Borrowers brush banks and save
BORROWERS are turning away from traditional banks when applying for personal loans, flocking to digital, mobile-centric platforms and peer-to-peer lenders.
A recent CommSec Economic Insights report showed loans by non-bank financial institutions were up 10.3 per cent for the year to August. This was an indication that banks were engaging in "more considered" lending and borrowers had other options, according to CommSec chief economist Craig James.
"Banks are facing greater competition from non-banks," Mr James said. "At the same time bank deposits are only lifting at a 2.5 per cent annual rate, putting greater reliance on external funding. It is clearly a competitive and challenging environment for financial institutions."
Peer-to-peer lender SocietyOne has become the first marketplace lender of its kind in Australia to hit $500 million in loans, to 20,000 Australian borrowers, and is on track to reach $1 billion in 2019.
Society One CEO Mark Jones said the influx was largely about convenience for the next generation of borrowers.
"Millennial consumers have been increasingly demanding a fairer, faster, easier and more personalised mobile-centric solution from almost every brand they transact with," Mr Jones said. "Think Uber, Airbnb and the rest of the sharing economy. Financial services really is no different."
Mr Jones said the recent spotlight on cases of bad banking behaviour had also encouraged borrowers to look away from major lenders.
"The Royal Commission has undoubtedly helped remind customers to check they are getting a good deal from their bank," he said. "It never hurts to get a second opinion."
Ratesetter Australia is another peer-to-peer lender that has seen a spike in activity, with debt consolidation, car financing and home renovations among top wish list items for borrowers.
Ratesetter CEO Daniel Foggo said the digital model was simpler, faster and often more affordable than other options.
"The take-up of digital alternative lending options has been steadily rising over the past several years in Australia, as consumers become more confident in fintechs," Mr Foggo said. "The growth in the number of alternative lenders is helping to drive this. Consumers now have more choice and know they can get better value, rather than being stuck with the same options they've always used."
When Anthony Bivon wanted to propose to his girlfriend Pritema and renovate his property for their future, he was disappointed with his options.
"After approaching my bank which I was a loyal customer of for 15 years, plus a number of phone calls and frustrating emails, I was not able to (get what I needed)," Mr Bivon said.
"We couldn't seem to get any support or a decent interest rate with our bank."
After searching online for alternatives, Mr Bivon chose a personal loan with Society One, which helped him achieve his goals.
"I married the woman of my dreams in November 2017," he said.