E-Loan is the first global Internet brand to be launched by eventures New Zealand, the joint venture between Softbank, News International and Sky TV chairman Craig Heatley. The eventures share price since its recent listing on the NZSE suggests that investors are taking a wait-and-see approach to the company.
Much, then, rides on the local franchise of E-Loan. Russell Brown talked to E-Loan CEO Bruce Gordon (former CEO of Farmers Financial Services, and before that chief manager of electronic banking at the BNZ) and E-Loan's international director, Sam Kamel (who has overseen launches in the US, Japan, Australia and around Europe) about the concept and the brand.
Sam, what's the level of sophistication of online financial services in the territories you've gone into so far? All the major banks are online here, for example - is that the general level in most territories?
Sam Kamel: We have threefold criteria: Where's the Internet usage overall? How sophisticated or advanced is the home mortgage market - is there a high or low degree of home ownership? Then thirdly, where are financial markets within this spectrum - is there a low or high degree of Internet usage?
Those three help us triangulate and say, well, these are the right markets to move into. It so happens that the Commonwealth countries - New Zealand, Australia, the UK and Canada - are territories we're quite advanced in.
In Europe we see a lot of differences between northern and southern Europe. Scandinavians have incredibly high Internet use and high home ownership. In Italy it's low usage of the Internet and a low degree of home financing. People buy houses in Italy but some they'll pay all cash for it.
What's the reason for leading in everywhere with home loans, as opposed to other financial services?
SK: It's one of the areas where its particularly important for the consumer to gather information - but we found in our original research in the US that it was an area where most consumers didn't have a lot of information. It was difficult to go and find out more about rates and different types of products. People were tending to go to just their traditional bank.
The Internet is all about giving the consumer more information, more choices, more power to transact. That was the first big step, but we've expanded into auto lending in the US and we do small business loans, credit cards and so forth. But our first big one was to really try and change what has been in some respects a broken process for the consumer.
The service offerings from traditional banks are improving at the same time, though - and it seems to me that online finance is already very competitive. It's not just the banks getting their acts together, it's Microsoft buying a home mortgage company.
SK: We've been in an incredibly competitive market in the US from the beginning. We had to compete against traditional mortgage brokers, against Intuit and Microsoft and other companies. So what we tried to do was move quickly and aggressively and stay true to our vision, which is very customer-focused. It's a credit to the management team and to our investors - such as in the US, Benchmark, Yahoo!, E-Trade, Softbank - which are all driving us to be as good as we can.
What's the split between competing on service and competing on price - both of which are obviously important to an e-commerce venture?
SK: I don't think we have a rule of thumb split, but we certainly believe that customer service is a key determining factor. That'll create the word of mouth - people will say, I received good information, I found a good product at the right rate, and the customer service was quick and thorough. Where consumers really get nervous, is where they know they have to close on the new home, with a lawyer and sales agent - that's where they really want everything to be taken care of.
We talk about being high-tech and high-touch. We try to mitigate any emotional insecurities by providing the best service possible.
What kind of additional services apart from brokering are you providing from launch in New Zealand?
Bruce Gordon: We support the customer right through the documentation phase, also reaffirming with the bank that the individual is getting the best deal the bank can deliver. Streamlining the process is what it's all about - making sure that our loan consultants and sales manager are hooked into the local lender's broking unit. The customer as an individual doesn't have that sort of streamlined access.
The core proposition is comparative shopping for the first time, all in one place and simple. You can talk somebody through the process. We make it easy to do the documentation, we prefill in as much as we can. We pre-source key information, both for the individual and the lender, wherever we can.
We're interested in some of the legislative changes going through - the current relaxation of some of the securitisation and legal side. I can see E-Loan helping to streamline some of that process and take out some of the costs of dealing with lawyers and to some extent real estate agents.
What was the response of the banks on first approach? Were they suspicious of comparison shopping?
BG: No. They've been outstandingly supportive. We have 18 there for the launch, representing roughly 90% of residential lending in the market today. They see it as another channel. We spent a lot of time talking about the fact because it's such a strong choice proposition, all in one place, they can be comfortable that the customer is a good fit for them and vice versa.
The banks need longevity of relationship for profit and E-Loan offers a much better chance of getting a customer that's going to last longer three or four years. They may refinance through that period, but they're almost certainly happy with the brand and the service of the lender.
What's the anticipated profile of the typical E-Loan customer?
BG: Anybody with residential lending needs. We've framed the site in four key ways: looking for a home loan that's best for me; an investment scenario; top-up - people are increasingly using equity in their property to buy other things; and the fourth is simply, am I getting the best deal? What is the scenario if I increase my payments by $50?
We're acting as the customer's advocate more and more. We have E-Watch, which is a newsletter. We ask people to tell us the things they're interested in and we'll assemble a newsletter and email it to them. There's also a nice little service directly leveraged out of the US called E-Track, which is a personalised area of the site where the customer can see all their loans assembled in one place. It also lets the customer watch their application move through the different phases to settlement.
What degree of integration with the lending banks does all this involve?
BG: In New Zealand it's been rapid to market, so we've worked closely with the lenders to effectively fit in with how they accept applications and provide update information. There's a little bit of manual activity between E-Loan and the lenders.
The advantage I think is our loan consultant building that relationship with the broking unit. We're paging them and saying 'where is this loan at?', I need to update - whereas it can be quite difficult for the individual to know who to talk to. A branch loan officer submits a form and doesn't necessarily know what happens to it past there, whereas we've got direct channels into the lender.
Sam, in the US you've made deals with the likes of H&R Block, where E-Loan is the exclusive mortgage provider for their site - is that likely to happen in your other territories, including New Zealand?
SK: I can't speculate to say it's likely to happen - we've done it for reasons that fit our strategic needs. We're also proud of our deal with Charles Schwab, and we have a number of co-branded deals with E-Trade, Yahoo and others. That model has really worked for us in terms of building the brand and awareness and extending our reach to different types of customers. We think that does make a lot of sense for any e-commerce business.
BG: For launch we've positioned well with the leading online portals. We've been working with Xtra and NZoom to establish E-Loan as a provider in a category, with a click-through to us. Those deals are very important to our strategy. There'll also be online advertising. Other avenues are all up for review. Wherever there's a customer who might want to reach E-Loan and there's a commercially sensible arrangement to be reached, we will do it.
Based on your experience at Farmers, what kind of additional services, beyond home loans, do you see being particularly relevant to the local market?
BG: We've been very focused on getting the core service in place. You asked earlier, why home loans? In New Zealand, that's probably the largest single financial decision that a household makes. So that's the place to be, to give them comparison, choice and easy application.
At least in the short to medium term, we'll most likely stay on the personal finance side. E-Loan is ideally positioned as a business to consumer proposition. If you follow the E-Loan international model, it tends to be in areas like personal loans, car loans, credit cards - anything that has a debt, or possibly even risk, profile.
E-Loan in the truest sense is about debt management products. In the New Zealand market we're looking to enrich the site with continued debt management services and relationships - but I also see us pushing out into risk management type products for the home. Life cover, home and contents - they're all perfect for online shopping.
It'll be interesting to see what the banks' attitude is to that - they like to capture the insurance business that goes along with home lending, don't they?
BG: I think they're realistic, though. They realise that it's a competitive world and there's no going back relative to online services. The conversations I've had have all been extremely positive - as have been those with a number of insurers. There's really an attraction for them in knowing that the customer has selected them after a due diligence process.
E-Loan is also taking a lot of the process out for them. That's the other equation for them - E-Loan is making the paperwork process and liaison simpler for the customer, but the lender or the insurer wins as well. They know they've got good quality and a central point of contact.
You mentioned the relationship between E-Loan and its customers. What's the nature of that relationship? Are you going to collect demographic information - if, so what's in it for the customer?
BG: Our position right around the world is that we want people to say they shop at E-Loan for financial services, but they bank with their banker. We're not trying to disintermediate the banks. They'll continue to have a day-to-day relationship. What we want people to know is that E-Loan is there as their advocate, and for information, and as a point where they can compare offerings.
PricewaterhouseCoopers have audited all of our procedures and systems architecture relative to privacy, how we managed the data, where we hold it and what we do with it. In terms of security, whenever information is being transferred between the customer and E-Loan, a 128-bit secure session is established.
Thirdly, there's the impartiality. Our loan consultants and our search engine are not privy to the detail of commission structures, for example. That completely takes out of the equation any bias towards a lender - and it's at our heart. Impartiality, privacy and security.