This year promises to be one of change for the finance industry: change of pace, change of rules, and the potential for a seismic shift in the market. At its most ruthless, it will be an environment that rewards the agile and drops the back markers.
More and more, industry observers are seeing the extra resources put towards building capacity for online services, whether that’s loan applications and management, or banking products. For the past few years it’s been clear that some long-standing institutions in this country were caught on the hop by the rise of online finance and they are throwing plenty of cash at their game of catch up. This isn’t likely to change any time soon; there is still a lot of catching up to do and 2015 will be a year of action in an attempt to win back market share.
The obvious outcome of this race is competition in online lending, which has intensified, and that will continue throughout the year. What this means for the broker space is increased pressure from a streamlined platform, one that has fewer overheads and competitive interest rates.
Someone wiser than me once said the ostrich who leaves its head in the sand gets chopped off at the knees, and it never sees it coming. Some clever brokers are growing their businesses towards greater online capability, and good for them. There are others who have stayed wedded to their low-tech business plans and this will work for a strategic few. The rest are likely to see their turnover eroded as customers come to expect at least a default level of internet-enabled functionality.
This is most obvious when interest rates drop, and we could see two RBA rate reductions in the first half of 2015. House prices will continue on their climb, including in Sydney and Melbourne, but without the fever pitch of the past 12 to 24 months. Perth looks set to overheat and Brisbane will be the city to watch as the next property hotspot. The Canberra property market will keep ticking over in its bubble and defy any trend from the other states and territories.
By far 2015’s most exciting chapter will be what happens to the recommendations of the Murray report. It remains to be seen which of these will actually be applied, but I’m sure there are some bankers sweating bullets about the likelihood of capital changes being implemented.
It’s no secret that particular lenders would be the big losers in that scenario, should the mortgage portfolios they hold go from delivering a good return to a bad one. The outcome would be a major shift in the market and could change the dynamic of lending in Australia.
The installation of a capital floor for internally-modelled risk weights, as proposed by BIS, would bring the rules applied to banks into line with small lenders, who have traditionally been held to a standardised figure. It would level up the playing field and go some way towards promoting the spirit of competition in the home mortgage space. The Murray report came to a similar conclusion.
Roll on 2015, and break out the popcorn. I can’t wait to see how this one unfolds.