As brokers, you’ve probably seen it all. Exciting new products hitting the market and creating a frenzy, then spectacularly imploding and destroying bucketloads of wealth in the process. Subprime mortgage-backed securities, anyone?
You’ve probably also made your way through a number of trends and power shifts in the wider financial services, driven by global economic conditions, regulatory changes, and shifting consumer demand. These shifts and trends make winners and losers out of different lenders. As an example, nine out of ten brokers believe the big Australian banks profited from the GFC, while smaller lenders suffered significantly as funding costs skyrocketed out of their ability to meet them.
Spotting which lenders are likely to shine and create the greatest value at any point during the evolution of finance is a crucial aspect of expert finance broking. And one such trend enveloping lending in 2016 is the rise and rise of alternative lending as fintech disruption strengthens on a daily basis.
So what do brokers needs to know about alternative lending?
IT’S INEVITABLE AND IT’S HERE TO STAY
People think differently about borrowing now. They want flexibility, convenience and control, and they want it now – from their mobile or laptop. What they don’t want is to fill in physical paperwork, enter a bank branch, or explain their finances for the fifteenth time to the fifteenth relationship manager they’ve met during their time as a financial products consumer.
Fintechs have been keen to meet this growing demand for online convenience and speed when it comes to finances. At the same time investors have relished the opportunity to realize new forms of yield in a globally low yield environment.
So while the low yield environment may not exist forever, the rapid evolution that will occur while it does last is unlikely to be unwound when rates eventually do rise. In the meantime, consumers will have acclimatised to the new borrowing environment characterised by convenience, speed and online access.
IT WILL FAVOUR EARLY ADOPTERS
Brokers who jump on the alternative lending freight train first are likely to speed ahead of their competitors. This is because alternative lending is still in its infancy with regards to broader awareness in Australia, but the movement is building up momentum rapidly. So any brokers who can introduce their clients to the new range of alternative options now while they’re still somewhat novel will be seem progressive, up-to-date, and forward-thinking compared to their slower colleagues.
Not only that but new forms of alternative lending also provide an opportunity to re-engage with existing networks, and potentially create new deals.
BROKERS MAY BE IN A BETTER POSITION THAN OTHER FINANCE PROFESSIONALS
Alternative lenders threaten to take a chunk of profits from other more traditional financial institutions, such as banks and credit unions. However, brokers and alternate lenders instead have a symbiotic relationship that can work for the mutual benefit of both parties.
What alternative lenders often lack is the vast network of clients that brokers are famous for having cultivated over years of providing trusted advice, so these lenders could benefit from a broker referral system. And by presenting these new markets and opportunities to their clients, brokers can increase their skill set and experience, retain existing clients and attract new ones, and enhance their own personal brand.
So far from being threatened by this form of fintech, brokers who play their cards right may significantly benefit from it.
ALTERNATIVE LENDING = ALTERNATIVE INCOME
The emergence of alternative lending means new opportunities for new forms of income. And who in their right mind would say no to that?