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Equitable deal with nesto

Opinion: Equitable Bank’s nesto Gamble

As brokers, most of us don’t want lenders competing against us. Or should I say, another lender competing against us.

That’s why news of Equitable Bank partnering with online mortgage broker nesto rubbed brokers the wrong way.

Here’s What Happened

On Monday, Equitable launched what it calls the “Mortgage Marketplace” on its website. It takes website visitors directly to nesto’s website and lets them pick from “over 2,000 mortgage products” from a wide array of broker lenders (non-broker lenders are not displayed, says Equitable, which had almost 202,000 EQ Bank customers as of last quarter). The best full-featured insurable rates that customers see are all from Equitable Bank.

Borrowers can do an automated soft credit check to get initial product suggestions. More customized recommendations are provided once the client completes a full mortgage application. The recommendation engine will then weigh things like down-payment trade-offs, need for a HELOC, fixed vs. variable criteria, prepayment needs, product restrictions, and so on.

After applying, clients speak with a live mortgage broker to “confirm product suitability” and then the application is submitted to lenders to undergo their regular underwriting processes.

Equitable Bank partners with nesto

Like many brokers, my initial thought was, “Why the hell is Equitable teaming up with my competitor when they’ve always touted themselves as broker advocates?”

To get answers, I contacted Mahima Poddar, Equitable Bank’s SVP & Group Head, Personal Banking, who—I must say—was as gracious and transparent as you can be when a journalist is questioning your motives.

Equitable’s Reasoning

Ms. Poddar provided needed perspective. These were her comments:

On why Equitable chose this strategy…

“The Mortgage Marketplace was established based on EQ Bank digital deposit customer feedback that they want the best broker-provided rates on Equitable Bank mortgage products, a seamless online experience, and personalized advice from a mortgage broker when they need it. ”

On why Equitable partnered with nesto specifically…

“Both the technology and experience that nesto has built out fit well with EQ Bank’s customer-centric and digital-first focus (that currently only serves digital-deposit customers). We saw the value this partnership could bring in offering a high-value, streamlined digital experience to our deposit customers shopping for a mortgage. nesto came to us with this opportunity and was willing to make the investment around the digital technology solution as well as the resources required to hand-hold deposit customers that are very early in their mortgage journey. ”

On whether EQ Bank is an investor in nesto…

“Equitable Bank is not a direct investor in nesto. nesto is backed by both Diagram and Portag3 Ventures. Equitable Bank is an investor in Portag3 Ventures, a venture capital firm with investments in some of Canada’s largest Fintechs like Wealthsimple and Borrowell.”

On favouring one broker over all others…

“We are and continue to be a strong broker ally. Our EQ Bank savings client feedback was clear – they wanted a mortgage solution from us, like every other primary bank in Canada. It was important to us to promote the broker channel and the value the broker channel brings instead of going direct to consumer. nesto does not receive favourable pricing from Equitable outside of what would be available to other brokerages. This digital approach is not new to us. Equitable Bank has consistently gone above and beyond to invest in digital tools and challenge the status quo for the betterment of our brokers and the industry as a whole.”

On the business risk of broker backlash…

“We sincerely believe that we are not alienating brokers with this arrangement. In fact, quite the opposite as we’re bringing the value of the broker channel to a client base that may otherwise never experience it. To do so, we needed a solution for our relatively small base of EQ Bank deposit customers and believed the best decision for our customers was to partner with a digital mortgage brokerage that could provide the required technology and support model to get to market quickly and cost effectively.”

On why the bank didn’t just cut out the middleman and go direct to consumer…

“It was important to us to integrate the power of the broker channel to promote what we believe is the best solution for EQ Bank clients – that means great prices, expert advice, and the benefit of finding the right product fit across a selection of 2,000 options.”

The Takeaway

It’s hard to condemn a for-profit bank with public shareholders for wanting to monetize its website and existing customer base. Equitable required a fast high-converting way to sell to deposit customers with minimal IT investment. After much analysis, it obviously felt this was its best play.

Equitable could have sold mortgages directly to website visitors. That would have been worse for brokers. Think Scotiabank’s eHOME, a solid offering for consumers, but one that systematically undercuts the bank’s own broker-channel pricing. Instead, Equitable chose to partner with a broker-channel participant—on even pricing terms as other status brokers.

Given that nesto gets the same rates as other top-volume brokers, according to Equitable Bank, it’s not an unreasonably tilted playing field. In fact, any broker today can get better rates than nesto if they reach Equitable’s top status tier, which is $100 million, by the way.

For what it’s worth, I am well aware of other broker-first lenders that have thought about implementing this very strategy. They considered doing so under a separate brand, so as not to risk their reputation with brokers. So far, they haven’t come to market, but none of us should be surprised if they do. In Equitable’s case, this launch was transparent and its motives were rational. Albeit, it could have sent a mass notification to brokers—better explaining the move—when it issued its press release.

Diversifying distribution and cross-selling to a captive audience are key to any bank’s growth. Condemning that is like a grocer denouncing a farmer for selling apples from its roadside stand. Could Equitable have taken a slightly different approach? Maybe. But blaming banks for being banks won’t put more money in our pockets. What brokers should be doing instead is “borrowing” ideas from nesto to make their own businesses stronger, because there’s more of this ahead.