The list of new, smaller lenders entering the market place continues to grow apace, with each of them vying for packager association business that will give them the advantage of one relationship offering huge distribution benefits. At the same time, existing lenders approach the packager distribution route with varying degrees of warmth and levels of commitment. Sometimes it even looks as though certain larger lenders continue to woo packagers, but only until they have perfected their direct-to-broker proposition.
Direct-to-broker is not an easy distribution route for most new lenders to enter the market with and, in general, the newer players need to be on packager panels and especially those of the packager associations. How can these new lenders succeed in forming lasting and mutually beneficial relationships with the major distributors?
The answer centres around products. Each lender’s product range should either add benefits no other lender provides – or give 100% coverage of customer solutions within their lending criteria. The second option is hard to achieve on first entering the market and so many new lenders offer niche products that target borrowers who previously had little or no product choice.
To succeed in their partnerships with packager associations, lenders also need to understand the strength of the relationship depends on the association’s combined ability to deliver distribution. This means lenders should be prepared to offer the same beneficial rates and added extras (cash-backs, enhanced procuration fees and so on) across the whole membership and not just to the larger, more powerful members.
When it comes to service, the dominant issue is information technology and systems that are capable of interacting to produce accurate information and forms without time-consuming re-keying. While a growing number of established lenders seem to be capable of investing in this sort of straight-through-processing IT to enable broker-direct business, some are surprisingly resistant to co-operating in similar ventures with their packager distribution partners. For new lenders, too, their success as packager association panel members will largely depend on how they tackle technology. Those ” Fast, integrated IT links with their distributors will provide lenders with the competitive advantage they need in a crowded market”willing to invest in technology with association members – especially work towards a common trading platform – will become the dominant panel lenders.
The front-end IT facilities that association members – and larger packagers – implement need to deliver some key functions. These are: an online binding decision-in-prinicple; a 100% accurate sourcing facility; the ability to pre-populate customer information into a generic application form; key facts illustration production; and the provision of an acceptable audit trail of broker and appointed representative advice and sales processes.
Once the technology is in place to deliver these five ‘must haves’, the next ingredient is the willingness of lenders to integrate with the packager technology to give the distributors direct links into their operating systems. Of course, within such a potentially profitable new marketplace, there is no shortage of IT developers producing and marketing suitable systems. This means lenders will no doubt have to invest in supporting more than one STP system in order to offer their distributors the IT solutions they need.
Packagers, particularly the associations, can offer a huge benefit to lenders through their wide broker base and the bulk distribution this creates, but lenders need to put in investment to make sure remote access to their processing systems is fairly shared out and not just aimed at the big players to the detriment of newer and smaller packagers, to keep competition strong and effective.
At the moment, some lenders – such as The Mortgage Business and Advantage – are committed in their support for packager-based distribution. Many lenders, though, are not wholeheartedly committing to packager distribution but distributors need to know lenders’ intentions in order to plan their business strategies.
No distribution business can afford to make a large investment in technology that links it to the product supplier unless it feels confident its distribution role is secure for the future – and this goes for mortgages as much as any other product.
Lenders, too, are operating in a crowded, intensely competitive trading environment and fast, integrated IT links with their distributors will provide the competitive advantage they need. But before we can start to make the great IT leap forward there must be a willingness to work together, a commitment to investing in compatible solutions, and a greater degree of honesty from lenders about their future distribution strategies.
By Jon O’Brien, Operations Director, Professional Mortgage Packagers Alliance