Afterpay plans to start selling mortgages in 2022 through its recently launched banking app which is aimed at Millennials (those born between 1981 and 1996) and Gen Z (those born from 1997 onwards).
Afterpay’s mortgages will be funded by Westpac, but even so it shows the potential for fintech apps to move into mainland banking.
Up, a youth-focused neobank bought by Bendigo and Adelaide Bank in 2021, also plans to start selling home loans through its app in early 2022. Up launched in 2018 providing digital accounts – and in November, she said 40,000 customers were saving for a home loan.
Up’s chief executive Xavier Shay said his mortgage product would aim to win over customers with financial advice – like a nudge to pay off their loan faster if he finds they’re saving more than foreseen. “The state of the art right now is typing numbers into a calculator or maybe creating a spreadsheet, and most people don’t want to create spreadsheets,” says Shay .
Bendigo-backed Tic:Toc, which will provide the technology for Up to approve digital loans, is another example of a fast-growing digital mortgage business – it also relies on Bendigo for funding.
Non-bank lenders such as Nano Digital Home Loans and Athena Home Loans are also eyeing a piece of the stock, alongside older companies such as Loans.com.au, owned by Firstmac.
Athena co-founder and COO Michael Starkey says around 45% of Athena customers are millennials, and his commissioned surveys showed that 74% of millennials are either “somewhat” or “very” favorable to the use of a non-bank lender.
With other digital businesses like REA Group’s realestate.com.au also targeting home loans, Starkey says there’s an opportunity for the company to make finance more “integrated” into the wider home buying process. ‘a house.
Nano co-founder and chief executive Andrew Walker says COVID-19 has accelerated the shift to digital apps, saying digital home loans are “fast becoming the norm”.
“If you look at the global data, you’ll see that Australia is way behind the rest of the world, where currently less than 3-5% of mortgages are originated digitally compared to 30% in the US,” Walker said. said.
“We originally expected this to be a 3-5 year market shift, but now believe it will take place over the next 12-18 months.”
Not everyone is convinced that digital home loans will take over.
Given the complexity and high stakes involved in underwriting a home loan, mortgage brokers are arranging a large share of new loans, and some survey data suggests that even young digital-savvy clients still want to deal with a human when they take out a loan.
A 2020 survey by Finder.com suggested that more than half of Millennials and Z still wanted to visit a branch for a mortgage. Soaring property prices in recent years have also made it even more difficult for many young clients to break into the property market.
But either way, there’s no doubt that digital home lending is becoming a key battleground in the banking industry – just as approval processes were a critical issue for lenders in 2021.
During their annual results, each of the big four banks were actively talking about their moves to make mortgage lending more digital and faster, with Commonwealth Bank and ANZ Bank raising the prospect of a 10-minute mortgage in 2022. Word from CBA, the nation’s largest bank, said the lender would launch its digital loan in the first half of the year.
Longer term, experts predict even more sweeping changes to “open banking” mortgages, a system that allows consumers to securely share their financial data when applying for a loan.
James Cameron, a partner at AirTree Ventures (which invested in Athena), says that in 10 years taking out a loan could be as easy as answering a few questions on a smartphone: your name, ID, the amount you wish to borrow and the address of the property.
“I think it will happen slowly and then it will happen fast,” Cameron said of the mortgage disruption. “Good banks will be able to follow these trends,” he says.
Tech giants such as Apple and Google are also lurking in the background as they enter the payments market through their digital wallet apps.
There’s a question mark over how these global giants could use their massive customer base and massive amounts of customer data to target other parts of the banking business – including lending – in the long run. The future owner of Afterpay, US fintech giant Block, is another example of a foreign tech giant that could play a bigger role in the Australian market.
“I think it will happen slowly and then it will happen fast.”
James Cameron, AirTree Ventures
The intentions of giants like Apple in the banking sector are unclear, but they would be formidable competitors if they sought to gain a greater share of the banking market beyond payments.
The government has signaled it wants tech players in the banking sector to be appropriately regulated, with Treasurer Josh Frydenberg presenting a late-2021 upheaval in payments regulation as a matter of national sovereignty. “If we don’t reform the current framework, it will be Silicon Valley that will determine the future of our payments system,” Frydenberg said in December.
However, it is clear that with the rise of digital finance, banks will only face increasing competition from technological players. And while that may be difficult for bank shareholders, it could be better news for customers.
Ashurst partner Nicholas Mavrakis says that as long as there is a “level playing field” on the regulatory front, the general trend of tech-based competitors getting into finance is welcome and will help make the more competitive market.
“You can’t stop big tech and fintech from entering the Australian market. It’s exciting, it’s good for competition,” he said.
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