By James Eyers
When the West Coast Eagles hit the field to defend their premiership in the 2019 AFL season, they'll have a new sponsor on their jersey: the fintech mortgage broker, Lendi.
Lendi snared the deal a few days before the Eagles' triumph over the Pies at the MCG in September. During the course of next footy season – after the release of the banking royal commission final report – Lendi's brand profile will lift.
Its message will be one of customer centricity. It will have a crack at the likes of Aussie Home Loans and Mortgage Choice.
Several promising fintechs have emerged in the $1.7 trillion mortgage market.
Like Lendi, Tic:Toc – which has shareholders including Bendigo and Adelaide Bank, Genworth and La Trobe Financial – has digitised the mortgage application process. Uno Home Loans, majority owned by Westpac, is another emerging broker.
Macquarie is invested in the field. Athena, to launch next year, counts the silver donut as a shareholder, along with Hostplus, Square Peg and Airtree Ventures.
Macquarie also owns about 15 per cent of Lendi. It bought in back in 2014, a year after the Sydney-based company was created.
Five years in and its only scratching the surface of the massive market. Just under $400 billion of mortgages are settled in Australia each year; Lendi is doing about $6 billion.
It is powering Domain Loan Finder, a joint venture with Domain, owned by Nine, publisher of The Australian Financial Review. (REA Group turned to a more traditional financing partner: National Australia Bank.)
Lendi co-founder and managing director David Hyman says several investors questioned his big spending on compliance five years ago as he built the company. But he says he's now glad he did it that way.
Whatever mortgage broking reforms Hayne spits out, Hyman is confident Lendi will thrive given it has already moved towards less conflicted structures. Staff are paid by salary. (They can also earn a bonus, limited to about a quarter of the salary and based on customer turnaround time and feedback. The bonus is cancelled entirely if any reviews are negative.)
During the Hayne hearings on consumer lending this year, there was widespread confusion about who mortgage brokers owe duties to: the customer or the bank?
Hyman says anyone working at Lendi would be in absolutely no doubt they work for the customer.
Indeed, customer centricity has been codified into the algorithms matching borrowers with bank product offerings. The technology system does not know the level of commissions paid: price forms no part of the decision-making process.
Should Hayne call for a new best interest duty, Hyman says it should be legislated for and sit on top of the current upfront and trialling commission model. He reckons that will serve the customer because it will ensure banks and brokers all act in customers' best interests at all times, while maintaining the economics of the broking industry, ensuring the industry remains competitive.
If an upfront fee model is chosen, the Dutch provide the best model, because it regulates for channel neutrality. This would require a fee to be levied on a customer entering into a mortgage from a bank branch, to ensure a level playing field.
"That is the only fee for service model that could exist without killing competition," Hyman says. "But it is quite regulatory heavy."
A best interest duty wouldn't be any impost on Lendi: it already operates under a policy that subjects itself to one.
There are other things traditional lenders can learn from this new batch of mortgage fintechs.
One is that regulatory compliance is coded into their processes and systems. Two is they're attracting quality customers.
At Lendi, three-quarters of borrowers are owner-occupiers, 70 per cent are looking to refinance; and 90 per cent repay principal and interest. Deposits are also high: the average loan-to-value ratio is 63 per cent.
But banks should be apprehensive, too. The new players want to disintermediate customer relationships. It could act as a conduit of loans to new digital competitors, neobanks such as Volt.
If that materialises, all of a sudden customers are gets a completely different digital banking and home buying experience.