This article originally appeared on Mortgage Business on 30/7/18.
The co-founder of neo-lender Australian Mortgage Marketplace has outlined where the group sits in the new order of APRA and ASIC-regulated mortgage providers.
Becoming an APRA-regulated neo-bank is a considerable undertaking and an expensive exercise. A handful of new players are choosing this path, such as Xinja, volt bank, Judo Capital and 86 400.
These groups are entering a mortgage market dominated by the APRA-regulated big banks. By contrast, the traditional non-bank lenders remain regulated by ASIC.
Australian Mortgage Marketplace (AMM) is launching as a neo-lender, rather than a neo-bank, but doesn’t view the non-banks as its core competitors. It’s going after major banks.
“There is a raft of existing non-banks that fund mortgages and other loans and have long histories for the larger institutions,” AMM co-founder and CEO Graham Andersen said.
“While these existing non-banks have been receiving much attention in the last year, with three being purchased by private equity funds, none appear to be evolving into the new digital world or changing their funding structures through major bank warehouses and traditional securitisation.
“The non-banks were the disrupters of the ’90s and ’00s and have performed very useful roles during that period while even gaining market share currently.”
According to Mr Andersen, new neo-lenders like AMM and Athena are not focused on the old existing model but are re-inventing both the origination methodology and the way mortgages are funded in the capital markets.
Meanwhile, the challenger banks, as demonstrated overseas, are reinventing banking in the digital form without branches.
“The neo-lenders and the challenger banks would not consider the old disrupter non-banks to be competitors; rather, their competitors are traditional banks dominated by four majors,” Mr Andersen said.
“The new disrupters should consider the network effect that being part of this new disruptive group gives: great credibility with success breeding success.”
The Australian financial services industry is experiencing a wave of disruption, driven by a culmination of factors that have allowed new entrants to compete. These include regulatory and capital requirement changes, a loss of trust by the public in banks, inefficiencies among incumbents and significant developments in technological solutions that add to the efficiency of banking and borrower solutions.
While he believes there are pros and cons for a new lender to become either APRA or ASIC-regulated, Mr Andersen has decided that AMM will not become a bank.
“For a neo-lender that sources funds in the capital markets and is mono-focused on mortgage lending through broker networks, as is AMM, the equation is different and so is the answer.
“Just like the mortgage non-banks that started in the ’90s and before, the business model of the new neo-lenders just does not warrant or support the costs and benefits of APRA regulation.
“There is no single correct answer to our question of: to be, or not to be, a bank? There is room for both neo-lenders and challenger banks and that is what’s required to give the market real choice in what customers want and need.”