16 October 2017
In mortgage lending’s brave new world, technology should put the consumer in control, says Keith Green, strategic product director at Capita Mortgage Software Solutions
There isn’t a single sector of business which hasn’t been overcome by technological advances of recent years and the rush to overhaul its processes with digital transformation.
Advancements which might even recently have sounded like the stuff of science fiction – robotics, chatbots, artificial intelligence (AI) – are now all being used on a regular basis across a wide range of sectors, and consumers come into contact with these digital processes far more often than they even realise.
It can be argued that the world of mortgages has been somewhat left behind in this brave new world, still reliant on the anachronistic paper processes and legacy infrastructures which have necessarily dominated the house-buying process for years.
Online growth in other sectors
While similar sectors, such as banking for example, have changed beyond recognition in recent years, with most transactions and interactions between banks and consumers now taking place online, securing a mortgage and buying a house seem to have got a bit stuck in being reliant on the paper trail.
It could be argued there are a number of reasons for this apparent stagnation. People check their bank balance on at least a monthly basis. Similarly, booking flights and holidays, changing your mobile phone account, switching utilities suppliers – all areas which have made significant digital transformation – are all activities which consumers will probably look to do at least once a year. Compare that with how often people will buy a house, and it makes sense that this is one area which has perhaps not kept up with the speed of change.
But there is a growing sense of a sea-change coming in the world of mortgages which could make up for the fact it has hardly been at the forefront of technological advancements in recent years. Technology is increasingly becoming the enabler for change and we are starting to overcome challenges that the market has used as a barrier for moving forward.
There are a number of advancements in the way technology is being used now which are starting to put the consumer at the heart of the mortgage process, offer more clarity, and give house buyers much more transparency and control over what is one of the most stressful transactions they will complete in their lives.
Robotics and artificial intelligence are starting to be adopted more widely within the banking and mortgage process, and we are seeing that, particularly on the broker side, organisations are focusing in on technological advancements to help give them a competitive edge.
Consider open banking and the new Payment Services Directive (PSD2) legislation coming into force in January 2018. It’s widely accepted we will see increased competition among banks, fintechs and payment service providers (PSPs) as a result, but we’ll also start to see a world fit for the digital age to emerge. The ultimate winner being the consumer as it will allow them to start digitising the mortgage process with much more transparency around what is on offer in the market, and provide the opportunity to have a much better view of their own financial circumstances.
What’s more, with PSD2 comes the increased competition and transparency resulting from a whole landscape of application programming interfaces (APIs), which should kick start a race to offer the best possible customer experience – this is how lenders will get the edge and ensure the consumer chooses them for their loan.
Lenders must be prepared to seize the moment of change offered by PSD2 and APIs, otherwise they will risk getting lost in the flood and missing out on a valuable opportunity to transform the service they offer customers.
Essentially, developments in APIs could certainly result in a completely new ecosystem for mortgage lending over the next couple of years – provided the industry takes full advantage and uses it to improve the service lenders offer consumers.
APIs are just one innovation which are set to have a transformational effect on mortgages for the consumer. Blockchain software has the power to simplify a lengthy process which essentially has built-in delays ingrained in the current system, by transforming business processing from the start to end of getting a mortgage and buying a house.
Blockchain offers the ability to have immutable and infallible record on each and every transaction from start to finish. If you think about the paper trail involved in home buying, such as dealing with land registry, utilities, solicitors – those are all records that could be transferred in a blockchain ecosystem, to simplify, secure and speed up process to the end benefit of the consumer.
If mortgage lenders, banks and brokers can use blockchain technology to show a transaction has taken place to change ownership, that’s a really powerful piece of technology, which saves the need for all paper movements.
And so we are seeing significant new technologies which have the potential – for at the moment, it is just potential – to transform the end-to-end mortgage process, for the good of the consumer, with major new developments including APIs and blockchain offering huge opportunities for change.
However, we should certainly not discount the areas where technology is making small but important steps on the journey towards a better customer service for homebuyers. Much of the process is now being automated, for example being able to confirm income and outgoings, so that lenders can get a much more direct view of a buyer’s financial position. Robotic forms can easily fill in a customers’ details once, and autofill them from then on, negating the need for endless human re-keying.
Brokers are increasingly using chatbots and artificial intelligence (AI) to automate these systems and to offer simple advice without the need to speak to an advisor. It’s vital for the consumer that we get the pace of this change right – at a recent roundtable we heard from one broker which had to slow down its use of chatbots because the process had become so efficient, buyers were concerned they weren’t necessarily being offered the best possible deal or getting real advice.
The process still needs to feel human, not just super-fast and automatic. People need to feel that the advice they are being given is bespoke to them, not out of the box and from an algorithm. There is a psychological journey which needs to be made when people are making a decision as big as choosing a mortgage.
All of these advancements – whether it’s the large-scale transformation offered by APIs and blockchain, or the more incremental improvements offered by AI and automation – promise the ability to make securing a mortgage and buying a home far easier, quicker and less stressful. This is a really positive thing.
But, what is the end game? What will the process look like in another five years? At Capita, the vision for the future of mortgage lending, buying and broking lies in consumer hubs, where the entire process can sit in one dashboard that combines all the necessary aspects of end-to-end mortgage processing.
For brokers and lenders there will be a single view of the customer in one place – not just a credit score, but also personal loans, savings, outgoings and spending habits, which will sit alongside stocks and investments, pensions, ISAs: whatever might affect a buyer’s position would be clearly and easily found to offer a holistic financial position.
This not only would offer obvious advantages for brokers and lenders, but would also put the consumer first, and in control. In the same way they can currently see all their banking transactions from one easy log-in online, so should they be able to see every angle of their spending which would affect their ability to get a loan.
But do these dashboards even go far enough? Or could they morph into something even bigger: The Mortgage Concierge?
We see these dashboards being overlaid onto other systems which sit behind it – including APIs and open banking systems used by a range of institutions and organisations – to provide a one-stop shop for every single transaction that is needed for people buying a home – from starting off looking at properties, to actually moving in.
The Mortgage Concierge is a utopian vision for consumers. Not only could they log on to look at appropriate estate agent listings within their budget and in the right areas, they could then, from the same dashboard, organise viewings, make offers and negotiate with vendors.
Still in the same place, the consumer could then move through the entire process – from surveys, to contacting solicitors, to getting independent financial advice, to securing a mortgage, without ever having to produce a single piece of paper.
The next step would then of course be to offer everything else which comes along with the administration involved in moving house – who offers the best removal service and at what price? Where can I go for a reputable painter and decorator? And of course, changing utility companies, registering a change of address with various organisations, picking an insurance company, updating your driver’s licence… the list is never ending, and the process would be automatic, at the click of a button.
Undoubtedly, we are some way off that. But while the current focus is on making steps towards this one-stop-shop through digital dashboards and small improvements through automation, it’s worth keeping an eye on the future and the logical endpoint for the mortgage industry. It is entirely feasible – in fact it could be argued that with the right vision and cooperation between different parties, the technology exists for this to happen now.
This is a key point – for parties along the mortgage process, there is little incentive for them to care about the customer journey once their job is done. Yes, it would add value but the hard work for them is over once their part in the process has completed. It also increases risks and responsibilities – for lenders in particular. It would require an unprecedented level of transparency around products available, with the entire range on view for the consumer.
But for customers, this type of dashboard could represent the holy grail of home buying, offering the ability to do all of those things in one place. In the context of putting the customer at the centre, it’s hard to beat as a concept of how the industry should be moving forward.
It’s important to have balance here: of course we can’t lose sight of the fact that most people involved in the process is in business to make money, and this will always necessarily need to be a competitive process. But if we continue to focus on taking the mystery out of home buying for consumers and putting their needs first, that can only be of benefit to all parties involved.
Other practical roadblocks such as legacy infrastructure, legal issues around open data, and outdated technology for example, may compound the slow pace of change. However, the power to transform the mortgage sector for the better is evident with the enormous amount of software coming to market.
When it comes down to it, the customer must come first and get what they need from the process. That may still mean having a phone conversation with a real advisor, or face-to-face meetings with their bank manager – it could mean a highly efficient interaction with an anonymous automatic system with no human interaction whatsoever. Ultimately, today’s consumer expects a choice, and the industry needs to be able to respond to that challenge.
As published by Mortgage Finance Gazette