Could CBA's new digital loan cannibalise its own mortgage business?

Platform risks drawing business away from higher-margin distribution channels, analyst says

Could CBA's new digital loan cannibalise its own mortgage business?

Commonwealth Bank’s new digital mortgage product, Unloan, risks cannibalising the bank’s home lending business, according to a Macquarie analyst.

Macquarie said in a note Wednesday that CBA saw an opportunity to invest as many of its rivals looked toward cutting costs, The Australian reported.

“While CBA’s strategy may require additional investment, we see a large proportion of investment as the cost of staying in business and hence expect banks to maintain/increase their investment spend in the medium term,” Macquarie analyst Victor German said.

German said that CBA should be able to cut the cost of originating a mortgage and reduce customer turnover by offering a loyalty discount. However, there was a risk that the digital mortgage could cannibalise the bank’s higher-margin distribution channels.

The Unloan product will process applications in 10 minutes and offer a single interest rate of 2.14%, The Australian reported. It will target owner-occupiers and investors seeking to refinance properties up to $3 million with a loan-to-value ratio of 80%.

Unloan will be CBA’s lowest-cost mortgage platform, allowing the bank to reinvest the savings in a customer loyalty discount.

Read next: Big bank sets sights on 10-minute mortgage approval

The quality of a customer’s data will determine whether their loan can be approved within a 10-minute time frame, according to CBA retail head Angus Sullivan.

Sullivan told The Australian that open banking – the ability to share banking data with accredited third parties – “will be a really important part of getting to ‘approved’.”

German said it was a good time for CBA to launch the digital mortgage product, with refinancing likely to increase as fixed-rate mortgages taken out during COVID-19 begin to expire.

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