Fighting off fintechs: CBA introduces the 10-minute DIY home loan

What counts as instant gratification for home loan approvals? Try 10 minutes. This is the Commonwealth Bank’s latest salvo on the mortgage market wars.

In the time we might take to have a quick shower, buy a coffee, wait for a bus or get changed for the gym, the bank is now promising some applicants will be able to digitally apply for a home loan. It’s the strangely branded ‘Unloan’ that won’t initially be available to many or even most. It’s more a DIY loan where a certain digitally savvy but uncomplicated borrower can get a fast and “sharply priced” loan.

CBA CEO Matt Comyn is offering 10 minute loans.

Ultimately the time to verify the loan will also be 10 minutes.

For banks, reducing the time taken to approve home loans is the competitive holy grail.

In the industry it is called ‘time to yes’ and it is a significant factor in a would-be customer’s choice of lender.

Over recent years big shifts in mortgage market share between banks have occurred on the back of the speed of the mortgage approval process. Both Westpac and ANZ have lost mortgage market share momentum because turnaround times have been too slow.

The Commonwealth Bank has been the most aggressive of the four major banks in recent years - particularly in the development of new products designed to increase its appeal to a younger demographic.

CBA’s new digital-high speed mortgage product is another in this series of products and services that include a buy now, pay later product, a cryptocurrency buying platform and now a reimagined kids saving/spending card called Kit - (a sort of digital Dollarmites with some safety mechanisms and financial educative properties).

Unloan is further evidence of the bank’s recognition that fintech is as serious a financial threat as its big bank peers.

This is not the first digital loan product on the market but it draws on features - some of which are offered by other fintechs - that appear more innovative.

At its heart this product is no frills. It offers a non-negotiable but slightly discounted rate of interest with a loyalty rate reduction that amps up over the life of the loan. But there are no bells and whistles - for example, no offset account.

It isn’t available through mortgage broker channels so customers can’t be hand-held through the process and it isn’t offered to interest-only borrowers or those on fixed rate mortgages.

Those higher risk applicants who, for example, have a larger loan to value ratio need not apply - nor should anyone wanting to borrow more than $3 million. (Initially it will be only available to those refinancing loans but eventually it will be rolled out to new loans.)

This product certainly isn’t for everyone and initially at least will have a limited appeal. The uncomplicated wage and salary earning customers with a reasonable deposit and an aversion to bank fees are the target market.

The Aldi of mortgages, if you like. The customer does a lot of the leg work in the same way Aldi shoppers pack their own bags.

This means it is a cheaper loan for CBA to generate and those savings are passed on via a more competitive interest rate of 2.14 per cent for owner-occupiers.

Like so many of CBA’s recent product launches, Unloan is not going to move the dial on any of the bank’s major financial metrics. It means putting a product in the market that will more closely compete with some fintechs and non-bank lenders but with the offer of a big bank brand.

It further entrenches sale of mortgages through Commonwealth’s proprietary channel - which is a higher margin distribution channel than selling loans through mortgage brokers.

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