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 eqbank.ca 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 eqbank.ca 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.

  1. More on “Mortgage Marketplace” from yesterday’s Equitable Bank conference call:

    “We developed it in collaboration with Nesto, a montreal-based FinTech and online mortgage brokerage backed by Portage. Portage is one of the largest FinTech VC funds in the world and Equitable has an equity stake as an LP. This investment keeps us at the forefront of innovation and opens the door to collaborations with the best and brightest in the world of FinTech.

    Nesto uses an innovative algorithm to analyze the entire Canadian landscape of 2000 plus broker available mortgage product to recommend the best mortgage product to our customers. The platform is easy to use and requires just one application and one credit check to get pre-qualified for the perfect mortgage match. The mortgage marketplace complements Equitable bank’s existing mortgage channels and allows us to bring our product platforms together for EQ Bank customers.

    In the first couple of weeks since launch, applications have materially exceeded our expectations.”

  2. More from an Equitable Bank analyst yesterday:

    “Equitable expects to direct most insured volumes in-house, and earn referral income on uninsured business directed to third party lenders (given their lower cost of funds advantage).”

  3. Hi Rob, good article.

    It sounds to me like EQB is wanting to achieve the best of both worlds-have their cake and eat it too.

    Driving referral revenue/commission but also stating “we are not direct to consumer in the broker space”.

    What amount of finder fee does EQB receive for each file referred? and funded with Nesto? Is there a volume bonus for number of files?

    Is the customer told that EQB is receiving a finder fee for this referral?

    Why did EQB not just set up a link for their preferred broker partners to deal with the referral vs. referring to one specific broker? I see above it is mentioned EQB has an ownership piece in one of the platforms but any reputable broker has access to the best deals for customers in the industry? So why the double talk.

    Why did EQB choose Nesto vs all other brokers?

    These are questions I think need answered.

    1. Thanks BWLOK,

      Not sure of the private terms between EQB and Nesto but obviously the bank is directly profiting off the mortgages clients it receives (back) from Nesto.

      Nesto receives a normal finder’s fee as far as I can tell, based on its volume. Equitable has multiple volume-based tiers for compensation and buydowns.

      It’s probably a reasonable assumption that Equitable wanted someone else to pay for the technology build, and wanted more control over the referrals, pricing and customer experience. That’s all easier with one counterparty. Also, Equitable is an indirect owner of Nesto so maybe it wanted to give a slight boost to its investment.

      This is all my personal speculation of course…

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