

“We then reprice those clients with their current bank to get them a cheaper rate and we’ve automated this process for mortgage brokers. That’s simply keeping that customer on a competitive rate, which reduces the loyalty tax that clients suffer from.”

On top of that, the technology also runs comparisons and generates a refinance enticement for the brokers automatically, which creates a refinancing lead if that client is thinking about refinancing to another lender.

“The average broker in Australia after using Sherlok for five years will have an extra $130,000 worth of trail income,” said Grocke. “I always say to brokers, if you had that extra trail income, imagine what could you do with your business.”

How can banks reduce churn?

As the mortgage industry continues to evolve, client retention is not merely a business metric but a fundamental philosophy that could achieve success for both brokers and lenders.

Grocke said that “trust and transparency” were key to stopping churn across the industry.

“Mortgage brokers need to ensure that they build their customer relationships based on trust and retain that over time,” he said.

“For the customer, they need to know you’ve got their back. They need to know you’re thinking about their home loan, expenses and the rising rates, and you are doing it proactively without that customer reaching out to you.”

Grocke said the same went for CBA – 40% of its loans were introduced by brokers.

“I look at Commonwealth Bank and see a huge opportunity for them in not being seen by the customer as just a major bank and its products but leading the charge and looking at a retention strategy that includes the broker. Done side by side in partnership with the broker,” Grocke said.

Grocke said he saw channel conflict across all lenders “time and time again” which reduced trust with brokers and increased churn. 

“The discharge process is extremely difficult, and brokers look to refinance that client and in the eleventh hour, the lender will come in with a retention cashback offer for the customer and match the rate,” Grocke said.

“Brokers and lenders need to work together. The brokers are trying their hardest, but the lenders need to pay the respect and trust back to the brokers to deploy the best possible retention strategy in the market. This is good for the broker, good for the lender and most importantly good for the customer.”

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