"Let both consumer and broker technology develop as separate entities. After all, they operate in different ways, at different speeds, and cater for different needs."
Without a doubt, technology is enabling banks and intermediaries to improve the customer experience by digitising and shortening the mortgage application process, and it is also helping borrowers to find the best mortgage option for their particular needs. However, there has been much to-ing and fro-ing over the past few years about whether technology innovation within the mortgage market is best placed in the hands of the consumer or the mortgage lenders and brokers.
According to the financial services focused software company IRESS, brokers are set to control about 70% of the mortgage market in 2016 and 2017, largely due to the shift of advised mortgage sales demanded by the Mortgage Market Review. But where does this leave consumers? How can the increasing digitalisation of services match the needs of consumers without cutting out the role of the broker?
The answer is to let both consumer and broker technology develop as separate entities. After all, they operate in different ways, at different speeds, and cater for different needs. They do, however, share a common goal: to match borrowers with the best affordable mortgage loan, tailored to their particular financial and lifestyle needs.
Mortgage tech roundup
For both consumers and brokers, innovation within the mortgage market is showing no signs of slowing. Currently, broker portals and intelligent affordability calculators are being developed to give brokers the tools they need to offer the best products available to their clients. At the same time, multiple touchpoints and online-only banking options such as Monzo are being developed for consumers.
Of course, lenders are getting in on the act too. Several new and innovative banks are expected to enter the ring this year, whilst established players continue to launch new initiatives such as ‘virtual reality brokers’ in a bid to disrupt the market and change the way mortgages are offered to consumers.
But what does the technology actually look like and how is it driving change? The technology behind these innovations has three core pillars: Data virtualisation and analytics, velocity and delivery cycles, and regulation.
The first, data virtualisation and analytics, will ensure that mortgage technology can be tailored to meet the needs of customers. From basic information such as date of birth, home address and direct debit activity to more complex data such as spending habits, data virtualisation will allow data coming in from disparate sources, locations and formats to create a single entry.
The result will be faster access to data, less replication and cost, and much greater agility. As a result, this technology will give lenders the ability to create personalised and detailed customer profiles, so that they can offer the most accurate products and services to their customers.
For the consumer, this means less time filtering through unaffordable options, and being sure that they are getting the best option available to them. By speeding up decision-making and improving transparency, these analytics will make the whole application process a lot less time consuming and much more accurate. With the number of consumers using comparison websites to search for loans steadily rising, the ability to provide more personalised and accurate services will play a vital role in customer retention for banks and brokers.
The second, velocity and delivery cycles, give organisations the ability to launch new services rapidly which is crucial in delivering enhanced customer experience. Long development and acceptance testing can be mitigated through the ability for applications to be built, configured and integrated into existing services using Software as a Service and cloud infrastructure. This allows firms to scale up and down to answer demand with hybrid ‘out of the box’ solutions.
Lastly, the role that technology plays in mitigating risk and enabling regulatory compliance will continue to be a huge focus for lenders and the financial services industry. Where previously ‘reg-tech’ may have been a tick-box exercise and a safe way to keep on top of audit trails, it can now also be used to boost the customer offering and support brokers with real-time regulatory compliance. In addition, by simplifying the data available through data virtualisation, records of all bank and customer touchpoints can be easily tracked and monitored, making regulation more manageable for the banks.
Challenges on the horizon
The real challenge ahead for mortgage lenders over the next few years does not necessarily come from financial services challenger banks, but from different industries entirely. Digital platforms have allowed smaller players to scale up much more quickly than traditional banks who are constrained by their legacy systems. As a result, sheer operational scale and a well-known brand are no longer enough to ensure survival.
Deloitte argues that success in the future will depend on the ability to think creatively about the business model and value chain, and to determine whether the business can leverage the power of vertical integration and strategic partnerships. In other words, firms that operate outside of the financial services sector could soon pose a real threat to established players in this market. Uber, for example, could soon start pushing insurance products to its drivers and offer its own products. By default, this would make Uber a financial services business.
As the infiltration of other industries into the financial services sector continues, traditional banks may find that they are no longer at the forefront of consumers’ minds when they are looking for solutions to their financial needs. To succeed, banks and lenders will therefore need to differentiate their products and services through significant investment in the three core pillars of technology mentioned above.
This will enable them to increase their understanding of their customers and to obtain insights that will help them build and deliver a custom-tailored experience for everyone. The vast amount of customer data stored by the traditional lenders may have been the ace that was needed to hold back the flood so far, but it would be negligent of mortgage lenders to not take this type of threat seriously.
