The question I am asked with increasing frequency usually contains the words technology, extinction and post-packager. The essence of the enquiry boils down to whether the day of the small packager is over, faced with both the technological advances which allow growing numbers of lenders to offer online solutions including cascading mortgage portfolios, and the rise of ‘super packagers’ with advanced technology, better products and the ability to give brokers higher procuration fees.
There are two specific threats here. The first concerns the growing use by lenders of online services to facilitate intermediaries dealing directly with them. Lenders must be free to develop the technology tools available but it seems only sensible for them to develop new online systems with key packager partners as well as creating exclusive intermediary focused tools. The adoption of online services can benefit the whole market and as more lenders use the technology, costs will fall and smaller packagers will be able to integrate online applications and approval-in-principle offers into their own service.
The more serious issue concerns cascading products. Here we have a technology which, on the face of it, is a terrific helpmate and timesaver for intermediaries but which offers an alternative product and relies on the user to exercise the right response by sourcing afresh. Of course, intermediaries are responsible for the recommendations they make but the cascading system puts any future blame for poor advice firmly on their shoulders.
There has to be some sympathy for the view that, in the face of a rejection, it is up to the intermediary to make sure to start the sourcing process again and not accept the alternative served up on a plate by the cascading system. And yet the seductive nature of the instant solution offered by the next best option creates the chance that the whole process of research – and therefore treating customers fairly – becomes corrupted.
Clearly it is not acceptable for customers to be disadvantaged because of cascading but the real worry is that intermediaries are ” The seductive nature of the instant solution offered by cascading systems creates the chance for research to become corrupted”ultimately going to be held responsible for the advice and the choices they make because they have been influenced by a technology which was designed to help them. Going through a packager that can assist brokers to find a better deal from multiple sources when the initial product has been rejected is a better option for intermediaries needing fast decisions and wanting to demonstrate a commitment to treating customers fairly.
As far as the threat from national centrally-based super packagers is concerned, there is no doubt they have taken business from smaller packagers which have struggled to compete with the buying power big players inevitably represent. But the reason small packagers have been able to survive and even thrive has been the personal service they offer to intermediaries. The problem they face is that while personal service is important, intermediaries have no choice but to look at other avenues if these are offering better products or spread of lenders.
Smaller packagers are going to find it increasingly difficult to compete as lenders rationalise and put more emphasis on dealing with their larger peers. But while packagers face challenges in the years ahead, the threat from lenders with online propositions is overstated. With the regulatory mechanism we have now, the need for intermediaries to ensure they have fully researched the market means that packagers are going to become even more important.
Lenders’ online facilities will be used more but only after the proper research has been done. With sourcing systems still unable to provide an accurate research tool, particularly in the non-conforming mortgage segment, intermediaries wanting to source mortgages from the widest possible choice of lenders will find good packagers invaluable.
Packagers will need to look carefully at their business models to see whether they can compete effectively with larger packaging businesses. The time has come for smaller players to look seriously at packaging associations which can give them the tools to compete on a level playing field.
Matthew Arena, Managing Director, Exclusive Connections