Digital change and the mortgage market
UK lenders operate in a high volume, process-driven industry, in which 11 million customers all have similar forms of credit secured on property.
In such a market, application of the right kind of technology can offer enormous potential to streamline processes, improve efficiency and reduce costs. At the same time, lenders must deliver satisfaction to customers with diverse needs and desires. And they also have to ensure that they fulfil all their regulatory requirements.
The potential for technology to improve how such an industry can operate is a subject we will be exploring in a forthcoming research report, Digital Change and Mortgage Borrowers, which we have commissioned from CML associate and consulting specialist, Accenture.
The research will look into how digital technologies are transforming the mortgage process, and the consequences of technological change for consumers. It will explore how individual lenders operate in the UK and globally, and how the mortgage market compares with other consumer markets. And it will analyse the opportunities and challenges presented by technology, how it changes the experience for customers and the issues it raises for the government and regulators, as well as lenders.
The researchers will be presenting their key findings – with an opportunity to debate them – at our forthcoming MortgageTech UK event at London’s ILEC Conference Centre on 27 June. The conference will cover a range of issues related to digital strategy and technology, and those wishing to attend the event can book places now.
What do consumers want?
As lenders consider how to apply technological developments to their businesses, they need to have a clear understanding of what consumers actually want from the mortgage process. And, with such a huge customer base, they need to recognise that there will be differences between individual consumers in what they want and expect from their relationship with their lender.
Lenders need to understand, for example, that, for many borrowers, a mortgage is essentially only a means to an end. What most are really focused on is getting the right property in the right location. More generally, they will want to be confident that they can trust their lender, that they get good value and that they will be helped through the process in a way they like and which fulfils their individual needs. Looking in more detail at consumer aspirations, Accenture report that:
- Four in 10 customers want a blend of digital channels and others in which they can deal face-to-face with a member of staff.
- Two-thirds of customers would prefer to speak to an adviser about complex products. They value speaking directly to someone in such circumstances because it presents them with the opportunity to ask questions and receive a personalised service.
- Four in 10 customers believe that “robo advice” will be faster and more convenient than talking to an adviser.
Among the report’s key findings are a series of opportunities and challenges presented by technology, which emerged from asking companies themselves. The biggest opportunities were the potential to improve customer experiences and relationships, while the biggest challenges were presented by legacy systems and thinking and the need for greater collaboration externally.
The Accenture research looks across the whole market, but a separate study last September found that almost three-quarters (72%) of younger people (those aged 18 to 35) expected to be able to take out a mortgage using a mobile device or tablet in the future. Three in five in the same age group said it would be desirable if their mortgage provider were to provide an app. But only 41% said they would be willing to use an app to buy a mortgage, with almost one-third (31%) saying they would definitely be unwilling to do so.
In its research, Accenture also looks at digital developments globally, although it acknowledges that what happens in different national markets is often shaped by how mortgages have been traditionally provided in different countries, as well as national transaction processes and regulatory requirements. However, some technologies cut across national boundaries because they can work in almost any market.
For example, identity technologies around the world are rapidly adopting biometric authentication. More than 770 million biometric applications are expected to be downloaded annually by 2019, up from only six million as recently as 2016.
In an era in which more than one-third of customers drop out of digital recognition processes through an inability to confirm their identity – and an increasing number are unable to provide multiple hard copies of documents to prove who they are – biometric identification can be used by customers online at home or in a lender's branch office.
The researchers provide a comprehensive review of evolving digital technology, and look at how it might be applied to mortgage markets:
- Digital property searches can provide detailed information about a property and its location, thereby replacing the need for consumers to undertake background research and visit estate agents to find out about properties for sale. This is already well established in the UK, with many would-be property buyers using branded, well-established portals to research the property market.
- Customer hubs have the potential to provide a central repository for all of a customer’s information that can be accessed by all the professionals involved in a property transaction, including brokers, conveyancers, insurers and lenders. A central hub will speed up the process and reduce reliance on paper documents. There is also the potential to develop them from being a means of managing a property transaction into a more comprehensive personal finance management platform, where consumers hold information and manage a range of financial products. Potentially, this provides the means to reverse the market, allowing lenders to bid for business rather than the customer applying to the lender.
- Customer contact and advice is also developing rapidly in the UK, through the provision of online advice and chat, providing quick and easily accessible answers to customer queries to help smooth the process. Some lenders are now offering video conferencing with mortgage advisers, which can help improve the productivity of these members of staff and provide the potential to develop more sophisticated customer relationship management systems.
- Automated decision-making already allows lenders quickly to accept, reject or refer mortgage applications. Firms use defined lending criteria to inform decision-making engines, and some lenders have now managed to automate more than 80% of their decisions. That can help increase the capacity of underwriters, leaving them with more time to deal with less straightforward referrals that cannot be decided by the automated process.
- Artificial intelligence offers the potential to complete activities without human intervention and improve efficiency, consistency and speed. In the insurance industry, it is already being used to process simple claims. Another application is that it can also be used to spot potentially fraudulent activity for further investigation.
- Robotic process automation can replicate highly repetitive, rule-based activities, with significant savings in cost and time. In any business, the application of this technology can automate standardised activities like re-keying information between systems, sending correspondence to customers and supporting business reporting.
- Cybersecurity enables firms to reinforce risk management processes, with digital technologies being used to support the prediction, detection, and response to and remediation of threats to security.
- Application programming interface allows different systems to connect and interact. This technology has widespread business applications and in the mortgage sector could be used, for example, to pre-populate mortgage applications, help complete real-time affordability assessments and share data between lender and intermediary systems.
- Blockchain has the potential to replace manual processes to transfer information and funds securely between different parties. In the lending sector, it has potential to provide audit trails of customer decisions and support mortgage securitisation activity.
- Analytics can enable firms to unlock the power of data that they already hold. The insights it provides can be used to tailor what a firm offers to customers, improve their experience and optimise business performance. Analytics has the potential to inform marketing campaigns, provide operational metrics to target areas for future investment, identify customers who may be getting into financial difficulty, and provide the analysis to understand if a customer might be eligible for a better product.
Implementing change - potential and pitfalls
In many instances, firms will want to implement technological changes smoothly and seamlessly – with no discernible differences for their customers. This is particularly true when a lender is seeking to improve the efficiency of internal processes. But when technology is being used to improve the experience for consumers, the opposite may be true. So, changes may be introduced alongside a customer marketing campaign.
In considering plans for implementing technological change, lenders will also want to ensure they continue to comply with all regulatory requirements. Compliance remains a priority for firms and could cause apprehension about applying new technology, even though the regulator has cited the fostering of innovation as one of its own key priorities and a means of improving outcomes for customers and encouraging competition.
Technology has huge potential to reduce costs and improve efficiency in a process-driven sector like the mortgage market. But there are also risks of unintended consequences. To realise the full potential – and protect against risk – firms need to undertake detailed and careful analysis of their plans and ensure they have the clearest possible understanding of the consequences of digital change.
The pace of technological change looks unlikely to slow. Firms may have different strategies and be moving at different speeds, but the industry is investing heavily. Digital change is happening, through a combination of technologies that improve capabilities that are hidden and those that are visible to the customer – because they are intended to improve the consumer experience.