For seven years, Pete Steel served as head of innovation at Commonwealth Bank of Australia. Now he’s using his digital experience at his own startup to disrupt the biggest product that high-street banks like CBA rely on: mortgages.
“I’m using my experience to go after home-loan distribution, how consumers connect and optimize their interest payments,” said Steel, who founded his company, True Savings, in 2020.
For now, Steel is running it on “friends and family” money. His goal is to gain enough customer traction by 2022 to seek venture funding. “If it’s working, we’d do a Series A round and go large,” he said.
What to disrupt
Mortgages are a $2.1 trillion industry in Australia, one that is very lucrative for the big-four consumer banks, which includes CBA, along with Westpac, National Australia Bank and ANZ.
Home loans are highly regulated. “You can’t magic up a new business model,” Steel said. His startup is sticking to the same rules and the same rails for payments and distribution. True Savings is an online mortgage broker, relying on Steel’s digital experience to make market data transparent to customers so they can make better decisions.
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The industry practice that True Savings wants to disrupt is a tendency for mortgage brokers to accept trailer fees from banks to help them retain customers. In practice this can mean not telling borrowers when their interest rates increase, as is typical in the way mortgage loans are structured in Australia.
True Savings wants to use engaging digital experience and the use of public data to highlight the amount of savings people are giving up to banks as a result: A$3.6 billion a year, according to the startup’s surveys of borrowers.
From there the challenge is to convince people to change their habits. True Savings can use annual alerts and other tools to notify users when they should reassess their mortgage, refinance it or take out a new one at better rates.
For now the startup is too young and small to attract the notice of Steel’s former employer or its peers. As a broker, his business would still be connecting borrowers to banks to obtain a mortgage (through an aggregator, that is, an intermediary, because TruSavings doesn’t connect directly to banks).
But over time, if the business scales, it could shine a light on pricing discrepancies among outstanding loans – and getting customers to act would eat into banks’ lending margins.
The degree to which True Savings can achieve this level of transparency – and use it to build a large customer base – may depend on the pace of open banking norms in Australia.
Today, open banking is limited. Regulators now require banks to share customer data upon request with some third parties. Although mandated by regulation passed in 2020, uptake has been limited by the costs and paperwork required for third parties to become accredited to receive such data.
If it’s working, we’d do a Series A round and go largePete Steel, True Savings
Nor is there much consumer awareness. And open-banking regulations do not extend to facilitating payments or mortgage purchases; most transactions go through the type of third-party aggregators that True Savings also uses to access bank products.
Over time, though, open banking is likely to become prevalent; even CBA is applying to become an accredited recipient, so it can build its own products sourcing data from merchants, tech platforms or credit bureaus.
As open-banking rules and market practices evolve, they should encourage more API connectivity among banks, aggregators, and fintechs. That would accelerate the opportunity for a fintech like True Savings to grow faster.
It might then find itself fighting a battle that’s more about marketing – and coming up against the big budgets and reach of the big banks, who will fight to win consumers’ attention.