The supermarket giant has already successfully diversified into retail financial services through its motor vehicle insurance and credit card offerings.
But a much greater leap of faith will be required if Coles decides to enter the $1.3 trillion mortgage market, Mortgage Choice chief executive Michael Russell told Mortgage Business.
“To ask Australian property buyers to disclose all of their personal and financial information required to apply for a housing loan is something they will only do if there is a significant element of trust in the financial services organisation they are disclosing to,” Mr Russell said.
“I’m not sure non-financial services businesses can quickly and easily earn the trust of Australian mortgage holders to disclose the required personal and financial information,” he said.
“The first requirement to be met is trust.”
On April 8 Mortgage Business reported Coles had engaged a third-party distribution specialist to evaluate plans for the supermarket to begin distributing residential mortgages.
In its submission to the Financial System Inquiry, Coles made no secret about its desires to broaden its financial services offering, pointing to UK retailer Tesco as a case study of a consumer brand that is now offering home loans.
The submission included a report commissioned by Deloitte Access Economics, examining developments in the regulatory treatment of non-financial conglomerates.
“Prior to the GFC, competition in financial services in Australia was strong,” the report said. “Bank lending margins had narrowed substantially and a wider range of borrowers could access credit including those without a long work history, such as first home buyers and the self-employed.”
Noting the increase in market concentration since the GFC, the report asserts that concentration can be a poor indicator of competition in a market when barriers to entry of new participants are low.
“Regulations imposed on market participants can act as barriers to entry,” it said.
“There is a balance to be struck between the benefits of market competition and the entry of innovative players and the potential destabilising impact of such entry on established market participants and their operations.”
Coles is yet to make a public statement on any potential plans to move into the mortgage space.