Driving greater operating efficiency in the Australian Mortgage Industry
Fujitsu recently launched the Australian Mortgage Industry Report (Vol. 3: April 2006), a joint venture between JPMorgan and Fujitsu Australia, focusing on recent developments in the Australian mortgage industry.
One of the key findings of this latest report was that operating efficiency will become an increasingly critical issue for the Australian banking sector going forward given the confluence of emerging competitive cost pressures from new entrants on lending and deposit margins; burgeoning capital expenditure bills on IT systems and compliance issues; and the need to reinvest in the proprietary branch networks to recapture pricing power.
“Costs and fees charged to consumers in Australia are up to 35% higher compared with the US and UK mortgage markets,” said Martin North, Executive General Manager, Fujitsu Consulting.
The high cost base of the Australian mortgage industry is explained by a number of factors. These include:
- The Australian mortgage market is far smaller than those in the US and United Kingdom so operating scale works against the Australian industry’
- Historically competition has been less severe in Australia because of greater industry concentration
- In the absence of competition the relative operational inefficiencies of all of the existing mortgage players were easily funded by high lending spreads and there was no strategic imperative, or investment case, to lift operational efficiency in the mortgage industry
- Mortgage commission rates paid to third party brokers are substantially higher in Australia than overseas where trailing commissions are less prevalent
- The average duration of a mortgage loan is far shorter in Australia than in other countries. Given the relatively high cost of originating a mortgage in Australia, the short duration of Australian mortgages is problematic
- Australian mortgage borrowers pay relatively higher fees and charges than in other countries, including in some cases higher valuation fees, monthly account keeping fees and higher discharge fees.
These dynamics suggest that industry players in Australia still have the capacity to drive greater operating efficiency out of the mortgage business while reducing fees and maintaining profitability.
“Major re-engineering of mortgage lending processing, servicing and credit processes is evident at CBA under its CommWay and CommSee programs and WBC under its Pinnacle and Reach programs,” said Martin North, Fujitsu Consulting.
“At least 5% of the mortgage sales cost can be removed from the mortgage supply chain through automating the interface between customers, lenders, lawyers and surveyors."
“The wide gap in average mortgage origination costs between the best Australian mortgage lenders at A$540and the worst at A$1,349 highlights the potential savings available to the industry by improving the mortgage origination process,” Martin North concluded.
The report identifies nine levers available to the Australian mortgage industry to improve operating efficiency:
- Introduce fast track processes for low risk conforming loans
- Implement a streamlined ‘shopping’ process built around needs-based selling to tailor suitable product options
- Enable automated underwriting and decision making via real time integration
- Deploy customer-centric, consistent processes across all contact points to enable faster processing of service and sales requests and an enhanced standardised customer experience
- The pro-active management of applications in progress by utilising automated escalation management
- Fully integrated imaging, document management and workflow
- Automated provisioning integration with seamless automated funds requests and provisioning through enterprise application integration to existing legacy financial systems
- Streamlined broker management with work only commenced on an application after an automated process has ensured 100% of data requirements have been supplied
- The establishment of a single customer view to enable cross-selling on an automated basis.
Fujitsu Consulting has a comprehensive understanding of mortgage economics and has completed detailed profit diagnosis studies for many financial institutions. We can typically help organisations improve their profitability by up to 30% in 12 months.
For more information or to receive a copy of the report, please contact:
Martin North
Tel: +61 2 9113 9203
E-mail:martin.north@au.fujitsu.com.
This article features in the April 2006 issue of interaction, Fujitsu's electronic customer magazine. Also in this issue:
From the CEO – Improving efficiency in the back office
Following the launch of the Australian Mortgage Industry Report and Fujitsu’s new web-based straight through processing service
for the insurance sector, Rod Vawdrey, CEO, Fujitsu Australia and New Zealand, discusses the opportunity for improving back
office efficiency in the financial services and insurance industries.
Coles Myer 1st Choice Liquor Superstore partners with Fujitsu to deliver digital media
Find out more about how Fujitsu will manage a consortium of vendors to provide a full end-to-end digital media managed service
across Coles Myer’s 1st Choice Liquor Superstores.
Consulting corner: Governance of IT Investments
Peter Harrison, National Practice Lead for Enterprise Value Management, Fujitsu Consulting, discusses Val IT, a global initiative
responding to the need for organisations to optimise the realisation of value from IT investments.
Fujitsu launches BPO offering for the insurance market
Fujitsu has teamed with Vertex Financial Services and Munich Reinsurance to provide web-based straight through processing
for the life protection market.
Driving greater operating efficiency in the Australian Mortgage Industry
Find out more about the Australian Mortgage Industry Report (Vol. 3: April 2006), a joint venture between JPMorgan and Fujitsu
Australia, focusing on recent developments in the Australian mortgage industry.
Fujitsu hosts charity golf day with Variety, The Children’s Charity
Fujitsu Australia and Variety, The Children’s Charity, recently joined forces to hold a charity golf day at the prestigious
Terrey Hills Golf and Country Club in Sydney. More than 130 people participated in 18 holes of golf and a charity auction,
raising enough money to purchase a new Sunshine Coach equipped with wheelchair access, to allow children with special needs
to get out and about and enjoy the sunshine.
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