👉 Background: Westpac, founded in 1817, is the oldest bank in Australia (back when it was called Bank of New South Wales). Today, it is Australia’s second-largest home loan lender behind the Commonwealth Bank.  

👉 What happened: Now, Westpac has seen its quarterly profit rise 14% to $1.9 billion, while its core net interest margin (NIM) jumped up 5 basis points to 1.85%. And investors liked what they saw. Next minute: Westpac’s share price jumped 6%.  

👉 What else: Despite the tailwinds this quarter, Westpac warned that only 46% of its new home loans came directly from the bank. That’s almost 3% lower than the same time last year. So while Westpac's results trended upwards, there's still a question about its distribution strategy for home loans.

What's the key learning?

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‍💡Distribution channel strategy is all about deciding how a business gets its product or service to customers.  

💡For banks, the two big channels for home loans:

1. The direct channel: This is when customers come straight to the bank either via their branch, their app and website. Banks love this because it means the bank keeps all the margin… and the customer relationship.
2. The broker channel: This is when customers go to third-party brokers. These brokers has grown rapidly in Australia. Right now, brokers originate roughly 75% of new Australian home loans.

💡Direct loans are much more profitable for banks because there’s no broker commission. Not to forget, the banks can cross-sell other products like credit cards or insurance. And unlike CommBank whose direct channel is 66% of all new home loans, Westpac needs to reclaim some of its direct-lunch.