The lack of digitalisation in commercial finance is leading to longer turnaround times and uncertain customer outcomes in commercial lending compared to residential, according to a leading technology advisor.
While residential lending has flourished with fintech solutions, the lack of technological progress in the commercial space has been “pervasive and obvious for some time”, said Brian Steele (pictured above), chief revenue officer for strategic advisory firm LBH Partners.
However, with the mortgage market struggling due to low consumer sentiment, higher interest rates, and more stringent lending conditions, Steele said it was time for those in the industry to prioritise mapping out their digital plan.
“Whether you are a broker, lender or aggregator, it’s critical to start digitalising your offering,” said Steele, former commercial broker. “Those that take advantage of that are going to be hugely successful and those that don’t will be left behind.”
The residential lending market has gone from strength to strength in recent years.
After coming through the Royal Commission squeaky clean, broker mortgage market share has grown to almost 70% from 50% over a decade.
New fintech solutions are hitting the inboxes of journalists every week promising to revolutionise automation, as the industry seeks to digitalise processes towards greater efficiency.
“In the residential mortgage sector, brokers use purpose-built CRMs within an aggregated platform, offering a sophisticated digital matching system,” Steele said. “Applications are submitted online, linked to lenders who seamlessly integrate the data into their decision-making processes. This end-to-end digital approach enhances customer, broker, and lender experiences.
However, in the commercial space, where brokers only make up about 20% of the market, it’s a different story.
After two decades of experience, including long stints at Macquarie and Commonwealth Bank, Steele has seen the discrepancy grow firsthand.
“Many commercial brokers lack appropriate CRMs, and aggregators lack suitable data models for commercial lending,” he said. “As a result, the application process remains analogue, causing more pain for everyone involved.”
The reason for this divide between commercial and residential, according to Steele, was because of the major differences between the two asset classes.
Given the difference in complexity between commercial and residential, Steele said digitalisation in commercial lending needed to come from a consultative approach.
“It might not be entirely accurate to label mortgages as product-oriented and commercial as not, but there's a distinction,” Steele said. “Mortgages tend to be more product-focused, while commercial lending leans toward consultative and qualitative solutions, which are harder to standardise.”
Originally, it was simpler to digitise mortgage solutions due to well-defined products, pricing, and criteria and the rapid growth of the mortgage market and broker numbers pushed lenders and aggregators to prioritise this area.
“On the other hand, commercial lending seemed more complex and less urgent, given its perceived smaller opportunity,” Steele said.
However, in the last few years, this perspective is changing. Mortgage brokers and aggregators are diversifying into asset and commercial lending, yet the growth in technological capabilities hasn't kept pace.
Steele said that the lack of investment had caused a select few commercial specialists to develop and invest in bespoke solutions.
“Brokers are making impressive strides in their work, often using their own financial resources to fund such advancements. For instance, notable examples like Simplicity Loans and George Karam from BF Money have developed advanced technology to give themselves the edge,” Steele said.
“What this shows is that it can be done but it won’t be the sweeping changes towards digitalisation seen in the residential market.”
With more mortgage brokers entering the commercial space than ever before, Steele said it was “only a matter of time” before the industry rushed towards the latest digital solutions.
“People are starting to appreciate now that you don't have to codify the whole experience for commercial but digitalise an aspect of it. It’s all about just removing these little inefficiencies one by one out of your processes,” he said.
For Lets Be Honest (LBH) Partners, the advisory group is positioned to serve as the bridge that connects the industry together and facilitate this transition to greater efficiency and value.
“We're here to support individuals by guiding them through their strategies, helping them build from scratch, or integrating solutions if they already exist,” said Steele.
“Whether offering advice on the right approach or assisting with implementation, we cater to brokers, aggregators, and lenders, streamlining their processes. Importantly, we don't sell products; our goal is to provide meaningful assistance tailored to the needs of each client.”
