Lenders' 'loyalty tax' could drive borrowers away

Lenders' existing customers often pay more than new borrowers – but a "fundamental shift" is coming, CEO warns

Lenders' 'loyalty tax' could drive borrowers away

Big banks have taken advantage of customer loyalty for too long, according to Sherlok CEO Adam Grocke. The start-up chief warned that banks risk losing mortgage market share when technology inevitably drives a “fundamental shift” that makes it easier to switch home loans.

Grocke founded Sherlok in 2019 to help mortgage brokers ensure customers are paying competitive interest rates. He told The Australian that the “loyalty tax” charged by most lenders – where longstanding customers typically pay more than new borrowers – would be a bigger issue as technology made switching lenders easier.

“When that actually comes to fruition, and people can click a button and switch their mortgage to any lender, I think that’s when the big banks and the financial system will take notice,” Grocke told The Australian. “They’ve taken advantage of consumer loyalty for too long, and when [borrowers] can actually vote with their feet without having barriers to move … that’s when we’re going to see a fundamental shift.”

Grocke said that Sherlok was working on a service that would involve a conversation with a mortgage broker and clicking to accept the broker’s recommendation, followed by almost instant unconditional loan approval. The quick approval will be possible because Sherlok’s technology will have already matched the borrower’s credit profile with the right lender, The Australian reported.

Sherlok uses AI to analyze data and predict the risk of a customer being unhappy with their interest rate and being open to switching lenders. The company uses this data to provide a retention score to mortgage brokers.

Between July and September 2021, nearly 67% of new loans went through brokers – a record, according to The Australian.

Grocke, who was a mortgage broker for 12 years, told the publication that he had ambitious growth plans for Sherlok. The platform currently monitors about 45,000 mortgages for repricing and has nearly 300 brokers as customers. The firm is aiming for two million mortgages by the end of 2023.

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Grocke conceded that banks have recently increased their focus on retaining mortgage customers.

“One of the key things we’ve actually seen in the last three months that we haven’t seen before, is the discounts from lenders now to keep a client have jumped by about 35% to 36%, in terms of what they’re offering previously,” he told The Australian.

In addition to looking for better rates from competitors, the Sherlok platform also seeks to get customers a more attractive rate from their existing lender.

“The risk if [the lenders] don’t play ball, though, and if they don’t offer a competitive rate, is our engine will automatically run a comparison and entice [the borrower] to refinance,” he said.

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