"Whether we buy artwork on Amazon, fish and chips from the local chippy or order a taxi – all roads lead back to technology enabled ease of use on a mobile platform that has become the new standard."
He sees a world where technology enables a shift in focus from traditional data capture to customer centric; a world where sourcing systems become bidding platforms where lenders bid for business. I agree. But why do we think this will happen? To establish the direction of change, let’s look at change in other industries first.
Over the last few decades we have seen material changes in other industries, take the motor industry ,for example. When you order a new BMW through the BMW Individual program, the end product is as unique as you are. It is an extension of your character and personality.
What stops the mortgage industry doing the same? After all, mortgages are considerably simpler in design than a car. For this to happen in our industry we need stakeholders across the spectrum to be creative, leaders with a vision to create a better offering for customers.
For some businesses it would be too difficult to change, the excuses we have heard all before, “We’ve always done things this way, why change now,” or “Our systems can’t support this,” or “This is a massive undertaking and we don’t have resources for this.”
All valid I suppose and not too dissimilar to comments made by many in the mobile phone industry in the early 2000s. In June 2007, the world of mobile phones as we know it changed forever when Apple released the iPhone 1. At that time Apple was a long way behind other mobile phone manufacturers but had the courage, leadership and know-how to create something they belief the world will need in years to come.
What stops the mortgage industry from doing the same? I believe as an industry we are approaching our own iPhone 1 moment. Ignoring macro-economic forces, in particular, the current green revolution for a moment I believe there are three forces that will shape the future of mortgages. They are:
Technology-enabled progress
Technology has changed and reshaped many industries over the last two centuries but one cannot ignore the pace of change in recent times. The examples cited above serve as evidence. Against that background the way we apply for, underwrite and complete a mortgage is still very much fragmented and clunky. But this is changing.
Initiatives like Open Banking, face recognition and ID verification software, e-signatures and bespoke application programming interfaces (APIs) already makes it possible to open a bank account in minutes. This technology is about to change the mortgage industry too, but we could go a step further.
We could recognise that each applicant, each property, each application is unique and could design products around this uniqueness. How many applications have advisers captured on a lender systems only to find out after 15 minutes of keying that the lender does not accept ex-local authority flats with deck access, for example. Incredibly frustrating and a waste of time.
Technology enables us to do this differently, to price for the risk associated with lending against a property with deck access. Rather than saying no we don’t lend against properties with deck access, the lender could counter-offer and increase the price of the mortgage to mitigate the additional risk. But this process has got to be dynamic, in real time and not within the current 24 hours service level way of doing things. What we are talking about here is real-time underwriting and pricing of a mortgage as information comes to light. Machine learning and artificial intelligence can already deal with the majority of permutations in this regard. Naturally, this leads to real-time production of a mortgage offer.
Ease of use
When we put ourselves in the shoes of a customer with an aim to understand what they want from their adviser it comes down to two things. Firstly, the best mortgage deal they could possibly get for their circumstances and secondly, certainty. Certainty that the adviser and lender will keep to their word and come good on the promise of a mortgage.
These two things are a given but there is a third - ease of use - that is becoming more important. The likes of Amazon, Uber, Deliveroo et al. have set new standards in ease of use. I could have called this ‘service standards’ but that is a term used by advisers and lenders that means little to the customer.
Ease of use is more appropriate through their lens. Because the ‘ease of use’ bar is set so high in other industries it has become the norm in society. Whether we buy artwork on Amazon, fish and chips from the local chippy or order a taxi – all roads lead back to technology enabled ease of use on a mobile platform that has become the new standard.
Customers willing to spent hours capturing a mortgage application or trying to explain their situation over the phone are becoming fewer and fewer. Most expect an instant answer, an instant yes or no and they expect that as a notification on their mobile phone. Those lenders and advisers willing to change their ways, willing to change their systems and their approach to helping customers in a way that works best for the customer are set to do well over the next 10 years.
Opportunity cost
Coming back to the lost opportunity mentioned in the earlier example; lenders not willing to accept ex-local authority flats with deck access. How many more of these examples can one quote? There are literally hundreds of criteria permutations on the products and criteria sourcing systems. These are all little stumbling blocks, hurdles that make the mortgage origination process overly and unnecessary complicated.
Another way of looking at this would be to put a price on each one of these stumbling blocks. For example, charge an additional 20bps to mitigate the risk of an ex-local authority flat with deck access (rather than declining the application), or if the customer is willing to reduce the LTV from 80% to 70%, we reduce the price by 50bps and so forth. This way the adviser and lender can turn each one of these criteria hurdles into an opportunity, designing and delivering real-time bespoke mortgages to fit the customers’ specific circumstances. An opportunity to re-price the risk and opportunity to increase the overall conversion rate. If done eloquently this new way of originating mortgages should not only save time but make commercial sense too.
Perhaps we are in the foothills of a new wave of innovation in the mortgage industry. Technology exists and it is up to advisers, lenders and conveyancers to embrace change. Those with a vision may flourish.
