Many in Australia have tried to similarly disrupt home lending, but with limited success. However, Wilson argues that banks will face a crucial competitive battle in their battle against non-bank lenders like Athena Home Loans and Nano, both of whom use technologies to deliver fast, low-cost mortgages through online channels.
He says that in the next three to five years the mortgage market could suffer the kind of disruption that Uber caused to taxis.
To be fair to the big banks, they assume a position of tremendous strength and will not shy away from a dispute over mortgages.
They have very established brands, cheaper funding than smaller competitors, and huge technology and marketing budgets. Large overseas banks like Citi, HSBC and ING have been competing in the Australian retail banking business for decades without making major strides. What’s different today?
Those who believe that a major upheaval is about to happen say the key difference is that the technology is more powerful and the transition to digital banking has been accelerated by COVID-19.
Nano, a digital lender founded by former Westpac executives Andrew Walker and Chris Lumby, claims to have a fully digital process that can complete a lower risk loan approval in less than 10 minutes.
Walker says that Nano can issue approvals so quickly because it uses algorithms to sift through customers’ banking information rather than asking for pay slips and bank statements. It also targets lower risk loans.
The pitch is that automated approvals are disruptive because they are not only more convenient for customers, but also dramatically cheaper for the lender.
All good, but won’t big pocket banks just be able to adopt technology similar to that of their fintech challengers?
They are undoubtedly trying, through billions of dollars in technology spending and their own in-house venture capital units.
But those who sparked a wave of the mortgage crisis, like James Cameron, partner at Airtree Ventures, point out that banks have often faced major technology transformations. Cameron, whose fund is invested in home lender Athena, says banks are in some ways “victims of their own success”. These are huge institutions that have been around for many decades, if not centuries, so rapid changes cannot be taken for granted.
Banks are still striving to change, and analysts expect to keep investing in their own fintech ideas, partnering with fintechs, and potentially buying competitors.
It’s also worth noting that banks responded successfully to new competitors in the mortgage market in the 1990s, when brokers like Aussie Home Loans and non-bank lenders like Wizard and RAMS came into the market.
Some highly respected banking watchers, like Jefferies analyst Brian Johnson, are also not convinced that banks are susceptible to a wave of mortgage defaults. Johnson points out that the “neobank” model has barely turned off the lights and believes the real disruption will come in the small and medium business sector.
Nevertheless, international experience and the major changes in areas such as consumer credit suggest that mortgages will inevitably face a digital upheaval.
At least the home loan market seems to be on the cusp of a wave of digital innovations aimed at making it easier to apply for a loan.
Whether this takes some of the shine from the big four home loan profit factories depends on how well the incumbents respond to the threat.
The Market Recap newsletter is a summary of the trading day. Get it every weekday afternoon.