Coles could make a big success with mortgages

In 2012, The New York Times reported a story about Target sending coupons for baby clothes and maternity wear to a teenage girl.

The father was furious and approached the manager of the store, who apologised. Later, the manager felt so bad that he rang the father to apologise again, only for the father to tell him this time that his daughter had since told him that she actually was pregnant.

Target, after analysing the purchases of unscented wipes and magnesium supplements, already knew.

This is an extreme example, of course. But if you are a member of a rewards program, have a Facebook account, have location services enabled on your mobile phone or have ever set up an email account, then chances are that someone is collating and analysing your information as well.

Welcome to the world of big data.

Big data usually refers to the storage and management of large quantities of data. Through big data tools, marketers can gain insights and identify signals to transform customer engagements into more personalised and meaningful experiences that drive investment returns - exciting businesses, governments and entrepreneurs alike.

One such business that could leverage off the massive amount of data it has is Coles. And even if Coles does not have the same resources that Target has, even a modest increase in the accuracy of targeted offerings could be highly profitable.

As an indication of how serious Coles is in spreading its offering to consumers, Coles is believed to have an application with APRA for an Authorised Deposit-taking Institution (ADI) licence.

If successful, Coles, through its parent company Wesfarmers, would be in direct competition with Australia’s major banks, adding savings accounts and mortgages to its existing range of insurance products, and perhaps all consolidated under the Coles Money brand that it trademarked in 2012.

Far-fetched? Maybe not. UK supermarkets Tesco and Sainsbury's have been playing in the financial services space for over 15 years. Last year, Tesco’s financial services division held 6.5 million customer accounts and employed over 3,000 staff. Trading profit was £191 million, a margin of 18 per cent of total revenue.
Richard Wormald, a former Tesco executive who was involved with Tesco’s transition into the mortgage space, is now the general manager of financial services at Coles. It is understood that Coles, under Mr Wormald’s direction, has recently engaged a third-party distribution specialist to evaluate plans for the supermarket to begin distributing residential mortgages.

The possible entry of Coles into the Australian mortgage industry should worry existing players. Customer service levels at Australia’s major banks have been sub-standard for too long, and product innovation has been lazy. A new entrant keen to attract new business through exceptional customer service and attractive products could have a significant influence.

Coles has a unique opportunity with the third-party distribution model. If the product offering is made available through third-party introducers, and the company adopts an attitude of embracing and working with this channel as a partner, Coles will have a clear advantage over the banks that have used the GFC as a convenient excuse to lower upfront commissions, eliminate or significantly reduce ongoing trail payments and staff broker service centres with poorly trained and inexperienced staff.

Encouraging people to make the switch from their current bank to Coles may not be easy. But it might not be as difficult as initially thought. The adoption of big data technology in the financial service industry is regarded as being behind other major industries, and customer loyalty to financial services providers is lower than ever.

Have you ever used a Coles coupon to save four cents per litre off your next petrol purchase? Now imagine the impact that paying your mortgage might have on your FlyBuy points. Or the interest rate discounts that might be offered by remaining brand loyal.

Wesfarmers has a track record of success, and if it continues to recruit quality executives to develop and manage the program, this track record will continue.

 

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