NEWS ANALYSIS / SUPERMARKET MORTGAGES
OVER TO YOU What impact will Coles and Woolworths have on the mortgage market? “A financial service relies a lot on trust, as the transactions are large. I believe it will take a long time for supermarkets to gain any credibility in the market and they will therefore have to discount to gain market share ... They’ll no doubt have a clear objective as to how aggressively they will discount to gain market share, and how long they can write loans ‘under water’ until they abandon the idea, but if they’re not prepared to go the distance, then they’ll be resigned to being another bit player fighting over the 10% of the market the other bit players have.” Martin Ryan, finance strategist, Aviser Finance “The last major disruption was Wizard and Aussie, which was 15 years ago, so the industry does need to be disrupted to become more competitive. But how competitive will they actually be? They don’t have huge amounts of money, with no savings account and superfunds to draw from, and they will have to be careful to manage their reputation. No one wants to end up on A Current Affair over a foreclosure, and if something like were to happen, their brand’s reputation could be tarnished by something that is actually a very small part of their profit line.” Dominique Bergel-Grant, director, Leapfrog Financial “The supermarkets will face competition from the four major banks, which have an entrenched and trusted position in the Australian banking landscape. Those banks have large and relatively loyal customer bases, which will be hard to shake. In saying that, both Coles and Woolworths have the experience and scale to bring some compelling products to the market through the likes of rewards schemes and grocery discounts. They also have the ability to target and communicate with their large customer base directly, as well as very large ‘branch’ networks, which could be used as a point of sale. This is a real threat for the mortgage industry.” Kirsty Lamont, director, Mozo.com.au “They will likely offer a competitive rate with discounts on groceries or bonus Fly Buys, the idea being that it will significantly tie the client to do all their shopping with Coles or Woolworths. In that sense, I see it is a ploy to secure clients to their brand more than any attempt to revolutionise the mortgage industry. It will mainly impact brokers who look after basic mum and dad type clients, as these will be the ones most engaged or interested in whatever interest rate or incentives that may be offered.” Phillip Allen, mortgage broker, Integrated Finance Solutions
14 | OCTOBER 2014
MPAMAGAZINE.COM.AU
industries, particularly in relation to professional services, adds Walter Bonnet, director of Acquest Financial Services. “It’s only a matter of time before Coles and Woolworths enter the mortgage arena, and they’ve had an impact on the finance and insurance market, which will undoubtedly be the case when they offer mortgages,” says Bonnet. “But consumers don’t only want a good rate and low fees; they also want choice, education and service.” That said, any competition is healthy, and if there’s one thing our national supermarkets know, it’s how to be fiercely competitive. “It will be interesting to see how the venture goes,” adds Stephen Zamykal from Mortgage Choice. “The more exposure mortgages get in general, the better for us all. But I wonder if customers will be able to chat to someone [about mortgages] at 11pm while picking up some milk and bread?”
MATTERS OF FUNDING Woolworths’ and Coles’ potential expansion into home loans is not altogether surprising, considering what is happening in the UK market, says Alex Sperling, principal mortgage consultant at Our Mortgage Options. “The largest supermarket in the UK, Tesco, operates Tesco Bank and TescoCompare.com, while Sainsbury’s, the second-largest supermarket chain in the UK, also has their own bank,” Sperling explains. But while these grocers have established banking divisions to fund their mortgage offerings, Woolworths and Coles have not, which creates their first and most significant challenge. “Who is going to be funding these loans? Are the funds coming from Woolworths’ and Coles’ balance sheets, or are they obtaining the funds from a wholesale lender?” he asks. “And with approximately 50% of all loans in Australia originating via the broker channel, will they be utilising the third-party distribution channel? “If Woolworths and Coles only sell their own products, then like banks they are only offering products that may or may not be suitable to that person’s individual circumstances. I’m not saying that [their potential entry into mortgages] is a bad thing; [it isn’t,] provided they offer real alternatives to the main lenders, and consumers are the real winners.”