The widespread use of brokers has led to a number of positive outcomes including increased industry competition, greater lending efficiency and consumer access to a wider range of products, the Reserve Bank of Australia (
RBA) has acknowledged.
In its submission to the Productivity Commission Inquiry into Competition in the Australian Financial System, the RBA listed the many benefits that brokers had on lenders, small businesses and consumers.
“A reduction in the funding cost differential between the major banks and other ADIs, increased use of brokers and consolidation among smaller lenders (which has improved their efficiency) have likely boosted competitive pressures over recent years.”
“Increasing use of the broker market to originate loans by smaller lenders and consolidation among credit unions and building societies over recent years are also likely to boost the efficiency of these entities.”
As the third party channel comes with lower financial costs than branch networks, smaller lenders have made greater use of brokers, the RBA said.
Brokers also reduce search costs for consumers by efficiently comparing deals across lenders and assessing the benefits of switching providers, they added.
Major competition
Two of the major banks also used their submissions to acknowledge the role brokers play in improving competition in the Australian financial system.
“Some smaller lenders find brokers particularly useful, as these companies may offer competitive rates and quality products, notwithstanding that they may lack the presence (including physical footprint), size and marketing of bigger institutions,”
Westpac said.
An increasing broker market share offers customers a greater variety of choice and has supported market penetration of smaller lenders, the bank added.
The Commonwealth Bank of Australia (
CBA) said it believed “brokers should and will continue to play an important role in the mortgage market”.
“Competition is in part facilitated by the role of mortgage brokers,” the bank said.
CBA said it welcomed proposals in the ASIC broker remuneration review and Sedgwick report and remained committed “to making changes that deliver better customer outcomes and [promote] competition in the home lending market”.
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