Does channel conflict still exist?

Although it is still evident, occurrences of channel conflict have become more infrequent, industry representatives say.

Channel conflict occurs when a lender offers more favourable terms to a clients if they deal directly with the lender, rather than go through their broker.

MPA spoke to a broker and the two peak industry bodies, the MFAA and FBAA, to understand what situations are giving rise to channel conflict, their extent and how they’re managed.

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Theo Chambers (pictured above left), CEO of brokerage Shore Financial, said channel conflict had occurred where borrowers were buying a property in unique circumstances requiring exceptions to be made, and during periods when application turnaround times were compromised.

In the first scenario, Chambers had client applications that were not approved by a bank but were subsequently able to be approved by a branch, relationship manager or banker, on the condition that the business was placed direct.

In 2021, during the COVID-19 pandemic, Chambers said banks were taking two to three weeks to approve broker applications. However, there were instances where clients were offered a significantly shorter turnaround time if they relodged their business directly with the bank.

“A few of the majors were doing this last year, and the worst thing is, we’ve lodged the application and the client might have popped into the branch to talk about something else and it comes up, and the branch is proactively trying to say, ‘lodge a new application and we’ll get it done in two days’,” Chambers said.

Chambers acknowledged there were a few instances where his brokerage had introduced a client to a bank and after “front-footing” the conversation with the bank, had been reimbursed.

Although turnaround times have improved, Chambers said there were still one or two banks exhibiting a different appetite and policy for direct-to-bank business and broker business. This could occur where a client discharges a mortgage and is offered a superior interest rate by the bank, in return for going direct.

“When people are shopping around and refinancing, while their intention is on their home loan, they may cross reference what the broker is telling them with the bank, or more commonly, they happen to cross paths with a bank representative throughout the process,” Chambers said.

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Noting that channel conflict has moderated in recent times, MFAA CEO Anja Pannek (pictured above centre) told MPA that the peak industry body supports “channel parity”.  This is where customers are assured of fantastic service regardless of how they approach their financial decisions.

Pannek acknowledged that refinance activity was at an all-time high and that a significant portion of borrowers would shortly come off fixed rate loans, commonly referred to as a “fixed rate cliff”.

“As we head into that, something I’ll be paying very close attention to is retention activity as we do want to see channel parity,” Pannek said.

FBAA managing director Peter White AM (pictured above right) told MPA differences between branch and broker channels within the same bank or lender was a longstanding conversation within the industry.

Although channel conflict situations arise from time to time, White said for most brokers, it did not have a broader impact.  

Perhaps a bigger issue currently was interception around settlements (refinancing and/or new borrowing), he said.  This is where one to two days’ out from the settlement date, a borrower receives a better deal from a lender that was not previously on the table by that lender, and that the broker was unable to source.

This situation could arise where a broker’s customer is refinancing and is contacted directly by a lender’s retention team, White said.

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A borrower has typically gone through a lengthy process and may have spent money on valuations, legal and stamp duty provisions (if required). Receiving an offer out of the blue at the last-minute “shatters their expectations”, he said.

“Although it doesn’t detract from channel conflict, that’s a bigger issue in the market … it’s understandably wrong and I can’t understand why banks are applying different measures,” White said.

“Lenders should be forced to comply as do insurance sectors, as lenders in this case would need to out forward their best offer forward upfront and no second bites at the apple (I am proposing this to the minister).”

Flaws in processing policies and different levels of authority between broker and retention servicing teams mean there can be a difference in the way that new or existing refinance business is treated, White said.

According to White, the evolution of technology, and open banking, in which banking data can be shared with accredited third parties, will help to alleviate channel conflict. Open banking is still in an introductory phase, and White expects the bigger impacts will start to show in the second half of 2023.

“I do see that a lot of these things will start to fall into the background as technology takes over that grunt work and open banking and consumer data rights expand upon all that’s happening in the market,” White said.

White also calls out what he refers to as “anti-competitive practices”, where these bank retention teams may single out a borrower, who is able to receive a deal that other customers are unable to access.

Having recently spoken around the country with an aggregation group, White said feedback showed this was an issue. One lender had changed its policy to reflect that where a deal originated through a broker, it would refinance through that broker.

While this was a good move, White said it was still not “utopia” for solving the issue.

“Lenders need to understand it’s a small pool, that they’ll gain the business back themselves and are making borrowers very unhappy,” White said.

In response to how brokers could continue to position their skills and service to customers and retain their business, White suggested they “stay close to clients”.

“Be proactive: make sure you make the first move,” White said.

“What we need to do is do all that’s in our power, always act in the best interests of the borrower and as technology moves, this will help make change happen.”