Big changes predicted in banking

By Tom Clarke

More dramatic changes in the structure of trading banks are predicted by property management and mortgage services specialist, Martin Shepherd.

He has just joined Auckland-based mortgage brokers, Loan Plan, as sales manager.

He believes that over the next few years consumers will increasingly seek home finance and residential and commercial property investment finance through mortgage brokers as banks continue to wind down their services and outlets.

"There's been a lot of talk lately about the move to a `big-two' in banking in Australasia, and I think we're heading towards that because of the infrastructure costs that banks are facing," he says.

With their margins they can't afford to sustain those costs in the long term, he adds.
" ...I think we'll see a continuation of the general wind-down across the board, with the establishment of massive processing centres to handle the account administrative side of things. Customers will be left with a number of service centres and mobile managers."

Effectively, Mr Shepherd says, banks will become more like brokers. The "downside" will be that they're only selling one range of products.

In Australia brokers are now handling about 40 per cent of the mortgage business, he says, while in parts of the United States 80 per cent of business is transacted through brokers. In New Zealand the figure is 15 to 17 per cent, a percentage that will grow, he says.

While the US is probably 10 years ahead of New Zealand, it is likely, he believes, that this country will reach that same level over the next couple of years as Australia.

This is partly, he says, because borrowers are becoming increasingly unhappy with the trading banks.

"Our experience is that a lot of borrowers are becoming quite disenchanted with the changes in trading banks and they're becoming less tolerant with them as a result.

"They see all the changes taking place, the new systems being set up, they see the advertising and they know that the banks are fighting for market share," Mr Shepherd says.

"Unfortunately, in many cases the service expectation is not being met by the banks, and I think that's leaving a very sour taste with a lot of people."

Mr Shepherd says banks are all offering the same kind of mortgage product and similar pricing. Service and the "personal element" is the only way they can differentiate themselves in the market.

Restructuring, however, has left the banks with fewer staff and outlets, which means they're less able to offer those two benefits.

Since they can no longer develop a close relationship with a bank manager, people are better to form a long-term relationship with a broker, he says.

Mr Shepherd began his career with Inland Revenue in Auckland and Wellington, working as an auditor.

He then joined Mortgage Services Ltd, a subsidiary of Fay Richwhite Ltd, which was one of the first companies to offer securitised lending.

Later he worked for a period with a property management company in Auckland before joining Sovereign Financial Services in a business development role, concentrating on new residential lending products and services.