Non-banks have only just begun

Non-bank lenders are providing a genuine and much-needed alternative to the banks for many Australians, offering simple, innovative products and market-leading service – and there’s more to come

FUN FACT: The hit single We’ve Only Just Begun by the Carpenters was originally a TV jingle for a California bank showing couples getting married with teary-eyed families looking on. The commercial attracted so many young adult customers without the right collateral for loans that the ad campaign was suspended early. From today’s perspective it is both sad and ironic that the bank involved had to turn away the unsecured hopes of earnest young couples who were attracted to the rosy promises in the song, especially when many of them would likely have been good investments. California in the 1970s and post-pandemic Australia are vastly different places, and when banks turn away loan applications here in 2023, there are a plethora of options at non-banks to assist starry-eyed newlyweds, plucky business owners and investors with red-hot opportunities alike. But the conservative attitudes displayed by the bank in the above story are still familiar to many in the non-banking world. “When Firstmac started in the 1980s, home lending was a cosy club dominated by the major banks that did not compete on price,” says Firstmac’s head of third party sales Jake Sanders.

A case in point is borrowers’ awareness of non-banks as an option in the first place. It has long been pointed out that one major reason that SMEs, for example, don’t use non-banks is because they don’t know the option exists. The biannual Scotpac SME Growth Index has measured the levels of awareness of non-bank lending options since 2014. Before the pandemic, the percentage of SMEs considering non-bank lending normally wallowed in the high teens or low 20s. During the pandemic, this figure slowly began to rise, before suddenly shooting up to 47% in March 2023.

As service continues to be a focus for non-banks, the bar is being raised across the entire lending sector. “We have worked hard to build a true service culture permeating all levels of the business, starting with BDMs. That commitment has been recognised by brokers with a rapid increase in the number choosing to get accreditation with Firstmac and growth in our lending volumes,” Sanders says. Government initiatives to develop institutional funding for business, mortgage and consumer lending at smaller lenders like non-banks are also continuing, including the $15bn Structured Finance Support Fund (SFSF). As of July 2023, cumulative investment commitments made by the SFSF were still only $3.8bn. From the non-banks’ perspective, they are in an optimal position with the funding market in Australia expected to mature over time as loan volumes grow over the longer term.

Changing technology has made keeping up with the play much easier than before, which may be another reason why non-banks are able maintain higher levels of trust and service than several years ago. One example is Firstmac’s Broker Tools app. Available as a web-based or mobile app, it is simple to use and includes a biometric login so the broker doesn’t need to enter a password. Features allow brokers to track a deal, view conditions and upload documents based on the application type. “Using Broker Tools, a broker can sit in front of a customer with a tablet and complete servicing and an application on the spot. It provides full transparency of the journey of the file throughout the whole process from application to settlement,” Sanders says. Firstmac is also one of the only lenders in the industry that offers fully online accreditation and training. “The broker doesn’t have to leave the office; it can be all done in one day. Our BDMs will contact every broker after accreditation to provide additional training and tips on how to get the most out of working with Firstmac.”

As the residential lending market has experienced a slowdown in purchases, there’s been a notable uplift in refinance activity across the sector, Vala adds. “This has allowed brokers to dedicate more time to nurturing and fortifying their relationships with clients, prioritising long-term connections over transactional interactions.” Brokers have used the changing economy to review the personal and business finance commitments of their clients, including commercial facilities and asset finance requirements. “[This is] essentially giving them the chance to deepen their client knowledge and in turn generate more opportunities,” Vala says. One area that’s been in the headlines recently is vehicle finance. New vehicle sales in July totalled 96,859 units, marking the highest-selling July ever, according to Fifth Quadrant. While some of the surge can be attributed to long-delayed purchases on the back of supply issues, it follows spiking business vehicle sales shortly before the end of the financial year that no one expected to continue.

Firstmac Limited is an independently owned Australian financial services provider with more than 40 years’ experience in home and investment loans. We have grown from a small family business to become Australia’s leading non-bank lender. Over time we have provided 130,000 home loans, and we currently manage $16 billion in mortgages and $300 million in cash investments. Our headquarters is in Brisbane, Australia. We are dedicated to bringing simple, affordable, competitive financial products to market, underpinned by a lengthy track record of success and a pedigree in prime residential home loans. Firstmac is a premier sponsor of the Brisbane Broncos.

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“Firstmac changed all that, ushering in the world of lender discounting, mortgage broking and competition that still allow the third party channel to flourish today,” he says. But it hasn’t been an easy ride sometimes. “Over the last decade, this fragile competition has come under threat again with many lenders merging or being taken over.” One recent example of unfairness in the market is the cashbacks offered by major banks to borrowers looking to refinance. This was underpinned by the federal government’s three-year Term Funding Facility (TFF) introduced at the start of COVID-19 – a program that was not available to non-banks. Now that it’s been wound up, major banks’ cashback schemes are disappearing along with the market distortions they caused. “With the TFF gone, we are returning to more normal lending conditions where non-bank lenders such as Firstmac … are competing on a level playing field again,” Sanders says. Indeed, non-banks appear ascendant in the post-pandemic economy, and pockets of success are starting to make it look like the stars may be aligning for the sector in the years ahead.

Jake Sanders

Firstmac

Industry experts

Jake Sanders joined Firstmac in January 2007 and has been head of third party sales since 2017. Over the past 25 years, he has worked in various roles in banking and finance, including loan approvals, credit control, documentation, settlements and sales. Prior to joining Firstmac, Sanders spent five years at National Australia Bank before joining a finance and conveyancing firm where he obtained his Advanced Diploma of Conveyancing. This was followed by roles as national business development manager at Gadens Lawyers and then senior sales manager at Capital First Financial Services. Sanders is a keen surfer and enjoys a round of golf.

Firstmac

Jake Sanders

Firstmac

Industry experts

Firstmac

Jake Sanders

Thinktank general manager for partnerships and distribution Peter Vala has extensive experience in residential, commercial and development finance. He specialises in strategic implementation, leads the Thinktank relationship manager team, and works closely with brokers and aggregators.

Thinktank

Peter Vala

Non-banks also play their part in keeping brokers abreast of the latest developments in the market, as well as new products, and in providing support for brokers looking to diversify into new lines of lending. “We’re committed to broker education and sharing the deep knowledge that our team has cultivated over many years,” Vala says. Today, the methods of communication are myriad and can be focused on group or individual, remote or in-person. “We regularly communicate with the broker network via EDMs and SMS on policy changes and points of difference, so they are always up to date,” Sanders says.

Jake Sanders

Firstmac

Industry experts

“Non-banks have emerged as a valuable and vital part of the Australian finance sector over the past 30 years, offering borrowers choice and competition while driving innovation and lifting service standards”

Peter Vala, Thinktank

Part of the reason for the low awareness was lack of trust and poor service, but non-banks have worked hard to improve these areas. “The business’s ethos is to be relentlessly committed to fairness, transparency and professionalism, and to consistently prioritise relationships with brokers, aggregator partners, institutional investors and industry peers alike,” says Peter Vala, general manager for partnerships and distribution at Thinktank. “Non-banks have emerged as a valuable and vital part of the Australian finance sector over the past 30 years, offering borrowers choice and competition while driving innovation and lifting service standards.” Brokers, of course, have also played a leading role in this change in attitudes – especially recently. Brokers help clients understand the lending options available, and their role in educating borrowers is important for groups such as SMEs or sole traders who don’t have the time or resources to undertake market research on their own. Lending market products and options change quickly, and clients rely on brokers to have current knowledge. It’s a win-win situation: non-banks have the word spread about their services, while brokers can expand their arsenal of products that might appeal to borrowers. “Many brokers want to be able to offer a range of solutions to their clients, as this typically leads to stronger and deeper relationships, new advocates and potential new revenue streams,” Vala says.

Non-banks often lead the way on product innovation. Self-managed superannuation funds are a good example. Mainstream banks abandoned this lending line several years ago, but non-banks have managed to turn it into a thriving market in 2023. “[There are a] growing number of individuals utilising a self-managed superannuation fund structure when acquiring commercial properties, instead of using a special purpose vehicle [SPV] or a unit trust,” Vala says. Firstmac reports similar robust demand for its SMSF offerings. “Our residential SMSF product accounts for a substantial part of our volume now, which isn’t surprising because it brings more competitive SMSF products and pricing to an underserviced, forgotten sector,” Sanders says. “We’ve given customers sitting on high commercial rates with banks a much cheaper alternative.” Firstmac’s SMSF product has no application fee, no annual or ongoing fees, no settlement fee and no legal fees for a refinance. Another promising area of success is green home loans. Firstmac’s range of green home loan and car loan products reward customers with a lower interest rate if they combat climate change by building an energy-efficient home, installing a solar power system or driving a low-emissions vehicle. “Firstmac’s Green Home Loan was developed in partnership with the Clean Energy Finance Corporation, which is an Australian government-owned green bank established to encourage investment in clean energy. A discount of 0.95% applies off the interest rate for a Solar Home Loan, Green Home Loan or Green Construction Home Loan for the first five years of the loan for qualifying homes,” Sanders says. Non-bank support for SMEs is also proving crucial in the post-pandemic economy as interest rates bite. People are looking at all options to accelerate their businesses, and savvy brokers are positioning themselves as lending experts within spaces like vehicle finance or asset finance. In business, the speed and streamlined compliance with which non-banks can approve a deal is a major advantage over banks as opportunities are often time-sensitive. “Non-bank lenders tend to be more agile in response to market needs and focus in on borrowers and market segments that seek alternative lending solutions and borrower-specific product offerings,” Vala says.

Firstmac

Jake Sanders

Peter Vala

Thinktank

Peter Vala

Thinktank

Peter Vala

Barry Saoud joined Pepper Money in July 2021 as general manager, mortgages and commercial lending and is responsible for its strategic direction and operating performance across product, credit and settlements sales functions for Australia and New Zealand mortgages, commercial loans, personal loans and direct sales. With over two decades’ experience in financial services, Saoud has worked in numerous areas across legal, company secretary, sales and product management roles with the likes of Aussie Home Loans, GE Capital, HSBC and Norton Rose Fulbright. Saoud is a passionate leader with proven ability to grow businesses and exceed targets through innovative strategy and effective execution.

Pepper Money

Barry Saoud

Peter Vala has extensive experience in residential, commercial and development finance. He specialises in strategic implementation, leads the Thinktank relationship manager team, and works closely with brokers and aggregators.

Thinktank

Peter Vala

John Mohnacheff is Liberty's ebullient and charismatic group sales manager. With over 30 years of insurance, banking and finance experience, he is committed to improving the sales habits and disciplines of the entire group sales team. Before joining Liberty, Mohnacheff held executive roles at Westpac and Bank of Melbourne. He has a Bachelor of Business and a Marketing Master’s from the University of New England, and a Postgraduate Diploma in Organisational Behaviour from the University of NSW.

Liberty

John Mohnacheff

“We are returning to more normal lending conditions where non-bank lenders such as Firstmac are competing on a level playing field again”

Jake Sanders, Firstmac

Awareness on the rise

Communicating well

Awareness on the rise

Communicating well

Published 18 Sep 2023

Peter Vala

Thinktank

30%

20%

10%

Sep 2019

Nov 2020

Sep 2021

Apr 2022

Sep 2022

Source: Scotpac SME Growth Index

MORE SMEs TURNING TO NON-BANKS

40%

50%

22%

Mar 2018

Thinktank is an independent non-bank financial institution specialising in the provision of commercial-property mortgage finance of up to $4m and residential-property mortgage finance of up to $2m in the Australian self-employed, PAYG and SME sectors. Since 2006, Thinktank has provided over $6.5bn of commercial, residential and SMSF lending solutions, which have enabled thousands of borrowers to achieve their goals of acquisition, refinancing and equity release. Thinktank offers a range of lending solutions, including Full Doc, Mid Doc (Alternate Income Verification), Quick Doc and SMSF loans.

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“Non-banks will continue to grow in size, importance and influence over the time ahead across all forms of lending but particularly in the mortgage space where the banks tend to offer little in the way of differentiation and prefer to focus on mainstream and easy-to-process lending,” Vala says. While non-banks can certainly compete in mainstream lending, where they really add value to the economy is with all their innovative products and in borrowing situations that bring the role of brokers to the fore. “By offering equivalent, and frequently superior, financial solutions and experiences to borrowers and brokers, the non-banks in many ways are really only just getting started,” Vala says. Just like the young couples in the song, non-banks are still at the beginning of their journey.

So many roads to choose We start out walkin' and learn to run And yes, we've just begun

A range of successful and innovative lines

Strong growth in business lending at non-banks

Banks versus non-banks: Growth trends in housing and business lending

To see the original bank commercial with the song, click here.

Source: Reserve Bank of Australia Financial Stability Review, April 2023

From walking to running

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Thinktank is an independent non-bank financial institution specialising in the provision of commercial-property mortgage finance of up to $4m and residential-property mortgage finance of up to $2m in the Australian self-employed, PAYG and SME sectors. Since 2006, Thinktank has provided over $6.5bn worth of commercial, residential and SMSF lending solutions, which have enabled thousands of borrowers to achieve their goals of acquisition, refinancing and equity release. Thinktank offers a range of lending solutions, including Full Doc, Mid Doc (Alternate Income Verification), Quick Doc and SMSF loans.

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A case in point is borrowers’ awareness of non-banks as an option in the first place. It has long been pointed out that one major reason that SMEs, for example, don’t use non-banks is that they don’t know the option exists. The biannual Scotpac SME Growth Index has measured the levels of awareness of non-bank lending options since 2014. Before the pandemic, the percentage of SMEs considering non-bank lending normally wallowed in the high teens or low 20s. During the pandemic, this figure slowly began to rise, before suddenly shooting up to 47% in March 2023.

Share of SMEs considering non-bank lending

19%

25%

29%

30%

33%

47%

Mar 2023

Apr 2023

Oct 2022

Apr 2022

Oct 2021

Mild growth

Housing lending at banks

Housing lending at non-banks

Mild growth/contraction = <15% on six-month ended annualised basis

Strong growth/contraction = >15% on six-month ended annualised basis

Mild growth

Business lending at banks

Strong growth

Mild contraction

Mild growth

Business lending at non-banks

Mild growth

Mild contraction

Strong growth

Mild growth

Mild contraction

Mild growth

Apr 2023

Oct 2022

Apr 2022

Oct 2021