With bank stocks near record highs, the thought of the giant retailers entering the home-loan market is captivating. Done well, it could help offset sluggish retail sales growth and provide a new long-term earnings growth engine.
The real disruption
The big question, however, is not whether Woolworths and Wesfarmers, via Coles, can make inroads in personal lending. Of course they can. Rather, it’s the size and timing of those inroads, the effect on earnings, and whether the retailers’ valuations already capture the upside.
An even better question is: could the market be underestimating the disruptive effect of the big retailers exploiting their massive databases, customer analytics and data-mining skills, and their ability to cross-promote products and financial services, and provide point rewards?