Consumer preference around communication and experience has shifted to digital across many sectors, including mortgage lending. Certain technologies will be crucial to keeping financial service providers relevant to the next generation of borrowers.
An analysis by Which? showed an average of 60 UK bank branches were closed every month in 2021. Banks say this has been driven by the number of consumers who have turned to online and mobile banking.
Established financial institutions that are slow to adapt to digital transformation will get left behind.
According to the 2022 FCA Strategic Review of Retail Banking, the gap between larger banks and smaller challenger banks is decreasing through innovation, digitisation and changing consumer behaviour.
Younger consumers, aged 21-34, are more likely to switch to digital challengers than any of the Big 4 or mid-tier banks. Only 27% of all adults reported regularly using a branch in February 2020, down from 40% in 2017.
The mortgage sector is starting to take advantage of new technologies to create more relevant products for younger generations. As Vicki Harris, Chief Commercial Officer at Kensington Mortgages highlights:
“Mortgages remain one of the few areas in retail banking where digital transformation has not yet really taken off, so it is good to finally see the pace of change in this area start to accelerate.Borrowers, brokers and lenders will all benefit if the mortgage process can be simplified and sped up through the innovative use of technology.”
The change in consumer expectations and regulatory landscape means that mortgage competition is intensifying.
We highlight the specific technologies that mortgage lenders should be considering as we enter 2022.
Data & Analytics
According to Open Banking UK, by June 2020 one in five adults started using online banking apps. Open banking now has over 4.5 million regular users.
Open banking requires banks to make payment data open to third party industry players, when a customer chooses for them to do so. This provides new insights to alternative lenders, so they can build more suitable products and compete with traditional banks.
The technology can significantly improve decision-making, by providing lenders with a more detailed customer profile, and data points which have not been available previously. This improves a customer’s chance of being accepted for a mortgage, as new data is available which can prove an individual to be credit worthy, where the traditional data couldn’t. This enables mortgage providers to serve more customers and branch out from the traditionally “creditworthy” groups in society.
Open banking can minimise manual work and accelerate the mortgage process. It reduces the number of steps needed to apply for a mortgage and can cut admin costs by minimising manual data collection and analysis.
Big data and analytics will also help – a data centric approach empowers lenders to scrutinise applications more closely, control costs and mitigate risks. Big data also opens opportunities to cross-sell other relevant products and build a stronger relationship with customers.
Automation and ID verification
Traditional mortgage processes include lots of paperwork and documents. Automated processing and analytics are time-efficient and reduce the costs of manual administration.
Perhaps one of the most important aspects to automate is ID verification. Electronic verification within real-estate, such as electronic signatures, can create a much faster and secure home-buying experience, free from human error.
Through automation and electronic verification, customers can maintain approved identity through their smartphone, allowing for checks on the move. Selfie biometrics are starting to be implemented within digital mortgage provider apps for customer ease, but this also ensures tighter security for the providers.
Artificial intelligence and machine learning
As we see stricter regulations from the FCA on affordability and credit assessments, cash-strapped customers could be left without access to financing. Credit decisioning is a particularly time-consuming part of the mortgage origination process.
The value of gross mortgage advances in H1 2021 reached £172bn, which was the highest level since H1 2007. As the volume of mortgage applications increases, there is a clear need for AI in loan origination to handle the number of requests efficiently and in line with compliance.
AI can use predictive analysis to deliver accurate and scalable income information, which enables loan providers to better support customers. AI can take the data from open banking and other sources, as well as ensure consistency in decision making, backed up by data.
This technology can also increase engagement and improve the customer experience, through interactive tools and chatbots on the mortgage platform.
Marita Cavalcanti, Chief Financial Officer at Proportunity explains how their machine learning algorithm redefines affordability, empowering them to lend to more customers:
“The mortgage market in the UK is broken. There are lots of people who are left behind by traditional providers as it has become increasingly difficult to get onto the property ladder. At Proportunity, we have a more holistic approach where we don’t just look at the mortgagee but the potential of the property they are purchasing.
Our unique Home Finder platform uses a machine learning algorithm that helps our customers to buy smarter, effectively redefining ‘affordability’. The platform identifies fair valued homes in high potential growth areas, de-risking lending and removing the need for a large deposit.”
AI will be crucial to enhance the precision of risk assessments, optimising customer service. improving efficiency, reducing time and costs.
Blockchain has the potential to transform the mortgage value chain. A blockchain sequence can be created, beginning with secure ID verification and sharing personal records, through to the transferral of ownership, post-mortgage agreement.
Cameron Orcutt, Co-Founder and CEO of Onladder, a mortgage lender that aims to make property ownership more accessible for first-time buyers, comments on the potential of blockchain to relieve some of the complexities in the mortgage process:
“A significant portion of consumer stress revolves around the inefficiencies in the homebuying process. Customers often have little insight into where they are in the process and which intermediary they are currently waiting on. Blockchain has the potential to change this.”
There are many parties involved in a mortgage agreement – the home buyer, mortgage lender, broker, insurers, and estate agents, for example. Leveraging blockchain can ensure that all relevant parties have access to different stages in the process, in real-time to guarantee the most accurate information. Through Distributed Ledger Technology, parties are limited to only seeing the parts relevant to them.
Smart contracts can trigger transactions automatically, when certain criteria are met. The inherent security of blockchains means that it would be difficult to alter or falsify transactions, making blockchain appealing to reduce fraud or risk.
Blockchain can reduce the number of intermediaries involved in the mortgage process, thus reducing additional fees. It has the potential to create a frictionless mortgage experience for all those involved and speed up the process from acceptance to sale completion.
Challenges remain – it may be difficult for incumbent institutions to adopt the technology due to legacy systems – but blockchain is likely to be seen more in future mortgage lending.
It will be important for mortgage lenders to leverage multiple solutions and technologies in order to provide the best possible product and customer experience. APIs enable lenders to create a technology ecosystem to support their services and reap the benefits from different platforms or solution providers.
FintechOS provides end-end digital solutions to lenders and bridges the gap between legacy and future-forward approaches. Integration through APIs empowers lenders automate their processes.
As Mike Fullalove, SVP, Strategy and Business Development comments:
“At FintechOS, one of our goals is to provide financial institutions with a custom toolkit that will allow them to keep pace with digital leaders. Our technology allows banks and building societies to quickly expand their digital offerings while retaining their legacy systems, enabling our clients to innovate with minimal disruption to the business.”
APIs can effectively automate workflows and reduce errors, as well as staff hours and costs. They can be integrated with ease and used to create an overall seamless experience for both the borrower and lender.
Finding the balance
These technologies will be of no use to mortgage lenders if they do not find the right balance for their business and customers. Depending on specific demographics, a fully digital mortgage experience may not be the right fit.
However, the pandemic has accelerated the use of digital in many sectors and consumers are increasingly preferring digital processes for convenience and engagement. Mortgage lenders will need to adapt their services and products to match this, which can be challenging, but Marita highlights the benefits for customers:
“When people can buy bigger, better or with less compromises, not only do we reduce their future outgoings in terms of moving, legal and tax costs, but we help them choose a home which, they can be as confident as they could be, is going to be a good investment.”
Building engaging, streamlined and personalised customer journeys can be achieved through partnering with Fintechs. Providers can help lenders navigate the technology ecosystem and identify the relevant technologies that will grow their mortgage lending for the next generation of borrowers.
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