here are now many mortgage players operating locally who take their orders from head offices based in London, New York and Amsterdam. MPA uncovers the lure of the land Down Under for two of these players - ING DIRECT and Citibank - and asks what the future holds for global brands that 'still call Australia home'
There are now many mortgage players operating locally who take their orders from head offices based in London, New York and Amsterdam. MPA uncovers the lure of the land Down Under for two of these players – ING DIRECT and Citibank - and asks what the future holds for global brands that 'still call Australia home'
Australia is blessed with a stable economy, an efficient legal system and a population obsessed with home ownership.
Its isolation from American and European markets hasn’t diminished the appeal of large, international mortgage companies wanting their slice of the great Australian dream.
Citibank was the first foreign bank to enter the Australian market following de-regulation of the finance sector in the 1980s.
According to Steven Ramage, CEO of Citibank Mortgages, the group were waiting to capitalise on a market that not only offers a safe grounding economically, but is also politically sound.
Ramage began his tenure with the international powerhouse just eight months ago, following a 20 year career in mortgage finance.
He believes the justification for a group like Citibank to establish operations in Australia is driven by several factors.
“From a mortgages point of view we have a high level of home ownership, there’s a good law system, a low risk environment and there’s a fair bit of personal wealth - we’re a wealthy country,” he says.
Tax structures in place also favour investments moreso than savings. When borrowing money for an investment property, many of the associated costs are tax deductible, further supporting a play in local waters.
A business case for an organisation researching the viability of such a move reflects the size of the market and weighing opportunity against risk, the type of business that can be written and whether margins involved are substantial enough to make the return on the capital invested to be there should be addressed.
Ramage believes the business case should incorporate perceived profit and loss over the first three to five years, and make assumptions about changing market conditions over that time, and how it could impact on business.
“Is the market going to change too much? What’s it going to be like? You’re looking at things like profitability and sustainability over a five year period. It’s like anything – how would Westpac go into a new market in Australia?” he says.
When bringing a brand into Australia to compete against the strength of an established name, each company has to identify a target demographic and work toward building the brand here.
Citibank has focused on the mass affluent demographic, seeking to attract approximately 5% of the market.
Sponsorship of the Sydney Swans helps push the brand message into the areas with a high concentration of these consumers, such as Sydney’s eastern suburbs and north shore.
Learning’s observed from marketing initiatives like this are shared among the international Citibank team.
Australia’s Citibank arm is part of the Asia Pacific region, and Ramage meets with counterparts regularly from this area in exchanging feedback on what’s working and what isn’t.
Because the US and UK markets are that much bigger, the Australian arm of the bank doesn’t work as closely with these, however, a global risk policy is central to all Citibank's overseas operations.
Operating in more than 100 countries, much of the compliance is overlaid on top of each other, says Ramage and because of the uniform nature of the compliance having to spread throughout every arm, often it may not apply to the certain markets.
“There’s a lot of running [of local business arms] from a worldwide company view. We don’t just sit here in Australia and do whatever it is we want to do,” he says.
Company-wide news and information is shared through the distribution of a daily electronic newsletter – CitiToday, as well as an intranet, regional bulletins and a monthly newsletter.
Despite its reach, the international spread hasn’t offset any of the impacts felt from ongoing funding issues in global capital markets.
If anything, says Ramage, local Australian banks have a slight advantage in being able to access funds quicker.
“Citi has to fund everything around the world, whereas with Westpac for example, there’s the only one in the queue. We’re just one in the queue of other, bigger, Citi arms queuing up for funds,” he says.
ING DIRECT
According to Eric Drok, CEO of ING DIRECT Australia, the level of research that went into bringing the brand into the Australian marketplace ten years ago has underpinned its success.
The Canadian and Spanish arms of the business were already in operation, and learning’s were taken from both these markets in readying the Bank for setting up it Australian instalment.
Drok investigated markets around the world, searching for value and opportunity, and one where the ING brand identity could be applied.
“Not all markets are effective and we saw an opportunity in Australia to adopt high savings without fees and on the mortgage side, cheap and straightforward products with little processing,” he says.
ING looked into the savings habits of Australians, what the appetite was for mortgages, age and other demographic data, unemployment levels and tax structures before taking the step.
It monitored developments in the broker channel, its structures and regulations, and the most effective means of reaching customers.
The entire process took a year before ING DIRECT Australia was brought into fruition.
According to Drok, as soon as it was identified that Australian customers understood the model and appreciated its unique style of banking, the rollout phase of the business was implemented.
ING DIRECT has since expanded into England, Germany, France, Italy, USA and is soon to open its doors in the lucrative Japanese market.
According to Drok, the key advantage in working for an international brand lies in trading information and having access to marketing trends and product developments.
The simple and straightforward message and approach adopted by ING Group worldwide is testament to underlying business volumes. ING DIRECT Australia is now the sixth biggest mortgage provider is the country.
“You have to be able to explain the product in 30 seconds. We don’t have any asterixis or hidden fees. It’s very transparent. You won’t find very complex sophisticated products,” he says.
The Australian market compared to the Europe or US is more mortgaged orientated as opposed to savings, he says.
In Germany, for example, investors prefer ten year fixed rates, whereas that product isn’t made available by ING DIRECT Australia. This sharing of information helps in applying knowledge of each market and identifying trends quicker.
Compliance and risk is an area where ING Group as a whole is particularly strong, says Drok, and while the systems and processes are made available, each international arm is under no obligation to utilise this.
“It’s really each country running its own business. We are in charge. It’s not like a head office that dictates what you have to do. There’s not alot of dictatorship but there’s alot of sharing of information,” he says.
The Wizard of India
The number of international mortgage brands infiltrating the Australian marketplace over the years is indicative of the lucrative gains on offer. In addition to this, they’ve injected greater competition for local players who had previously dominated the market, equating to better product ranges for consumers and a more robust, economical market.
At the same time, some established Australian mortgage companies (mainly the banks) have identified opportunities overseas, using their sheer size and brand strength to make in-roads in far-off countries
Wizard Home Loans, in particular, has made a major play in the Indian market over the past two years.
Mark Bouris, chairman and founder of Wizard Home Loans, speaks candidly to MPA about the decision to move the brand offshore, the success thus far and the differences in each market.
MPA: Why was India an attractive option for Wizard?
Bouris: India is one of the fastest growing markets in the world and there are a lot of young mortgage takers who need to understand how to generate wealth through property ownership. We saw an opportunity to break into an oligopoly and bring better products, service and knowledge to consumers. We believed Indian consumers deserved a better deal and we recognised an opportunity to leverage our mortgage experience and bring that learning to India.
MPA: What level of research went into investigating the Indian market?
Bouris: A huge amount of research and due diligence was conducted before we launched in India. And I think this research, and consequent greater understanding of Indian culture, helped to ensure that we entered the market with humility. We are not bank bashers or saviours. Instead, we respect Indian consumers’ knowledge and experience and wish to complement this with Wizard’s long and distinguished experience in Australia. Our research also showed that India was extremely receptive to the introduction of a unique owner operated distribution model, excellent Australian service, and our commitment to help people make informed choices.”
MPA: How did Wizard establish a brand presence in India?
Bouris: Our marketing strategy has been based on understanding consumer needs and providing home loan solutions to suit both their needs and our situation. Since we were a new brand in the market, we focused on building consumer awareness and affinity backed by superior customer service and experience through our branches – much like we have in Australia. From a branch owner point of view, our product largely sells itself, given we’re offering an innovative business model that enables entrepreneurs to develop a lucrative and prestigious business proposition, combining the global strengths of GE Money and innovative products of Wizard. Our products are aggressively priced, and underpinned by local business owners that set the benchmark in customer service.”
MPA: How important is it to maintain consistency of the Wizard brand across Australia and India?
Bouris: It’s vital. And it will become more so as we continue to expand the brand internationally. Much of the strength of Wizard lies in our branding and ability to resonate with consumers. This is one of our key strengths.
MPA: Does Wizard have any plans to expand beyond the Indian market?
Bouris: We’re considering many countries, although these are commercially sensitive.
MPA: Does having a Wizard arm in India offset any of the impacts felt from Australian market conditions being experienced?
Bouris: Wizard India operates as a separate company to Wizard Australia. We expanded overseas because we recognised a robust business opportunity.
MPA: How do the Australian and Indian marketplaces differ in terms of day-to-day operations?
Bouris: Despite the different cultures and obvious economic and developmental discrepancies, they’re amazingly similar. Much like here, Indian consumers are well educated and have the right to fully understand the functions and scope of a mortgage to buy a home and build wealth. And they deserve credit for their capacity to get a good deal.
Who’s who?
International companies with mortgage-related operations in Australia
- ABN AMRO
- Citibank
- GE Money
- GMAC RFC
- HBOS
- HSBC
- ING DIRECT
- MGIC
- PMI Mortgage Insurance
- Virgin Money
