Mortgage Brokers: 71.8% Market Share compared to Banks

I am lucky enough to work with collegues who were previously working for a major bank. They have over 20 years experience in aggregation and have seen their aggregation businesses being taken over more than three times. We got talking and I learnt alot about the different approaches between the two. SME businesses versus big banks.

Even though mortgage brokers and banks serve the same primary function - facilitating the provision of loans for property purchases - their approaches, strengths and limitations differ significantly. Below is a comparative analysis of how mortgage brokers operate versus the traditional banking system in Australia.

Loan Products

Mortgage Brokers: Brokers offer a wide range of loan products from various lenders including major banks, smaller banks and non-bank lenders. This extensive access allows them to find loans that closely match their clients' needs, preferences and financial situations. They act as intermediaries who can navigate the complex market to find competitive rates and terms and act in their customer's best interests.

Banks: Banks only offer their own loan products and limit options for consumers. While large banks have a diverse range of loan products they cannot provide options from other financial institutions that may be better suited. This can be restrictive for consumers looking for specific loan features to meet their needs. For simplicity, some consumers might prefer dealing directly with banks if they have a long-standing relationship.

Technology

Mortgage Brokers: The broker sector has increasingly adopted new technology to improve efficiency and customer experience. Digital platforms, online workflows and AI even are now commonplace. Some broker businesses that have the capital have invested in building out their own inhouse tech. This digital approach aligns with contemporary youngish consumer expectations for fast, secure and convenient services.

Banks: Banks have also been investing in digital transformation but face challenges due to their complex organizational structures. Their legacy systems do the job but require specialized knowledge and are costly to maintain. They do not easily integrate with new systems. These old systems do not adhere to modern security standards and are more vulnerable to cyber attacks. While they have heaps of data, retrieving and using this data to leverage modern data analysis and business intelligence tools is not easy at all. Their old interface is not userfriendly or easy to use and leads to lower productivity.

Personalized Service

Mortgage Brokers: Brokers excel in providing personalized service. They work closely with clients to understand their unique financial situations and find a solution. Some brokers bend over backwards as they feel obliged to find a solution. We hear of instances where brokers are scared to say no to clients. They spend more time than required on deals where the commission they get paid is not worth the effort put into it. This hands-on approach is crucial if they want to build a scaleable business. Reason being goodwill attracts more clients through referrals and google reviews. Brokers monitor client retention closely. They review this each time they get paid trail.

Banks: Banks have heaps of existing clients that they have access too. Almost everyone has a bank account. Banks don't have to focus on building a client base from scratch and are not too concerned with client retention given there are only a handful of banks in Australia. Banks have cash reserves that they can tap into and offer cashbacks should client retention become an issue. They have departments of lending specialists to provide to explain their products and assist with applications. This service is generally limited to the bank's products and it is no secret that a client is just a number at a bank.

Conclusion

In conclusion, while both mortgage brokers and banks play vital roles in the Australian home loan market they offer distinct approaches to lending. It is a constant David vs Goliath story. Even though our small businesses have all the odds against them - the resiliance of brokers and the genuine effort they make to retain clients is clearly paying off.