Banking franchises find the right fit

23/07/2008 - 22:00


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The Bank of Queensland's aggressive push into Western Australia has highlighted a growing trend of franchising within the finance industry.

Banking franchises find the right fit

The Bank of Queensland's aggressive push into Western Australia has highlighted a growing trend of franchising within the finance industry.

In the past few years, the 132-year-old bank has strategically positioned itself with six owner-managed branches throughout the state, with its first foray into WA in Subiaco in April 2006, followed by a branch in Applecross in September 2006.

With 190 branches already established throughout Australia, BOQ plans to rollout a further 25 owner-managed franchised branches in WA by year's end.

The move could prove risky for BOQ, particularly considering that several years ago the big banks decided to take a different route and viewed lending to prospective franchisees as the new battleground.

The ANZ and Westpac were the first big lenders to add specialist franchising units to their business banking divisions and were joined in 2004 by BankWest, Commonwealth Bank and later, National Australia Bank.

However, last week Commonwealth Bank chief executive Ralph Norris declared that by 2010 most CBA branches would operate as "virtual franchises".

Whichever form the CBA franchise model takes, if any at all, never before has any major bank embraced the franchise system in its mainstream operations.

BOQ, however, is not a major bank and is by definition, not mainstream.

The bank's corporate affairs manager Dan Muffon said BOQ was as unique as its owner-manager model, which had enabled it to open 75 branches outside its home state in 2006 alone.

He said franchising was the "logical progression" in the face of an evolving culture in the banking sector, where branches were moving away from the nameless, faceless operator model.

"The idea of ownership under our franchise model means there's a personal reputation of those entrepreneurs on the line and these bank managers are small business people essentially," Mr Muffon said.

"We come up with the prices of our products, we size up the opportunities in the market and make a capital outlay, but the rest is up to them.

"They choose their employees and all that stuff, we supply marketing, we supply the products, we give them a system to work by and help them with the look of the branch and the feel and the fit-out, but the rest is up to the owner-manager."

BOQ launched its owner-managed branch concept in 2001. It costs between $100,000 and $1 million to start up a BOQ franchise in Perth, depending on location and fit-out.

The bank's group executive Donna Quinn said there was an exhaustive selection process for prospective franchisees, including background checks, a series of interviews and a character test.

"Owner-managers must be bankers. We reject 14 out of every 15 approaches we get to open one of our franchised branches," Ms Quinn said.

Founding chairman of The Mortgage Gallery John Bignell believes a franchise in the finance sector can only be built on a foundation of knowledge, understanding and trust with franchisees.

"Twenty-three of our WA franchises have come from within, so they started working here for us before they branched out on their own," he said.

"It's a slow way to develop your franchise network, but its very safe and a very secure way of doing it."

The Osborne Park-based lender decided to roll the brand out on the east coast five years ago and now operates 42 franchises throughout Australia, with eight in Victoria and 10 in NSW.

Before an applicant is considered by The Mortgage Gallery, Mr Bignell said he informs the potential franchisee of the pitfalls of franchising and ensures they accept them.

Once both parties are convinced, the prospective franchisee must obtain their financial brokers licence and personal indemnity insurance, as well as undergo an induction, with the whole process costing up to $10,000.

In WA there is no franchise fee, but the franchisee must have enough capital to open a commercial office, as home operations are prohibited.

Mortgage Gallery franchises earn two income streams - payment received from the lender when a loan is initiated, and ongoing income called a trailer commission, which is paid for the life of a loan. "Operators have the ability to sell their business, but as the franchisor, the condition is that the purchaser must be acceptable to us," Mr Bignell said.

"If that situation presented itself, and it hasn't yet, and they want to leave the network and trade as something else, the trailer commission, the ongoing income remains the property of the franchisor and effectively they leave that behind."

Market leader Mortgage Choice was developed in WA but has since shifted to the east coast.

The franchise went to fifth spot on the WA Business News Book of Lists this year, up from sixth in 2007, with 449 franchises in Australia and 58 in WA.

National corporate affairs manager Warren O'Rouke told WA Business News the selection process with potential franchisees was a long and gruelling one.

After a two-week induction, the potential franchisee must obtain a mortgage broking and finance certificate, as previous banking and finance experience is not essential, and they must undergo a series of competency assessments and background checks, including employment and criminal history.

"What we're more interested in though is strong inter-personal skills and good customer service skills," Mr O'Rourke said.

"Let's face it, you get people in this industry who you can't approach who just want to sit back behind a desk not talk to anyone and roll in the money.

"You can't do that, you've got to be up at 'em all the time."


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