Fintech startups threaten mortgage broking old guard amid royal commission heat


April 16 2018

James Eyers

The emergence of fintech disrupters to the lucrative mortgage broking industry is being driven by three key dynamics. 

First, banks pay $2 billion a year in commissions to mortgage brokers for the delivery of home loan borrowers – but want to pay less. 

Second, the Hayne royal commission is investigating whether current broker pay structures create conflicts of interest and exploring better ways to serve customers. 

Third, technology is making self-service easier, and "open banking" will put customers in control of their data, including all the information required to make a mortgage application.

So enter the mortgage broking entrepreneurs and a bunch of start-ups ruffling the feathers of the powerful incumbents. 



Take, for example, Hero Broker. It launched two weeks ago with a mantra to redirect the savings from its technology efficiencies back to customers.

Redundant role

Founder Clint Howen reckons under open banking, applying for a mortgage will be as easy as pushing a few buttons, to enable the necessary information to flow in the background. This will make the traditional broker's role of filling out and submitting application forms largely redundant. 

Even before open banking arrives, Hero Broker is using an automated application process to save customers the entire amount of the upfront commission currently paid by banks to brokers. This is typically about 0.6 per cent of the value of a loan.

The start-up has cut a deal with three major banks for them to pay a smaller amount than the traditional upfront commission directly to Hero Broker customers in the form of a rewards card.

Hero Broker receives the trailing commission, but in the future, this could become a flat fee, especially if the royal commission shifts the industry to a fee-for-service model. 

Broker backlash

Traditional brokers are angry; a YouTube video where Howen reads a selection of vicious tweets from paranoid members of the broking community worried his model will eat their lunch has been viewed more than 31,000 times. 

Many other mortgage fintechs are lining up to disrupt brokers. Uno, majority-owned by Westpac, has created a new digital mortgage broking brand. Tic:Toc, in which Bendigo and Adelaide Bank has a 35 per cent stake, has created a fast online application process. Macquarie Group-backed Lendi is another online mortgage broker. 

Moneycatcha's Homechain is a digital platform to manage the home loan process from application to settlement. HashChing is a platform for customers to find top rated mortgage brokers, allowing them to access lower rates. 

Customer-centric control of data is a key theme in the new business models. Lodex, for example, lets users set up a profile including a credit and social score, and gets lenders to come to them. Loan Dolphin, Joust Home Loans and recently-launched Loanbid have created marketplaces where lenders and mortgage brokers bid for customers. 

Mortgage aggregators like AFG and big brokers like Mortgage Choice and Aussie Home Loans have their work cut out to respond to these new models and adapt to the digital economy. 

The royal commission has put customers on notice that brokers' promises of more competition come at a cost. Howen is right that as technology makes it easier for customers to apply for loans and provide supporting data, a good chunk of the cost savings should flow bank to them.

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