Clayton Howes, CEO and co-founder of MoneyMe, shares his predictions for a post-Hayne finance industry
Most brokers can agree on one thing: the Australian mortgage industry will be hit hard by the recommendations of the royal commission.
The sector is bracing itself to become collateral damage for the sins of the bankers as uncertainty mounts. And it’s not just brokers who are suffering.
Would-be borrowers are already being hit by blanket bans. We’ve seen a dramatic decline in mortgage lending by banks, and many Australians now struggling to obtain credit. Billions have been shed from shareholder value, hitting mum-and-dad investors especially.
Banks are obviously about to enter a world of pain as structural, operational, and behavioural changes will be forced upon them – not to mention the heads that have already (rightly) rolled and whole departments that are being excised to stem the bleeding.
But in the long run, the lessons learnt in the aftermath of this potential mauling is likely to leave the financial services sector stronger as a whole and, savvy brokers who are forward-looking enough to consider alternative revenue streams, may even find themselves benefitting.
A changed landscape for the banks
With banks at the centre of the scandal, they will be forced to make some fairly drastic changes.
In the short-term, we’ve already seen the slew of firings. More medium- and longer-term action is likely to involve investing in personnel and technology to address the litany of structural inefficiencies and misdeeds that have brought us to where we are today.
More than ever before, boards will also be forced to take responsibility for the actions of their businesses. They will demand more information from the C-suite to get a clearer view of operations and risk.
But while all of this is likely to eventually have a positive result, trust cannot be rebuilt overnight. Brokers need to act quickly to re-establish faith in their recommendations to many disillusioned customers.
Although credit lines have tightened customers still need money and, if the banks say no, those customers are just going to look elsewhere. This means brokers need to be ready with potential solutions.
This means the overflow customers banks can no longer service are even more likely to turn to alternative finance providers than we have already witnessed over the past few decades in Australia.
While the notion of doing an entire mortgage online is still somewhat foreign in the Australian market, the US is already going full steam ahead in this regard. Up to 40% of consumers in the US borrow through alternative lenders and one major US online banking giant writes 60% of its mortgages completely online.
This wasn’t an overnight shift in the US. As Australian consumers become more accustomed to online and app-based banking, the market is highly likely to make the same transition to online lending that has been seen in other major economies. The royal commission will only accelerate this ultimately positive process.
Brokers: the secret ingredient
It is the issue of trust here which presents the biggest opportunities for brokers. Their secret weapon is the valuable and ongoing relationships they’ve developed over many years as trusted advisers.
Brokers have the community connections to break down the barriers between borrowers and lenders. They know who needs money and can act as go-betweens to connect buyers with the lenders who can help them with credit solutions.
In fact, brokers are by far the best-placed actors in this story to lead Australia into a new, post-commission era of trust, service, and increased value in the broader context of financial services.
Taking the lead now could mean avoiding the fallout entirely, as new revenue streams from alternative lenders replace those dropping off rapidly from the disgraced big name lenders.
And while the impetus for change has stemmed from a system riddled with inefficiencies and malpractices, the process of change is likely to lead to a newly positive world order.
It’s up to Australian brokers to lead us all there – and the faster we act, the better.
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