Main group photo for NZA Prospa roundtable Campbell Smith, Jeff Royle, Huia Manuel, Luke Jackson

“We’re here to fill the gap that’s been created when traditional lending can’t help people, or legislation puts a whole lot of people that are great customers into a different box”

Huia Manuel, Prospa

“The adviser is a filter – channelling the customer and their particular loan scenario towards the right lender. Our prime role is to make sure we select the right vendor for clients”

Jeff Royle, iLender

“We are here to serve the underserved. Further growth will be through greater awareness and consideration of our proposition and our product offering”

Campbell Smith, Pepper Money

“As a non-bank industry, what we provide is skill. That enables us to offer a wider group of transactions and help customers achieve a wider group of goals”

Luke Jackson, Resimac

In Partnership with

Non-bank solutions gain traction

Small business lender Prospa held a roundtable discussion with other leading non-banks on this key sector and why more advisers and customers are turning to them for tailored finance solutions

Read on

Huia Manuel

Prospa

Luke Jackson

Resimac

Campbell Smith

Pepper Money

Jeff Royle

iLender

Industry experts

NON-BANK LENDING is a small but increasingly important sector in the nation’s finance industry. While major banks still dominate lending, advisers are turning more and more to non-banks to assist their clients who don’t fit the vanilla PAYE lending profile that banks prefer. Higher interest rates, inflation and the Credit Contracts and Consumer Finance Act (CCCFA) regulations mean banks in New Zealand are taking a more conservative approach to lending, which is driving borrowers to seek out alternatives. Non-bank lenders are providing them with fast and flexible finance solutions for home and business loans. NZ Adviser and small business lender Prospa hosted a non-banks roundtable at Auckland restaurant Esther to discuss how non-banks are working with advisers to support borrowers. Attendees included Prospa business development manager

Huia Manuel, Resimac general manager New Zealand Luke Jackson, Pepper Money country head New Zealand Campbell Smith and iLender mortgage adviser and financial paramedic Jeff Royle.

More people were now aware of non-bank lenders, Manuel said. “They have heard about us. Four years ago, no one would have heard about Resimac home loans or Prospa. It was a harder sell for advisers to bring their customer to a non-bank, whereas now consumers are more educated.” Resimac GM Luke Jackson said the smaller size of non-banks was one of their strengths. “We can adjust to regulation faster, we can adjust our policies faster, we can push it out to our BDMs and our underwriters quicker. It's definitely the nimbleness of non-banks that’s the secret.” In terms of meeting CCCFA regulations, the non-banks’ credit staff were “closer to the ground” and could help customers more easily than banks could, Jackson said.

Non-banks’ biggest competitor was not actually banks, he said, it was the “unserviced client”. “When you talk about growing market share, it's not about us necessarily taking it from somewhere but actually creating it, because there are customers out there that just don't get their dreams or their goals realised because they don't realise the opportunities that are open to them.” Mortgage adviser Jeff Royle, from iLender, said a non-banks survey three years ago showed that 40% of people who were declined for a loan stopped searching. “So you’re absolutely right; it’s about creating awareness in the public domain that there is an alternative. “There are clients that may get approved at a bank, where the best fit for them isn’t the bank. We actually are a best fit for many customers, because we understand them better.” Pepper Money country head Campbell Smith agreed with Manuel and Jackson. “We are here to serve the underserved, and to that end our growth opportunity is going to be brought about through greater awareness and consideration of our proposition and our product offering.”

Prospa BDM Huia Manuel said non-banks had really come to the fore during challenging times. “That's why we're here – to fill the gap that's been created when traditional lending can’t help people, or legislation puts a whole lot of people that are great customers into a different box,” she said. “When it comes to opportunities to grow market share, we all come together as non-bank lenders to ‘grow the pie’, and we work really well in New Zealand across the board to do that.” Manuel said non-bank lenders met up at events to create awareness and educate advisers and consumers. For consumers who had been declined by banks, the aim was to help them understand that they had access to trusted and licensed financial advisers in their time of need.

He said strong adviser relationships were of fundamental importance. “They [advisers] understand us, our product and our offering, and therefore can see a non-bank deal and identify that it’s actually a stronger fit for someone who’s self-employed or someone who’s on a disability income, and that way their needs are much better met.” Smith said non-banks also realised they weren’t necessarily the best fit for customers in perpetuity – “we’re meeting the needs of the day”. “We hope to enjoy their custom for as long as possible and while we are providing the right solution … we may be taking them through a life event, financial rehabilitation, or financing an additional investment property for which they couldn’t obtain approval elsewhere.”

Once that customer had been helped to acquire an asset or a life-changing investment and their finances had improved, they were often able to refinance to a major bank. “We don’t seek that out; it's something we accept, and it’s obviously a function of our business model,” Smith said. Manuel said Prospa had filled a specific gap in the market by being the first cash flow lender in New Zealand requiring no security up front. Royle pointed out that, as a short-term lender primarily for the self-employed, Prospa had also created another option for borrowers. “Prospa’s entry is going to create more opportunities down the track, particularly in the low-doc, alt-doc space.” Jackson said that with the upskilling of mortgage advisers who now had to be accredited to level five, more advisers would gain the skills to go beyond vanilla loans and provide customers with greater options. Smith noted that non-banks in New Zealand had a big opportunity to grow market share through advisers. In Australia, mortgage brokers facilitated almost 70% of residential lending, he said.

Smith said Pepper Money’s home loan book was largely on variable rates, so the RBNZ official cash rate rises had an immediate impact. The Pepper Money team had been working hard to help new loan applicants and existing customers. “We take our responsibilities and duty of care to customers very seriously. Each and every time there is a rate rise, there may be a cohort in our portfolio that requires a discussion,” he said. Customers had coped well so far because Pepper Money had been so proactive in reaching out to them. Royle said the reality was that some people would be badly affected by rate rises, but this was nothing new, and the vast majority of mortgage holders were “in front”.

“I think the people that will get hurt are people that secured loans at 2.5% or 3%, and that to them was normal – that was never normal. So then they’ve gone and bought the Ranger or the boat on finance because it was cheap.” Royle said iLender sent out regular newsletters to customers, and its sophisticated CRM system identified people “who may have an issue and we get in touch”. He said there was a reason most non-bank lenders paid advisers trail commission. “It's for us to continue to service the customer. If you treat your customers fairly, you're going to have a strong business, because you're going to keep that client, they're going to refer people to you. It makes sense.” Jackson said rate rises would put stress on some parts of the loan book, but there was also opportunity. “Property prices are as low as they've been for some time; yields are improving. There'll be people looking to buy investment property; there'll be first home buyers who, if they are brave enough, should be entering the market now.” Non-banks knew there was still “good business to write”, while at the same time helping customers in financial difficulty, Jackson said. Manuel said Prospa’s team closely examined market conditions to guide business strategy and decisions.

“All of our business customers are also doing the same thing – looking at staffing challenges and the cost of funds,” she said. “You’ve got businesses that are stepping back, and then you've got other businesses that are saying, ‘I’m getting ready to invest’.” Feedback from advisers suggested that their business could have dropped by 30% compared to last year, Manuel said. This had led to more advisers seeking out alternatives and new sources of business, including with non-banks such as Prospa. “Advisers are asking how they can diversify their business into commercial lending. There is huge scope for growth for advisers, and by helping existing clients it strengthens relationships, and advisers can grow their business through word-of-mouth referrals.”

“It’s the solution,” Smith said. “We're willing to lean into a deal with a view to trying to find a solution for a customer.” Pepper Money referred to it as workshopping. “A core part of our business is having lending scenarios put to us and reviewing those scenarios to see whether it's a Pepper Money deal.” The non-bank’s technology was built to review these scenarios across three tiers – specialised, near prime and prime. Loan applications were directed into the product that was a strong fit for that applicant and scenario. “We don't have the sort of hard criteria that the banks often apply through their credit scorecard algorithms,” Smith said. “We're certainly looking to try and, as I say, home a deal. We lean into the yes; we try to find our way to a yes.” Jackson said big banks focused on vanilla loans for their scalability and simplicity, but that narrow focus and expertise was counterproductive for customers. “As a non-bank industry, what we provide is skill,” he said. “That enables us to offer a wider group of transactions and help customers achieve a wider group of goals.” Manuel said, “Speed, consistency, confidence, ease of doing business, speed of outcome and personalised and dedicated service – this is what non-banks offer.” Prospa boasted a net promoter score of 70+ and a Trustpilot score of 4.9 out of 5. Manuel described non-bank BDMs as phenomenal – helping to train advisers and workshop deals so “more customers get the outcome that they're looking for”. Royle commented that Prospa had done an amazing job when it came to promoting its brand to the public. This helped raise the profile of the non-bank industry as a whole and increased trust among customers.

Prospa Group Limited (ASX: PGL) is a leading fintech with a commitment to unleash the potential of every small business in Australia and New Zealand. We do this by developing the simple, stress-free and seamless financial management and lending products they need to make business happen. Since 2012, we have provided more than $3.4bn worth of funding to support the growth and operations of thousands of small businesses. We also work with more than 14,000 trusted brokers, accountants and aggregator partners to deliver flexible funding solutions to their clients.

Find out more

Huia Manuel is a business development manager at Prospa. With over 20 years' experience in leading sales teams across the financial services industry, she is one of the founding members of the Prospa New Zealand team and has been instrumental in establishing the company’s presence in the country since 2019. Manuel is a dynamic leader and excels at creating exceptional experiences for Prospa’s partners and customers. She is a passionate advocate for Kiwi small businesses and is committed unleashing the potential of every small business in New Zealand.

Prospa

Huia Manuel

Luke Jackson leads a growing operation that continues to devise new solutions to suit customers’ needs. He joined Resimac as head of New Zealand in 2019. Jackson has been part of the banking and financial services industry since 1997 across retail, business, corporate and commercial segments; his experience includes working for major trading banks as well as alternatives to banks. He played a lead role in building New Zealand’s peer-to-peer fintech market when he was CEO of the nation’s largest peer-to-peer mortgage platform.

Resimac

Luke Jackson

Campbell Smith is Pepper Money's country head New Zealand. Having worked for over 20 years in the banking and financial services industry, in various commercial functions across mortgage and asset finance, he has substantial executive leadership, financial and operational experience. Smith joined Pepper Money from LeasePlan as director and country manager and has also worked at organisations such as Turners Automotive and Westpac.

Pepper Money

Campbell Smith

Jeff Royle has helped people realise their property goals for over 30 years. He became an authority on the non-bank sector in the UK in the 1990s. In 2006, Royle moved to New Zealand, and soon after the world was on the verge of the GFC. “Not a pretty time,” he says, as lending virtually ceased. Driven by his focus on the ‘why’, and on helping people with their property goals, today Royle, as mortgage adviser and financial paramedic at iLender, is a significant player in the non-bank market, often consulted by lenders for advice on products and strategy. He sees amazing opportunities in assisting those who cannot be served by the banks.

iLender

Jeff Royle

In Partnership with

Non-bank solutions gain traction

Small business lender Prospa held a roundtable discussion with other leading non-banks on this key sector and why more advisers and customers are turning to them for tailored finance solutions

Read on

Jeff Royle

iLender

Campbell Smith

Pepper Money

Luke Jackson

Resimac

Huia Manuel

Prospa

Industry experts

Prospa

Huia Manuel

Resimac

Luke Jackson

Pepper Money

Campbell Smith

iLender

Jeff Royle

In Partnership with

Non-bank solutions gain traction

Small business lender Prospa held a roundtable discussion with other leading non-banks on this key sector and why more advisers and customers are turning to them for tailored finance solutions

Read on

Jeff Royle

iLender

Campbell Smith

Heritage Bank

Luke Jackson

Resimac

Huia Manuel

Prospa

Industry experts

Resimac

Luke Jackson

Pepper Money

Campbell Smith

iLender

Jeff Royle

Prospa

Huia Manuel

Q. How would you describe the current market for non-banks in New Zealand, and what are the opportunities to grow market share?

Published 06 Jun 2023

Resources

News

Specialty

Best in Mortgage

Mortgage Industry

Companies

People

Newsletter

About us

Authors

Conditions of Use

Terms & Conditions

Sitemap

RSS

News

MORTGAGE INDUSTRY

BEST IN MORTGAGE

SPECIALTY

Resources

Companies

People

Newsletter

About us

Authors

Conditions of Use

Terms & Conditions

Sitemap

RSS

News

MORTGAGE INDUSTRY

BEST IN MORTGAGE

SPECIALTY

Resources

Companies

People

Newsletter

About us

Authors

Conditions of Use

Terms & Conditions

Sitemap

RSS

Source: RBNZ – Non-banks: Funding and claims by sector, 28 April 2023

Agriculture

Business

Housing

Consumer

Growth in non-bank loans by sector

$6.75bn

$3.81bn

$6.29bn

$6.27bn

$6.05bn

$5.60bn

$5.82bn

$7.75bn

$8.74bn

$684m

$759m

$837m

Mar 2021

Mar 2022

Mar 2023

SMEs look to alternative business lenders

SMEs' awareness of alternative lenders rose from 61% to 75% between May 2019 and Nov 2022

SMEs’ comfort level about borrowing from alternative lenders rose from 7% to 23% between Sept 2018 and Nov 2022

TOP REASONS SMEs CHOSE THESE LENDERS:

lower fees

faster access to funds

greater flexibility

Q. How are both non-banks and advisers dealing with the challenges of rising interest rates and inflation, labour shortages and supply chain problems? Are these conditions encouraging advisers and customers to consider non-bank lenders?

Source: RFI Group research for New Zealand SME Banking Council, commissioned by Prospa, March 2023

Q. What do non-bank lenders offer that mainstream lenders can’t?

Smith said adviser partnerships were absolutely critical – they were the key to non-banks’ distribution and “how we go to market”. Pepper Money continued to support advisers through ongoing education, particularly webinars, he said. “By educating advisers about our products and providing accreditation, they understand who is a Pepper Money customer and can submit applications straight away.” Manuel said Prospa had both a direct channel and an adviser channel. “Prospa partners with advisers – they're highly educated, highly trusted; they love their customers. They want to make sure whoever they're referring their customers to are going to look after their customers as well as they do.” Manuel said it was important to build trust with advisers through education, working alongside them to lift their business growth and help with customer conversations. Prospa loan conversions through advisers were high, due to their knowledge of their customers and Prospa's products. Royle described the adviser as a filter – channelling the customer and their particular loan scenario towards the right lender. “Our prime role is to make sure we select the right vendor for the clients.” Jackson said the key to growing adviser partnerships was to encourage more advisers to operate in the non-vanilla loan space. “There’s definitely been an increase in people using advisers, and it's because CCCFA and LVR restrictions have made it difficult, so people are seeking out their expertise.”

Q. How important are your partnerships with advisers, and what are you doing to strengthen them?

Smith said Pepper Money saw strong alignment between sales and credit. “We see our credit function as an extension of our sales function. You can call our credit officers – they are here in New Zealand, and they work intimately with our sales team, often with the BDMs.” Pepper Money’s relationship managers were based in Auckland, workshopping deals. Smith said every deal was different, and it was critical that the credit and sales teams worked cohesively to find solutions for customers. Jackson said there would always be some tension between credit and sales teams, but he hadn’t seen it to the same degree at non-banks. He said that as non-banks became more profile driven, there would be less ambiguity about each provider. “There are definitely certain niches that Resimac is the best in industry for.” Royle said some non-banks used a lending matrix and others didn’t. The latter group had “a pot of money; a deal comes in and they workshop that deal and that pot of money funds that deal”. He said he preferred the non-matrix model as it was easier to work with. Manuel commented that some tension between sales and credit was necessary. “It makes for a better business, and it actually helps approve more deals.” Prospa was investing in streamlined and intuitive products to help more businesses in the future, Manuel said. In three to five years, the non-bank industry would offer more products to more customers, powered by AI and greater data. There would also be many more non-bank lenders. “It’s a big, bright future ahead,” she said.

Q. Broker question from Jeff Royle: Where do non-banks see themselves in three to five years, and why? What can they do to better align sales with credit?

Smith said Pepper Money had invested significantly in platforms that we “make, break and test out of our large established business in our Sydney head office”. “We've got the benefit of one kitchen, many dining rooms ... the New Zealand business gets the benefit of that innovation, development and investment some months later.” A new broker portal was planned for Q4 of 2023 with a lot of new features, including digital mortgages and an enhanced credit decisioning engine – all aimed at providing a better adviser experience, Smith said. “The non-banks as a rule are much more innovative and tend to do things in a more agile way, with smaller budgets compared to our mainstream peers.” Jackson said Resimac had completed major upgrades to its core systems and introduced new products as well as adapting others to “keep on the front foot”. He hoped that if open APIs applied to banks and possibly Inland Revenue, “we’d get a whole lot of data that would make decisioning a lot faster”. Manuel concluded the roundtable by talking about how Prospa was first established in Australia. The fintech lender was co-founded by Greg Moshal and Beau Bertoli. Bertoli had the finance background, while Moshal had the experience in creating and scaling start-ups. Prospa was established due to a very simple question from Moshal: Why is nobody offering unsecured business lending? “We invested in our technology from day one, and all the data sets and the credit decision engine,” Manuel said. “There are credit managers, but the engine drives consistency and speed.” The credit decision engine was purpose-built technology, enabling SMEs to submit their applications in under 10 minutes and quick decisions for small businesses to be made, Manuel said. By looking at the whole financial picture of a business, not just the credit score, it gave clients confidence. “More than 70% of our customers come back to us for a top-up because of that ease.”