Tag: Fintech

Banks Must Go Digital To Protect Margins

Looking across the world of banking, there is one striking trend according to the latest Mckinsey Global Banking Report. Profit remains elusive as margins are crushed. Return on equity is stuck in a range of 8 to 10 per cent (though we note Australian Banks’ are higher!, but are still falling). Recovery from the 2007 banking crisis has, they say, been tepid.

Underlying this is a slowing in revenue growth, currently as low as 3%, half that of the previous five years – so margins are down 35 basis points in China and 46 basis points in the USA. They suggest that in a fully disrupted world ROE could fall to around 5%, compared with around 9.3% without disruption.

They claim the biggest contribution to profitability is not geography, but a bank’s business model.

We found that “manufacturing”—the core businesses of financing and lending that pivot off the bank’s balance sheet—generated 53.0 percent of industry revenues, but only 35.0 percent of profits, with an ROE of 4.4 percent. “Distribution,” on the other hand—the origination and sales side of banking—produced 47 percent of revenues and 65 percent of profits, with an ROE of 20 percent.

Now new digital platform players are threatening customer relationships and stealing margin. But Fintechs, which were seen as an outright threat initially, are now collaborating with major players, for example Standard Chartered and GlobalTrade, Royal Bank of Scotland and Taulia, and Barclays and Wave.

“digital pioneers are bridging the value chains of various industries to create “ecosystems” that reduce customers’ costs, increase convenience, provide them with new experiences, and whet their appetites for more.”

So they argue, banks are at a cross roads. Should banks participate in this new digital ecosystem or resit it? To participate, banks will have to deploy a vast digital toolkit. This offers a path to sustainable higher ROE, perhaps. This is a substantive digital transformation, designed from customer centricity.

The point, we would add from our Quiet Revolution banking channel analysis, is that customers are already ahead of banks, demanding more and better digital services, so first in best dressed!

 

Prospa first Australian fintech to deliver a half billion dollars of small business loans

Prospa, Australia’s number one online lender for small business, has announced the delivery of more than half a billion dollars into the economy, providing loans to over 12,000 small businesses across the country.

Now in its sixth year, Prospa has scaled rapidly, today placing second in the AFR Fast 100 for 2017 thanks a 239 per cent average revenue growth since 2013-14. The AFR’s Fast 100 ranks the fastest growing companies in Australia, and in previous years has included the likes of Atlassian, Lonely Planet, SEEK and WebJet.

2017 has been been a bumper year for Prospa, having secured over $50m in equity and debt funding. The firm announced a $25m equity round led by AirTree and Square Peg in February (the largest deal of its kind in Australia at the time), which was followed by an additional $20m debt funding line from Silicon Valley-based Partners For Growth in July.

Over the past twelve months, the company has doubled the size of its loan book, and also grown its team by more than 50 per cent to 150 people from 33 countries. Recent key hires include Damon Pezaro ex Domain as Prospa’s first Chief Product Officer, and Rebecca James ex ME Bank, as Chief Marketing and Enterprise Officer.

Prospa also became the first fintech to win a Telstra Business Award, being named a New South Wales state winner in 2017, as well as being named Employer of Choice in the AON Hewitt Best Employers Program 2017.

Greg Moshal, co-founder and joint CEO of Prospa, comments, “For over five years, we’ve been transforming the way small business owners experience finance. Before Prospa, small business owners simply couldn’t access finance unless they had an asset to put up as security, and they certainly couldn’t do it in a fast easy way from the convenience of their own workplace. We’ve now provided over half a billion dollars in loans to small businesses, and there’s obviously a real need there. We’re now focusing on finding more ways to provide quick, easy access to capital: how, where and whenever it suits our customers.”

Beau Bertoli, co-founder and joint CEO of Prospa adds, “As we scale up, we’re taking a long term view on our growth plans. Awareness of fintech is at all time high, and the sector is at a tipping point in Australia. Regulatory uncertainty is being addressed through consultation and fast decision-making by Treasury, and we’re confident this will help kickstart the next wave of innovation and growth. We’re genuinely excited about the future.”

As a long term Prospa investor and Board member, Avi Eyal, Partner at UK-based Entrée Capital commented, “Prospa has had exceptional growth over the past four years, led by two of the best CEOs in tech today, Greg Moshal and Beau Bertoli. The team is world class and together they are the clear leaders in the Australian fintech market. We are proud to have Prospa in our portfolio.”

Danielle Szetho, CEO of FinTech Australia, commented: “We congratulate Prospa on this important achievement. Prospa’s incredible growth is a great reflection of our recent results from the EY FinTech Australia Census, which shows that fintech companies have tripled their median revenue since 2016, and that the industry overall is rapidly maturing.

This strong revenue growth is happening because fintech companies such as Prospa are providing new and innovative services that delight their customers, compared to the previous offerings from traditional financial services institutions.”

Australian Fintech Environment On The Up

The EY FinTech Australian Census 2017 has been released. Around 600 Fintechs are operating in Australia, the number has grown quite fast. More are generating revenue, and some are profitable. Australia is ranked 5th on their global analysis.

EY was commissioned by FinTech Australia to conduct a census of fintechs in Australia over the last two years. A broad research program was set in place in collaboration with a FinTech Australia steering committee. The research was conducted between August and September, 2017.

This report presents the key findings based on 166 quantitative online surveys, 10 in-depth interviews and 16 vox-pop style interviews.

They conclude that around 600 Fintechs are operating in Australia, having more than doubled since 2015.  A greater proportion of fintechs have been in business for more than three years. 71% of businesses are now generating revenue.  What falls under the ‘fintech’ banner is now much broader (think RegTech, cyber/digital security, Data Analytics etc.) and firms that would see themselves as ‘fintech’ are stretching far and wide into other tech industries (e.g. Agtech, etc.)

The findings show that 45% are targetting retail consumers, 43% targetting banks and other FSI’s and 35% targetting SME’s or other start-ups.

Wealth management was the largest industry segment at 30%, followed by lending at 20%, then analytics 18%.

The largest number are based in NSW (54%).

Funding remains a challenge, and private funding dominates.

In 2016, most fintechs in Australia have received some private funding (72%). Six in ten (57%) accessed some commercial funding and on average have raised $4.2m in capital; this is greater than the average amount of $2.2m raised by fintechs that exclusively accessed private funding.

One in seven fintechs stated that they are currently profitable. Of those that have not started to realise profit, their current burn rate is on average $115k a month. This is an increase in what was seen last year where the burn rate was $84k month.

Australia ranked 5th with a 37% adoption rating. While in the shadows of the quite different markets of China (69%) and India (52%), Australia is on par with other developed economies with similar financial systems (e.g. US and UK).

The growth rate in Australia is one of the fastest.

On The Digital Innovation Front Line

I had the chance to catch up with Martin McCann, the CEO and Co-Founder of Trade Ledger, the newly launched platform-as-a-service for business lenders and claimed as the world’s first open digital banking platform exclusively for business lending. The platform, they say, will help banks assess business lending risk in real time and will so address the US$1.7 trillion global under-supply in trade finance lending, so providing high-growth companies with much-needed working capital.

Martin McCann, the CEO and Co-Founder of Trade Ledger

Martin McCann has a long history is tech, including time with SAP in their Business Networks Division, and applied this experience to seeking out the best fit opportunities as companies digitise their supply chains. He thinks businesses, especially those in the mid-market who are growing fast, are completely underserviced by banks and other financial institutions, and so built Trade Ledger to close the “last mile” gap between these firms and their lenders; something which is now possible thanks to the migration of business data into the cloud.

McCann says he does not see Trade Ledger as a Fintech, as it does not lend to firms directly, but rather is a technology company which via its platform, facilitates the connection between lenders and businesses. And he has ambitious growth plans, not just in Australia but beyond over the next 3 years.

Targeting mid-market firms, with a turnover of around $20-100m, the platform ingests data from their invoicing and accounting systems via an open api, (and can also pull information from enterprise systems like SAP), as well as trading documentation, financial information, bank statements and credit bureau data.   Trade Ledger also has its own trade invoicing solution, which can also be used. They apply custom analysis to these datasets on the platform.

Trade Ledger Platform

Then they work with Lenders who want to use the platform, getting the lending, risk and product teams in the bank to define their trade finance underwriting processes, giving the opportunity to transform these processes, before customising the Trade Ledger platform to meet their specific credit assessment requirements.

Once set up a lender can make trade finance lending decisions more quickly, and accurately, and McCann says the business case to these banks is very compelling. Currently they have a couple of Australian non-bank specialist lenders on the platform, and expect a global top-20 bank to come on board soon.

And here is the rub, their experience to date has been that banks in Australia may recognise that Fintechs should not be regarded as competitors, but rather partners (something which has changed relatively recently); but the process of working inside their slow and complex decision making machinery means lenders are missing the boat. In fact, McCann points to the UK, where lenders are up for the challenge, and cites examples of organisations who say within 4 weeks of engaging with a new concept, they guarantee a decision, so as not to waste time. Hence the global focus.

McCann and his team are clearly on a mission, and already have plans to bolt in additional added value functionality into the platform, based on artificial intelligence and machine learning which can leverage the rich data in the system.

Whilst he sees potential for Blockchain down the line, they are focussing on accurately predicating the probability of default and fraud within a firm and transaction set, complete with confidence scores. This should be operational in 1Q 2018. This will enhance the lenders underwriting ability and provide greater benefits across the value chain.

Another innovation which he calls Conversational Commerce, is aimed at the owner of the business, by providing analysis of their working capital and offering these insights by a bot, thus enabling the owner to benefit from the knowledge and experience contained in the platform. This solution will appear sometime next year.

So this is one to watch. They have spotted a real niche, are harnessing the best of digital transformation to help firms source the trade credit they need to grow, and assist lenders to improve their underwriting processes and operational efficiency. Through their open platform, they are, we think, on the Digital Innovation Front Line.

Fintech startup, Trade Ledger, launches world-first tech to help banks fight off global tech giants

Fintech Trade Ledger, claimed as the world’s first open digital banking platform has been launched, offering a complete platform-as-a-service for business lenders.

The platform, they say, will help banks assess business lending risk in real time and will so address the US$1.7 trillion global under-supply in trade finance lending, thus providing high-growth companies with much-needed working capital.

Career technologists, Martin McCann and Dr. Matthias Born, are launching a world-first lending tech for banks and traditional lenders that will help to equip them against competition from tech giants such as Facebook, Tencent, and eBay wanting to enter financial services.

Trade Ledger is the world’s first business lending platform that transforms digital data from business supply chains in real time, allowing banks to assess and regularly update credit and default risk of businesses they lend to. Currently this is only done on a one-off or infrequent basis on a very small sample of invoices, and not on any other trade documents.

The platform will finally give banks more advanced network and data analysis technology than global technology companies, in a lending segment that has long suffered from a lack of technological innovation.

“Banks and other business lenders have never been able to accurately leverage quality operational data to determine business lending risk, as a result there is a loan undersupply to the tune of AU$60 billion each year in Australia, and AU$2.1 trillion globally,” said Martin McCann, CEO and Co-Founder of Trade Ledger.

“But as the global economy increasingly transitions towards smaller, high-growth businesses, banks have an obligation to learn how to supply working capital needed by these businesses for sustained growth. If they don’t learn to do this, it’s also only a matter of time before technology giants figure out how to resolve the problem, and swoop in.

“The challenge for banks is improving both its cost/income ratio and capital efficiencies within a segment considered higher risk, and Trade Ledger offers the first open banking platform that resolves both of these challenges.

“This represents a huge opportunity for local Australian banks and specialist business lenders to export financial services globally – so long as they jump on the opportunity to do so before oversees competitors do,” continued Martin McCann.

The idea for the platform came about when the Trade Ledger co-founders realised that the increasing digitisation of business supply chains provided an opportunity to connect the business financial supply chain directly to the bank.

They also wanted to provide a way for banks’ customers to apply for funding in just a few minutes, compared to the current 30-hour average process, helping them to directly compete with more tech-savvy entrants such as fintechs and large tech companies.

“For the first time, banks and other traditional lenders will be able to use the digital information being created in supply chains to predict the exact probability of an individual invoice default at any given time,” continued Martin McCann.

“SMEs will also no longer be treated as one homogeneous, high risk group of borrowers, when differences in corporate structure, business model, cash flow need, degree of technology adoption, scalability, and a multitude of other characteristics that can change hourly all affect default and fraud risk levels significantly,” concluded Martin McCann.

Australia Rises In Global Alt-Lending Ranks

From Pymnts.com

Australia is now the Asia Pacific region’s second-largest alternative finance market, largely due to a favorable regulatory climate, according to new KPMG analysis.

The Australian market is quickly becoming a hotbed of alternative lending, and new analysis from KPMG suggests it has risen up in the ranks.

According to a new report from KPMG’s Cambridge Centre for Alternative Finance and the Australian Centre for Financial Studies, Australia could now be the Asia Pacific region’s second-largest alternative lending market, close behind China. News reports in the International Business Times on Friday (Sept. 22) said that a survey of 600 online alternative finance firms across the Asia Pacific found that Australia’s market grew 53 percent in the last year alone.

A key driver of that growth is favorable government policies, researchers said, with regulators around the world exploring how to ensure borrower protections without stifling innovation. About two-thirds of survey respondents said Australia’s regulatory climate is appropriate for the alternative lending industry.

While alternative finance remains a small portion of the overall lending market, the report also found that the Asia Pacific region is experiencing significant overall growth in this space.

China, though, is the clear winner, with its AltFin market accounting for 99.2 percent of the total Asia Pacific market, reports said.

The Australian government may be looking to facilitate growth of the alternative finance space, but research released in June suggested the industry has another hurdle to overcome: awareness.

Data from Moula and the research and consulting firm Digital Finance Analytics, outlined in their Disruption Index report, found there is room for the industry to gain traction by increasing visibility among small business borrowers.

“There is still a certain air of skepticism about non-traditional forms of lending,” said DFA Principal Martin North in an interview with Australian Broker at the time. “So, SMEs who need to borrow tend to still go to the normal suspects. They’ll look to the banks or put it on their credit cards.”

He added that this means the alternative finance industry has to work harder to boost awareness and promote education.

“I think the FinTech sector has a terrific opportunity to lend to the SME sector, but they haven’t yet cracked the right level of brand awareness,” North continued. “Perhaps they need to think about how they use online tools, particularly advertising, to re-energize the message that’s out there.”

Fintechs And Banking – Opportunities and Risks

The Bank For International Settlements (BIS) has released a released a consultative document on the implications of fintech for the financial sector. Sound practices: Implications of fintech developments for banks and bank supervisors assesses how technology-driven innovation in financial services, or “fintech”, may affect the banking industry and the activities of supervisors in the near to medium term.

The Basel Committee on Banking Supervision (BCBS) set up a task force to examine Fintech. Their report makes a number of observations about the way Fintechs may disrupt financial services. They also highlight the potential risks which regulators and players will need to consider.

The BCBS notes that, “despite the hype, the large size of investments and the significant number of financial products and services derived from fintech innovations, volumes are currently still low relative to the size of the global financial services sector. That being said, the trend of rising investment and the potential long-term impact of fintech warrant continued focus by both banks and bank supervisors”.

They developed a meta-model showing the range of elements across the financial services value chain where Fintech may play.

They say that “while some market observers estimate that between 10–40% of revenues and 20–60% of retail banking profits are at risk over the next 10 years,  others claim that banks will be able to absorb the new competitors, thereby improving their own efficiency and capabilities”.

Various future potential scenarios are considered, with their specific risks and opportunities. In addition to the banking industry scenarios, three case studies focus on technology developments (big data, distributed ledger technology, and cloud computing) and three on fintech business models (innovative payment services, lending platforms and neo-banks).

Although fintech is only the latest wave of innovation to affect the banking industry, the rapid adoption of enabling technologies and emergence of new business models pose an increasing challenge to incumbent banks in almost all the scenarios considered.

Banking standards and supervisory expectations should be adaptive to new innovations, while maintaining appropriate prudential standards. Against this background, the Committee has identified 10 key observations and related recommendations on the following supervisory issues for consideration by banks and bank supervisors:

  1. the overarching need to ensure safety and soundness and high compliance standards without inhibiting beneficial innovation in the banking sector;
  2. the key risks for banks related to fintech developments, including strategic/profitability risks, operational, cyber and compliance risks;
  3. the implications for banks of the use of innovative enabling technologies;
  4. the implications for banks of the growing use of third parties, via outsourcing and/or partnerships;
  5. cross-sectoral cooperation between supervisors and other relevant authorities;
  6. international cooperation between banking supervisors;
  7. adaptation of the supervisory skillset;
  8. potential opportunities for supervisors to use innovative technologies (“suptech”);
  9. relevance of existing regulatory frameworks for new innovative business models; and
  10. key features of regulatory initiatives set up to facilitate fintech innovation.

Open Banking May Catalyse Digital Disruption

Last week Treasurer Scott Morrison’s media release on the proposal to introduce an open banking regime in Australia was framed around the requirement for banks to be able and willing (with customer agreement) to share product and customer data with third parties.

The timing is interesting given the disruptive rise of FinTechs and the fact there are new entities emerging across the banking value chain. Until recently banks tended to regard their data as a strategic asset (for example not sharing default data) but with positive credit now in force, this is already changing. So this is a logical next step, and should be welcomed.

From our work whit a number of FinTechs we know that access to data is one of the barriers to success, alongside concerns about data security, and identity fraud. Opening the door to data sharing may be laudable, but there are significant technical issues to work through.

If open banking arrives, it would have the potential to increase competition, and perhaps put pressure on bank product pricing, as well as differentiated servicing; but we will see. It may open the door to more automated product switching, as well as better portfolio management and cross-selling. It certainly is another dimension in the wave of digital disruption already in play, which is ultimately being facilitated by the adoption of mobile technologies and devices.

The Turnbull Government has commissioned an independent review to recommend the best approach to implement an Open Banking regime in Australia, with the report due by the end of 2017.

Greater consumer access to their own banking data and data on banking products will allow consumers to seek out products that better suit their circumstances, saving them money and allowing them to better achieve their financial goals. It will also create further opportunities for innovative business models to drive greater competition in banking and contribute to productivity growth.

The review will be ably led by Mr Scott Farrell. Mr Farrell is a Partner at King & Wood Mallesons and has more than 20 years’ experience in financial markets and financial systems law. Mr Farrell has given many years of service to the public and private sector in advising on, and guiding, regulatory and legal change in the financial sector. He has intimate knowledge of the financial technology (FinTech) sector and is a member of the Government’s FinTech Advisory Group.

Mr Farrell will be supported by a secretariat located within Treasury and will draw upon technical expertise from the private sector as required. The review will consult broadly with the banking, consumer advocacy and FinTech sectors and other interested parties in developing the report and recommendations.

The Review terms of reference have been released and an Issues Paper will shortly be made available for interested parties to provide input to the review.

Purpose of the review

The Government will introduce an open banking regime in Australia under which customers will have greater access to and control over their banking data. Open banking will require banks to share product and customer data with customers and third parties with the consent of the customer.

Data sharing will increase price transparency and enable comparison services to accurately assess how much a product would cost a consumer based on their behaviour and recommend the most appropriate products for them.

Open banking will drive competition in financial services by changing the way Australians use, and benefit from, their data. This will deliver increased consumer choice and empower bank customers to seek out banking products that better suit their circumstances.

Terms of reference

  1. The review will make recommendations to the Treasurer on:1.1. The most appropriate model for the operation of open banking in the Australian context clearly setting out the advantages and disadvantages of different data-sharing models.1.2. A regulatory framework under which an open banking regime would operate and the necessary instruments (such as legislation) required to support and enforce a regime.1.3. An implementation framework (including roadmap and timeframe) and the ongoing role for the Government in implementing an open banking regime.
  2. The recommendations will include examination of:2.1. The scope of the banking data sets to be shared (and any existing or potential sector standards), the parties which will be required to share the data sets, and the parties to whom the data sets will be provided.2.2. Existing and potential technical data transfer mechanisms for sharing relevant data (and existing or potential sector standards) including customer consent mechanisms.2.3. The key issues and risks such as customer usability and trust, security of data, liability, privacy safeguard requirements arising from the adoption of potential data transfer mechanisms and the enforcement of customer rights in relation to data sharing.

    2.4. The costs of implementation of an open banking regime and the means by which costs may be imposed on industry including consideration of industry-funded models.

  3. The review will have regard to:3.1. The Productivity Commission’s final report on Data Availability and Use and any government response to that report.3.2. Best practice developments internationally and in other industry sectors.3.3. Competition, fairness, innovation, efficiency, regulatory compliance costs and consumer protection in the financial system.

Process

The review will consult broadly with representatives from the banking, consumer advocacy and financial technology (FinTech) sectors and other interested parties in developing the report and recommendations.

The review will report to the Treasurer by the end of 2017.

BOE Fintech Accelerator Shows Promise

The Bank of England published summaries of the third round of Proofs of Concept (POCs) completed by its FinTech Accelerator. It nicely shows some of the potential innovation applicable to the finance sector.

The FinTech Accelerator was set up a year ago to deploy innovative technologies on issues relevant to the Bank’s mission and operations. Working in partnership with FinTech firms the Bank is seeking to develop new approaches, build its understanding of these new technologies and support development of the sector.

The latest PoCs covered four important areas of the Bank’s work:   analysing large-scale supervisory data sets; executing high-value payments across currencies and borders; identifying and applying cross-cutting legal themes from regulatory enforcement actions; and measuring performance on the Bank’s internal projects portfolio.

Further details on each project can be found in the individual write-ups, but in summary:

  • We worked with Mindbridge Ai, a machine learning and artificial intelligence firm, to explore the analytical value of using artificial intelligence tools to detect anomalies in supervisory data sets. Using a sample set of anonymised reporting data, we found Mindbridge’s user interface to be intuitive, allowing the user to explore a time series of each variable, whilst comparing the results to industry averages. This PoC enabled our internal team of data scientists to compare and contrast their own findings and the underlying algorithms being used, providing a complementary layer to the Bank’s work.
  • In our PoC with Ripple, we looked into how distributed ledger technology (DLT) could be used to model the synchronised movement of two different currencies across two different ledgers, as part of the Bank’s wider research into the future of high-value payments. Although the Bank has already concluded that DLT is not sufficiently mature to support the core RTGS system, the learnings from this exercise with Ripple have reinforced the Bank’s intention to ensure its new RTGS system is compatible with DLT usage in the private sector, and has  highlighted areas where we would like to conduct more exploratory work.
  • We worked with Enforcd, giving a group of staff from our Regulatory Action Division (RAD) access to a cloud-based database of regulatory enforcement actions with supporting commentary and trend analysis. Having easy access to relevant published regulatory enforcement decisions can be an important input to financial firms’ overall compliance programmes. This PoC demonstrated how technology could potentially facilitate compliance and the development of best practice in some key areas of regulation.
  • Lastly we ran a proof of concept with Experimentus, using their ORB tool, to analyse historic Bank of England projects and visualise how they had performed against a range of standard key performance indicators (KPIs). This PoC allowed us to explore whether our existing test data were sufficient to carry out effective KPI reporting, and where further data collection might be needed.

Commenting on these latest POCs, Andrew Hauser, Executive Director for Banking, Payments and Financial Resilience, said:

“We have learnt a great deal through these latest Proofs of Concept, both in terms of what FinTech can do, but in also in terms of how it can help us work, think and communicate differently.  The breadth of topics covered by these projects, and the Accelerator programme as a whole, shows how much central banks potentially have to gain from continued engagement with the sector in delivering their mission of monetary and financial stability.”

The Accelerator invited applications for its fourth round of PoCs in April 2017 and expects to announce the successful firms shortly.

Find out more about the work of the FinTech Accelerator.

Fintechs warn Domain and REA of mortgage ‘challenges

From The Adviser.

Two mortgage fintechs have warned that the REA Group and Domain, as well as customers and brokers, could face ‘challenges’ as a result of the property companies’ forays into mortgages.

Last week, both the REA Group and Domain Group revealed plans to break into mortgage broking, with realestate.com.au acquiring a majority stake in mortgage broking franchise business Smartline and entering into a strategic mortgage broking partnership with NAB. Likewise, the Fairfax-owned property classified group announced that it will launch Domain Loan Finder, in partnership with mortgage platform Lendi.

However, Mandeep Sodhi, CEO of online brokerage HashChing, has suggested that the new offerings from Domain and realestate.com.au could upset the market.

He said: “[These sites] have traditionally been seen as helpful, independent websites for consumers to research their next dream home or investment property. However, the most recent partnerships by both with mortgage broking platforms has the potential to restrict choice in the market.

“Pushing borrowers to one group of brokers – who may not have access to all the banks and lenders – means they could unwittingly miss out on home loan products that better suit their needs.”

Mr Sodhi added that brokers could be negatively affected, as the two sites had historically been “strong sources for generating leads for aggregators to date” and brokers who aren’t members of the partnered mortgage broking platforms would have to therefore find new lead sources.

Likewise, the founder and CEO of online brokerage uno. has suggested that while the move by Domain and REA’s realestate.com.au site is “logical”, the companies could face “challenges” while breaking into the mortgage arena.

Speaking to The Adviser, Vince Turner explained: “These guys have a lot of eyeballs, a big audience, and their traditional line of business in terms of advertising [such as website advertising via cost per click] is now going into the nominal value territory. They are not on the way out yet, but they will be soon.

“So, from Domain or REA’s point of view, they have to think what their transactions are that they can monetise … So, you can see why they want to get into transactional mortgages, that’s the logical part.”

However, Mr Turner warned that breaking into a new industry (i.e. mortgages) is not only challenging from a cultural perspective, but also from a customer buy-in perspective.

He explained: “You could argue that it’s pretty hard to get out of bed in the morning and be a media company [publishing company Fairfax owns Domain] and a financial services company. It’s very different culturally and it’s a very different set of skills, so I think that will be part of the challenge… These things are not natural to them.”

The uno. founder said that his company had partnered with several different companies, but that the thinking was that these partnerships would only be around 10 or 20 per cent of its business.

He said a large part of the difficulty would be getting customer buy-in, as users of the realestate.com.au and Domain are not primarily visiting the sites for a mortgage, but for a property listing/rental listing.

“It’s difficult to get a consumer to get onboard with a something that is not what they went to the site for. For example, they are using the sites for real estate, not a mortgage, so it’s challenging to get them onboard with this new side,” Mr Turner said.

“We know it’s challenging because we have been working real estate sites and we operate with other sites that want to bundle mortgages into their consumer experience … [if] the customer didn’t go there for a mortgage, trying to intercept them and say ‘Look at this mortgage over here’, it’s difficult.”

Another obstacle that these sites could face is the customer service side of handling a mortgage, Mr Turner said.

“Consumers who are going to these sites are operating digitally, so convincing them to go through the mortgage process, which needs ‘advice’, is challenging,” he said.

Mr Turner revealed that delivering that support and ‘advice’ had been a challenge for uno. and explained that, although he believes the online brokerage is “leading this space in delivering an advice experience and the support experience digitally”, it had spent the last year trying to solve this conundrum and “still has a long way to go”.

“I think it’s going to be a long road for Domain and REA in getting this to work for them,” he added.

“I think they have the pockets to push it and they have made it a strategic priority (and maybe they will get there in the end), but its not as simple as just bolting on a mortgage broking business. It’s a lot more complicated than that.”