Fintech Disruption Index Moves Higher

The latest edition of the Disruption Index has just been released, and it is 41.57, up from 38.29 last quarter. This is good news for Fintechs in that the SME community is adopting digital faster than ever.

The Financial Services Disruption Index, which has been jointly developed by Moula, the lender to the small business sector; and research and consulting firm Digital Finance Analytics (DFA).

Combing data from both organisations, we are able to track the waves of disruption, initially in the small business lending sector, and more widely across financial services later.

The index tracks a number of dimensions. From the DFA Small business surveys (52,000 each year), we measure SME service expectations for unsecured lending, their awareness of non-traditional funding options, their use of smart devices, their willingness to share electronic data in return for credit, and overall business confidence of those who are borrowing relative to those who are not.

Moula data includes SME conversion data, the type of data SME’s share, the average loan amount approved, application credit enquiries, and speed of application processing.

Here are some of the highlights:

Business Confidence

SME Business Confidence of those borrowing is on the up, reflecting stronger demand for credit, with the indicator jumping a healthy 15.8%, however, the amount of “red tape” which firms have to navigate is a considerable barrier to growth.

Knowledge of Non-bank Financial Providers

Awareness of new funding options continues to rise if slowly, creating a significant marketing opportunity for the new players, and a potentially larger slice of the pie.

Business Data

Greater willingness to share data and use of cloud-based services continue to rise. One-third of businesses have data held within the cloud, including accounting, customer management, invoicing, human resource, and tax management. We see variations across the segments in their use of these services. Of the businesses applying for funding, almost 90% now provide some form of electronic data via online loan application and are clearly comfortable in doing so (suggesting security concerns are less of a deterrent than the incentive of the speed of application and execution).

Average Loan Size

Average loan size continues to move upwards to register above $40k for the first time, indicating that better businesses are embracing alternative finance arrangements. More than likely, these businesses have traditional banking relationships, but either choose (or are forced to) look elsewhere for liquidity.

Are the banks trying to bury the Sedgwick Review?

From Mortgage Professional Australia.

ANZ CEO’s comments suggest proposals for changing broker commissions have become a thorn in the banks’ side.

Commission changes proposed by the Sedgwick Review have been thrown into doubt, after the CEO of ANZ and soon-to-be chairman of the Australian Bankers Association admitted more work needed to be done to implement them.

Shayne Elliot, speaking to the House of Representatives, “we’re going to implement all that we can. The one that’s clearly the most complicated is around fair paid brokers and the only reason there is it’s hard for us to do that unilaterally… We agree with the intent, we’ve just got to work that through.”

Prompted to explain his approach, Elliot argued that “if we do it alone what will happen is we’ll be out of business”. He explained that the banks were working with the ABA and brokers. Deputy CEO Graham Hodges added that “the devil’s in the detail because clearly, it’s going to affect thousands of brokers.”

Elliot’s comments are particularly relevant after it was announced yesterday become will be the next chairman of the ABA, starting in December. The ABA originally sponsored the Sedgwick Review as part of a package of measure to improve consumer trust in banks.

Sedgwick in detail

Stephen Sedgwick’s proposals are hugely unpopular with many brokers. They include decoupling commissions from loan size, thus going further then ASIC’s suggestion to avoid pushing consumers to get bigger loans.

On publication of the Review, all of the banks agreed to implement its proposals by 2020. However, bank submissions to the Treasury, following ASIC’s separate review, show how divided the banks’ are on the broker commission proposals.

Westpac warned that “a flat fee commission structure could prompt an increase in split banking as brokers seek to maximise income by submitting smaller deals”, arguing that any commission change would increase costs for the industry.

Alongside NAB and CBA, Westpac reiterated the importance of working with the industry to develop commission changes. ANZ declined to make their report public.

Proposals to sink or swim by November

With the Combined Industry Forum planning to recommend commission changes to the Government as soon as November, the deadline is looming for banks to change their approach.

Ian McPhee, who is tasked with assessing the banks’ progress implementing the Sedgwick Review, provided a roadmap for a potential U-turn in a report in July.

Acknowleding the banks had a range of views on commissions, McPhee wrote that “should the industry decide not proceed with the guiding principles then a clear basis for the decision should be articulated, consistent with the approach for previous variations to the implementation plan.”

New ASIC chair announced

From The Adviser.

James Shipton, executive director of the Program on International Financial Systems at Harvard Law School, has been announced as government’s recommended nominee for the role of chair at ASIC.

According to an announcement by the Minister for Revenue and Financial Services, Kelly O’Dwyer, Mr Shipton will be recommended as the government’s choice for the role of chair of the Australian Securities & Investments Commission to the Governor-General in Council.

Mr Shipton would then replace Greg Medcraft for the five-year period starting 1 February 2018.

Mr Peter Kell, the current deputy chair, will be the acting chair from the time Mr Medcraft’s term ends on 12 November 2017 to when Mr Shipton commences in February.

Ms O’Dwyer commented: “Mr Shipton brings wide regulatory and financial market knowledge to the position, as well as international experience.

“He is currently the executive director of the Program on International Financial Systems at Harvard Law School. From 2013 to 2016 he was the executive director, Intermediaries Supervision and Licensing Division at the Hong Kong Securities and Futures Commission. Prior to that he had extensive experience in various roles in investment banking in Asia and Europe and commenced his professional career as a solicitor in Australia.

“I look forward to Mr Shipton making a significant contribution to the important work of ASIC in promoting confidence in Australia’s financial system and protecting consumer interests as the incoming chair.”

Ms O’Dwyer also went on to “express [her] appreciation to Mr Greg Medcraft for his commitment over the past years to ASIC both as the chair and as a member”.

She said: “Mr Medcraft has overseen significant changes in ASIC’s role during his tenure, including reforms to improve the quality of financial advice and financial literacy, and the establishment of a national business names register.”

ANZ to sell pensions and investments businesses to IOOF

ANZ today announced the sale of its OnePath pensions and investments (OnePath P&I) and aligned dealer groups (ADG) business to IOOF Holdings Limited (IOOF) for $975 million. Meantime, the bank continues to review options for its Life Insurance business.

As part of the agreement, ANZ will also enter into a 20–year strategic alliance to make available IOOF superannuation and investment products to ANZ customers.

  • Sale price of $975 million represents a multiple of ~25x FY17 NPAT.
  • Aggregate P&I and ADG annual profit is $39 million.
  • Equates ~17x FY17 NPAT after separation and transaction costs.
  • Estimated accounting loss on sale of ~$120 million5 includes sale proceeds of $975 million, separation and transaction costs of ~$300 million post-tax, and an accounting adjustment of ~$500 million for Treasury shares.
  • Expected to increase ANZ’s APRA CET1 capital ratio by ~15 basis points on completion.
  • EPS and RoE impacts are not material to ANZ.
  • Small ongoing payments through the 20 year Strategic Alliance Agreement.
  • Completion is expected in around 12 months subject to certain conditions including regulatory approvals and the completion of the extraction of the OnePath P&I business from OnePath Life Insurance.

The sale of the pensions and investments and ADG businesses is consistent with ANZ’s strategy to create a simpler, better balanced bank focussed on retail and business banking in Australia and New Zealand, and Institutional Banking supporting client trade and capital flows across the region.

ANZ Group Executive Wealth Australia Alexis George said: “Financial services such as superannuation, investments and advice are a core part of the support we provide ANZ customers now and in the future.

“By partnering with IOOF, we are able to create greater value for our shareholders while also providing our customers with access to quality wealth products from a specialist provider with the right cultural fit, financial strength and digital capability.

“The sale of our P&I and ADG businesses provides ANZ with greater flexibility to consider options for the life insurance business including strategic and capital markets solutions,” Ms George said.

 

Auction Clearance Rates Holding Firm

From CoreLogic.

There were 2,497 auctions held across the combined capital cities this week, up from 2,318 last week. So far, 2,007 results have been reported to CoreLogic, returning a preliminary clearance rate of 70.6 per cent, increasing from last week when the final clearance rate slipped to 64.4 per cent, the lowest clearance rate since January 2016. While we expect the clearance rate to revise over the next few days as the remaining results are collected, it will be interesting to see how the clearance rate holds up on Thursday when the final figures are released.

Over the corresponding week last year, auction volumes were similar, with 2,443 properties taken to auction, while the clearance rate was stronger (76.2 per cent). The highest preliminary clearance rate was recorded in Melbourne this week (74.8 per cent), followed closely by Canberra (74.5 per cent).

2017-10-16--auctionresultscapitalcities

ANZ CEO Shayne Elliott next Chairman of the ABA

The Australian Bankers’ Association today resolved to nominate ANZ Chief Executive Officer Shayne Elliott as Chair at its Annual General Meeting in early December.

Mr Elliott will succeed current Chair of the ABA, National Australia Bank Group Chief Executive Officer Mr Andrew Thorburn.

Commenting on the nomination Mr Elliott said: “The banking industry is working hard to build trust with customers, the community and with federal and state politicians on all sides. While we have made significant improvements in recent times, rebuilding community trust is a long-term issue and change within the industry needs to be bolder and faster.

“I look forward to making a positive and progressive contribution as the industry continues with the important task of delivering sustained change which delivers better outcomes for customers and helps rebuild our reputation.

“I would like to thank Andrew Thorburn for his stewardship of the ABA during this time and I look forward to building on his strong legacy of industry reform,” Mr Elliott said.

ABA Chief Executive Anna Bligh welcomed Mr Elliott’s nomination.

“Shayne has a long and distinguished career in banking and will bring considerable energy and commitment to the transformation process led by Andrew,” Ms Bligh said.

“The industry is currently undergoing the greatest program of reforms that banking has seen in decades. It’s vital that this continues and that we work to rebuild trust and better service the needs and expectations of the community,” she said.

By convention, the Chair of the ABA rotates between the Chief Executive Officers of the major banks. With the CEO succession announcement at the Commonwealth Bank in 2018, the next organisation on rotation is ANZ.

“For the sake of continuity it was decided to bring forward Mr Elliott’s term rather than seek an alternate chair,” Ms Bligh said.

“There are a number of reviews and reforms to be introduced in the coming year, so consistency is important. I am looking forward to working closely with Mr Elliott in his new role,” she said.

Mr Elliott’s term will begin after the ABA’s Annual General Meeting in December.

345,000 Aussie mortgage holders have no real equity in their homes

From Roy Morgan Research.

Overall some 8% (345,000) of mortgage holders in Australia in the year to August 2017 have been identified as having little or no real equity in their home, an increase from 7.1% twelve months ago. This is based on the fact that the value of their home is only equal to or less than the amount they still owe, placing them at considerable risk if they have to sell or prices decline.

These are the latest findings from Roy Morgan’s Single Source Survey which is based on over 50,000 interviews per annum, including more than 10,000 with owner occupied mortgage holders.

Apart from the ability to keep up with mortgage repayments, another critical factor in assessing financial risk for mortgage holders is to compare the value of their property with the amount outstanding on their loan. The purpose of this is to establish the level of equity (if any) they have, as this is a major component of most households’ financial position and potential risk.

Mortgage holders in WA most at risk

On average, the value of properties in Australia subject to a mortgage is well in excess of the amount outstanding but there are problem areas. The state at highest risk is WA where 14% (71,000) of mortgage customers’ have no real equity in their home.

Value of home is less or equal to amount owing

Source: Roy Morgan Single Source (Australia). 12 months ended August 2016, n= 10,746; 12 months ended August 2017, n= 10,251. Base: Australians 14+ with owner occupied home loan.

Over the last 12 months there has been an increase of 3.3% points in the proportion of mortgage holders in WA with little or no equity in their home. Tasmania has the lowest proportion of mortgage holders with little or no equity in their home, with only 4.9% (4,000). NSW is the second-best performer with 5.6% (81,000) of mortgage holders facing equity risk, followed by VIC with 6.1% (62,000), SA with 7.6% (26,000) and QLD with 10.3% (89,000). The strong performance in VIC and NSW is due mainly to the rapid rise in Sydney and Melbourne prices which has generally outpaced the amount owing on mortgages.

Lower-value homes face more equity risk

The mortgage holders with little or no equity in their homes have much lower average house values ($501,000) compared to all mortgage holders ($761,000).

Mortgage holders with home value less or equal to amount owing vs all mortgage holders

Source: Roy Morgan Single Source (Australia). 12 months ended August 2017, n= 10,251. Base: Australians 14+ with owner occupied home loan.

Across all states, the value of the homes overall with a mortgage is much higher than the value of homes owned by mortgage holders who have no real equity in their home. In NSW for example, the average value of homes with a mortgage is $975,000, compared to the much lower average of $623,000 for mortgage holders where the value of their home is less or equal to the amount they owe. In VIC the figures are $804,000 for the average home value with a mortgage, well above the $549,000 for mortgage holders with no equity in their home.

Finance Overall Lifted Again In August

The ABS released their final piece of the finance jig-saw today, Lending Finance to August 2017.   As normal we look at the trend data, which smooths out some of the statistical bumps.

Total credit lifted again, in flow trend terms, up 0.2%.

Investment mortgage flows were up 0.2% (flat in Sydney, and still rising in Melbourne) and made up 10.2% of all credit, the same as last month. Lending for other commercial purposes rose 0.5% while revolving commercial credit fell 1.7%. Lending for personal finance rose 0.5%, as households reach for more credit to assist their cash flows.

The total value of owner occupied housing commitments excluding alterations and additions rose 0.9% in trend terms.

The trend series for the value of total personal finance commitments rose 0.5%. Revolving credit commitments rose 0.8% and fixed lending commitments rose 0.4%.

The trend series for the value of total commercial finance commitments was flat. Fixed lending commitments rose 0.4% while revolving credit commitments fell 1.7%.

The trend series for the value of total lease finance commitments rose 1.5% in August 2017 while the seasonally adjusted series fell 0.6%, following a 6.8% fall in July 2017.

ASIC committed to improving the financial capabilities of Australians

ASIC has released the National Financial Literacy Strategy for consultation.

The National Financial Literacy Strategy is a framework to guide policies, program and activities that aim to strengthen Australians’ financial literacy and capability.

The five priorities in the National Strategy are:

  • Educate the next generation, particularly through the formal education system;
  • Increase the use of free, impartial information, tools and resources;
  • Provide quality targeted guidance and support;
  • Strengthen co-ordination and effective partnerships;
  • Improve research, measurement and evaluation.

A key feature of the National Strategy is collaboration across different sectors, including government agencies, community organisations, the education sector and financial services firms.  ASIC is leading a public consultation process to shape the National Strategy from 2018 and is seeking feedback on a number of issues including:

  • updating the language of the National Strategy from ‘financial literacy’ to ‘financial capability’ to reflect a growing focus on behaviours that support better financial outcomes;
  • expanding the priority audiences identified under the National Strategy, for example to include people with disability (and their families or carers) who are navigating choices and options under the National Disability Insurance Scheme, or people in newly arrived communities who are attempting to understand and access financial services;
  • broadening stakeholder reach and engagement with the National Strategy, including through the use of new technologies and;
  • improving research, measurement and evaluation.

‘Building financial capabilities requires a long-term commitment to lay the foundations for behavioural change over time.  We all confront significant financial decisions at key points in our lives, such as leaving school, having children, or reaching retirement.  To help people develop healthy financial habits and make better decisions about money we’re seeking feedback on the National Strategy’, said ASIC Deputy Chair Peter Kell.

‘I encourage people to share their views with us through this process.  Your input will help us shape a National Strategy that supports positive outcomes for individuals and communities now and into the future’, Mr Kell said.

ASIC invites feedback on the consultation paper from all interested stakeholders. Submissions are due by Friday 17 November 2017.

 

Mortgage fintech looks to blockchain for home loans

From The Adviser.

The CEO and founder of an online mortgage platform has revealed that the fintech is looking into how it can utilise blockchain to make the home loan contract process more efficient.

Speaking at the Informa Credit Law Conference, Mandeep Sodhi, the CEO of HashChing, revealed that the platform was looking into the distributed ledger technology for mortgages.

When asked by The Adviser what HashChing was using blockchain for, Mr Sodhi said: “We have been exploring blockchain in the home loan contract, smart contract space and securitisation as well.

“It’s more in the future road map but mostly around how quickly can we exchange a contract, through smart contracts. But also, if you decide to come on with a loan product at a later stage (of course, we’ll distribute it through brokers only), but then, how quickly can you settle that loan as well and securitisation? That’s where blockchain plays a really important role, if you need a securitised [loans] done quickly.”

He concluded: “Start-ups are tapping into AI technology, through Amazon Alexa, Google. It’s where banks are lagging, but start-ups are moving fast. That’s what banks need to think about.”

Bank couldn’t beat broker rate

Looking back at the journey of HashChing, Mr Sodhi stated that the idea first came about in 2014, after he found that a major bank, at which he worked, could not match or beat a broker-secured home loan rate.

Speaking at the Informa Credit Law Conference, Mr Sodhi said that he had gotten his mortgage through the bank at a discounted employee rate, but later found that one of his friends had gotten a lower rate for his mortgage at the same bank.

He said: “I was a loyal banker looking for my first home loan and I reached out and said: ‘Hey, can I get my staff discount?’ And my bank said that they could give me the special staff discount rate.

“I told my friend, Atul Narang (the co-founder of HashChing), about securing this great rate on my home loan and asked him: ‘Why don’t you become a banking man?’ And he said: ‘Well, actually, I’ve secured a better rate than you, also at your bank.’ And that left a bad taste in my mouth. So, I took his letter to the bank and asked how he got a better rate and asked them to match it, or at least beat it, because it’s really embarrassing. And they said: ‘We can’t do that.’ When I asked why, they said it was because he had used a mortgage broker.

“Now, I didn’t think that mattered… I worked for the bank. But they said: ‘We can’t match mortgage brokers’ rates.’”

It was after this “frustrating experience” that Mr Sodhi said he tried to find the same rate on comparison sites and then through a broker, but still couldn’t (he reportedly didn’t use Mr Atul’s broker due to geographical barriers).

Mr Sodhi continued: “There are thousands of people searching for good home loan rates every day on home loan comparison sites, who are clueless, just like I was. And that’s when we decided to start HashChing — where the journey starts with a negotiated rate that the broker secures from the lender.”

He went on to tell delegates that the majority of fintech start-ups come to market because of “frustrations with the banking system”.

“They’ve seen this opportunity, tried to change it in banking, but have been shut down — and that happened to me as well, so we decided to take it on ourselves.”

Mr Sodhi said that the HashChing platform, which launched in 2015, now has 679 brokers on the platform helping 23,959 borrowers apply for more than $12 billion of loans through more than 60 lenders.