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The mutual benefits of technology in mortgages

by FTT Team / Tuesday 03 August 2021 / Published in Content, Fintech, Identity, Innovation, Opinion

Building societies were created to help their members overcome one of the biggest financial challenges most of us will face: buying a home. Nearly a third of people in the UK have a mortgage from a building society.

Building societies operate differently to lending banks. They are mutual organisations that are owned by their members, so all decisions need to be customer focused. There are many benefits to this model but being a mutual presents its own unique challenges.

First, despite their different rationale, building societies compete in the same market under the same rules as banks. That means they face both ultra-low interest rates and the lending firepower of the big, ring-fenced lenders.

And, unlike the big banks, they cannot offset the pressure on net interest margins with other business lines or economies of scale.

Second, providing the best service to members means investing in the future – as the Building Societies Association (BSA) notes. Behaviour and expectations have changed, customers now expect excellent online service, in addition to branch, phone and paper-based processes.

Opportunity costs

Great technology offers much more than convenience and can help both borrowers and lenders make the right decisions at the right time.

The pandemic, with interest rates at historical lows and the cut in stamp duty, showed what is at stake. If people miss the step on the housing ladder, life chances can be missed.

Building societies do aim to be innovative in the support they provide. The BSA points to workplace savings, prize-linked savings, and paperless mortgage applications as positive developments for members.

However, technology upgrades can require the sort of spending and staff expertise that is a stretch for small firms.

Technology and mutual benefits

Despite those apparent cost and expertise challenges, fintechs can offer building societies real advantages through access to innovative technologies.

Technology brings them the benefits of alternative data at scale. They can be the hub for all the information their members need – information that goes far beyond what the Society could offer on its own.

It also lets them better manage risks, including default risk and the risk of the mortgage ending up under water. That means a wider member base and better returns.

Becoming an information hub

Technology opens up and uses data in new ways. It can automate existing processes like conveyancing and make checking for potential problems, like flood risk or disused coal mines, simple.

The Internet of Things, for example, can use sensors to gather and analyse data from a building and its local area to assess dampness and subsidence. Over time, houses could automatically maintain their own logbooks.

Optimising the customer experience
Fintech can support the lending process and provide building societies with a more accurate view of borrowers, for example, through considering rent payments when assessing creditworthiness. That means both lower risk and, potentially, higher approval rates.

And if a customer is struggling, they can be helped to set up a personalised income and expenditure statement on an automated platform. Many people with financial problems prefer the anonymity of tech-based advice.

Big data capabilities for small firms
Nationwide, the biggest building society in the UK, with around 10% market share in 2021, is a leader in new technology – because it can afford the investment.

Does that mean that smaller building societies – and their members – will be left behind as home buyers and sellers move to a more digitally streamlined process?

Utilising technology doesn’t mean building societies have to dig deep. Providers like Mutual Vision offer over half of UK Building Societies, including smaller ethical financial firms, access to affordable technology.

Andy Atkinson, Business Development Director at Mutual Vision comments, ‘There is a real opportunity for Building Societies to capitalise on the growing desire of the people to invest in ethical and purpose-driven Financial Institutions, something that runs through the very DNA of the sector.’

‘To make the most of this opportunity, that desire needs to be married with the right channels of engagement and that means embracing digitisation. As the Digital Mutual, this is what we deliver – a banking platform and ecosystem of partners that will transform a business quickly, efficiently, and at an affordable cost without compromise.’

This isn’t a big-bang approach. The tech applications grow alongside what the Building Society needs and they aren’t left alone. Experts oversee the third-party work.

Other firms, like FintechOS, have ‘low code’ solutions that make it easy for in-house staff to manage the technology. That, together with out-of-the-box solutions, let mutual organisations develop their own applications in weeks rather than months.

Jo Howes, Sales Director at FintechOS notes, ‘Mutuals have a strong culture that’s very well aligned with modern customers’ demands for community-focused, ethical, and sustainable financial lives. However, financial institutions which were established before the internet era often struggle to translate those strengths into the digital space.’

‘Attracting new generation customers means driving digital differentiation, and not getting held back by legacy technology deficits. We can already see a number of brands successfully making this strategic shift, so the speed and effectiveness of digital differentiation increasingly determines market share and financial institutions’ future prospects.’

Digital software digital can streamline processes and do the heavy lifting so building societies don’t have to. As Mary Connor, Strategic Engagements – Retail Banking at Finastra observes, ‘What we are seeing, from a technology perspective, is the rise in demand for digital and cloud capabilities across the Building Society sector.’

“This momentum has been accelerated by the pandemic, particularly around the area of end-to-end mortgage processing. Building societies want to improve and streamline processes and ultimately deliver a more efficient and ergonomic mortgage application experience for their members and brokers.’ 

With the help of fintechs, building societies can apply technology that suits both their budgets and capabilities. They can provide improved, accessible and suitable mortgage products, allowing them to make a real impact on the market.

Learn more about mortgage innovation and how fintechs and mutuals are collaborating at the upcoming FTT Building Societies on 6 October, going Live at 9:00 am BST.

Written by, Manoj Chopra, Editorial Contributor


Tagged under: Embedded, Embedded finance, embedded mortages, Mortages, mutal benefits, Splash

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