Australian non-bank lenders eye ‘underserved markets’ – Interview

By Alice Uribe

SYDNEY – Australian non-bank lenders are positioning themselves to fill gaps in areas that have been abandoned by big banks as they strive to simplify their businesses, said Pepper Money Ltd. chief executive Maro Rehayem.

Mr. Rehayem said non-bank lenders have been looking for opportunities in asset finance, such as auto loans, that they can capitalize on. “So what we estimate, because the underserved segments of the market are only growing year on year,” he told the Wall Street Journal. “Whether it’s in mortgages, whether it’s in asset finance, banks have created more and more opportunities for Pepper to take advantage of.”

“Sometimes when a bank sees a particular area that’s too small for them to play, it’s actually a pretty big size for a company like Pepper and other non-banks,” added the CEO.

Over the past few years, some of Australia’s largest financial institutions have streamlined their businesses and offloaded non-core assets, focusing on mortgages.

Australia & New Zealand Banking Group Ltd. in September 2020 completed the sale of its New Zealand-based asset finance business, UDC Finance, to Shinsei Bank Ltd., which it said was in line with a strategy of simplification. In August 2021, Westpac Banking Corp. completed the sale of its own asset finance subsidiary, Vendor Finance.

Mr Rehayem said the level of credit reporting required for certain products may require a “more specialized view”, which may not be suitable for banks looking to streamline and reduce approval times for different loans.

In the first quarter of 2022, Pepper’s mortgages were A$1.9 billion (US$1.40 billion), up 54% from a year earlier. Its asset finance business, meanwhile, generated issuance of A$0.7 billion in the first quarter, up 78% from a year ago.

Electric vehicle lending is one area where Pepper has had success. It provided loans for 11% of all electric vehicles sold in Australia last year, making it the country’s largest electric vehicle lender, Mr Rehayem said.

“We looked at the electric vehicle market and found that nobody really understood it. Wherever there is no concentration, we try to go back and understand why there is no concentration and let’s try to create something out of it,” he said.

As part of a broader strategy to expand its distribution footprint, Pepper this month announced plans to acquire 65% of Australian direct-to-consumer asset finance online brokerage platform Stratton. Finance.

“Stratton generates over 19,000 leads per month. This gives us an opportunity to start introducing more products into Stratton outside of just auto loans,” he said.

On interest rates, Rehayem said the Reserve Bank of Australia could potentially raise its rate as early as May, but Pepper’s clients seem able to handle that.

“When rates rise, we are in a strong position. Our mortgage customers have an average servicing buffer of over 290 basis points,” he said.

“When coupled with household savings, which remain at rates well above the historical average, and unemployment at just 4%, customers are in a good position to continue managing their finances,” said the CEO.

Write to Alice Uribe at [email protected]

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