INTRODUCTION
Digital advancements have altered consumer expectations and business models across many industries, such as transport, entertainment and communication. For instance, when one orders pizza online, the food-delivery app offers multiple status alerts. Similarly, Amazon provides a timeline on when the product will be delivered. If such a level of ease and transparency is given for trivial purchases, then why not for life-altering purchases like a mortgage for the house.
These modifications are raising the bar for what borrowers expect from their home shopping and owning experience. Though this change would not happen overnight, some changes are surely happening. Guarantors such as Fannie Mae and Freddie Mac provide a digital mortgage experience that is seamless like buying a pizza. Since the level of competition has increased, we expect digital offerings to grow in addressing hassles in the application process.
In the future, digitally-enabled mortgage experiences will become the norm. Mortgage companies across the world continue to invest in digital innovation to improve their customers’ experience, optimise operational performance and improve profitability. They must take into account their strategies for today against this context. Also, they must ensure to be prepared to adapt to future changes in order to remain relevant to their customers in a constantly evolving landscape.
The article reviews the digital changes seen across the mortgage industry to date and sets out the key opportunities and challenges viewed by companies involved in the mortgage process. We summarise the various ways the industry is addressing the digital evolution and the key technology assisting companies to achieve their visions.
DIGITAL CHANGES ACROSS WIDER CONSUMER MARKETS
It is widely recognised that we are in a period of revolutionary change. Multiple strands of technologies are advancing at pace, and in parallel, enabled by improvements in cognitive computing. The ease, speed and simplicity of new technologies are fundamentally changing customer expectations. No longer required to wait for a third party to complete activities for them, the customer is now in control. And they expect each experience to be in line with their best last experience, regardless of the cross-over between industries. Mobile technologies have been a significant catalyst for this shift in expectations: billions of people can access information and complete activities at the touch of a fingertip. In just three decades, the number of mobile devices in the world has exceeded the number of humans.
The speed of customer uptake today is also vastly faster than ever before. It took 75 years for the telephone to connect 50 million people. And 13 years for the television. Yet Facebook achieved 50 million users in 3 years. And gaming apps can achieve it in just 35 days. Across the globe, new players are entering well-established markets and demonstrate how new technologies and simple ideas can transform distribution models and reach audiences more quickly than ever before.
While the level of disruption has varied across different industries, technologies and customer experiences, there is a series of common themes that are re-shaping the world around us. Changes across multiple consumer markets around the globe are raising the bar for user experiences and resetting expectations. As more day-to-day activities are completed or enabled digitally, consumer behaviour, and their trust in online transactions, are changing in parallel. New players are entering new markets to meet these new needs. And established companies are investing in digital changes to remain competitive and relevant to their customers.
IMPACT OF DIGITAL CHANGE
Digital change in the mortgage market is happening gradually and it comes in numerous forms. It can be familiar and evident to the customer, enhancing their experience and interaction, or it can promote efficiency improvements to back-office processes, particularly through greater use of automation. The investment will also continue to improve data-sharing capabilities between lenders and intermediaries. The main difficulty with digital change is outdated software. Companies understand the need to address this challenge to keep pace with digital advances beyond mortgages.
For customers, a mortgage is a means to an end – what they want is to buy a home. While they appreciate today’s mortgage experiences are relatively fast and provide valuable services like online tracking, many still experience frustration. They want a stress-free, transparent, safe and secure buying process. Companies are using a variety of strategies to meet these aspirations. Most recognise the need to offer a choice of digital and physical interactions, across multiple channels, which allow customers to progress at their own pace and feel in control of the process.
For industry providers,
digital change will lead to more customer-centric thinking across the industry. Companies would assume their business aspirations to evolve naturally alongside wider digital change. Following are the key industry providers
- Property Search and Sales: Property portals and other digital tools have expanded their scope and now offer more than just a simple property search. Not only this, it assists customers in numerous ways like helping them make informed decisions or helping them in areas like home maintenance and reducing property running costs.
- ntermediaries: Intermediaries have improved the way they interact with these businesses. For example, online decisions in principle, case tracking and scan and attach document upload are now standard. Intermediaries plan to continue enhancing their ability to share information digitally. Digital intermediaries are now entering the market. They offer customers a real-time view of bespoke and eligible products and let them complete online applications with the support of a Robo (i.e. digital) mortgage adviser. Post completion, they run daily checks to ensure the customer is still on the best deal for their needs.
- Lenders: Lenders have been concentrating on investment for the simplification of back-office processes, the improvement of online customer journeys across multiple product types and promoting lender-to-broker interactions. Tools like affordability calculators and real-time decisions in principle have become market standards. principle, case tracking and scan and attach document upload are now standard. Intermediaries plan to continue enhancing their ability to share information digitally. Digital intermediaries are now entering the market. They offer customers a real-time view of bespoke and eligible products and let them complete online applications with the support of a Robo (i.e. digital) mortgage adviser. Post completion, they run daily checks to ensure the customer is still on the best deal for their needs. New entrants are providing digitally supported home buying and owning journeys. Lenders will continue to invest in digital changes to enhance customer experience, enhance revenues and minimise operational costs.
- Conveyancing: Digital investments are changing the conveyancing experience and improving a highly manual legal process. These have focused to date on online portals, electronic offers, e-signatures and electronic certificates of title (COTs).
- Surveyors: Lenders continue to uptake automated valuations. Valuation providers and lenders alike are considering drive-by valuations – where a fully qualified surveyor reviews a property from available digital information, rather than a site visit.
For regulators, we assume compliance checking will be moderately impacted by digital changes over the next few years. That will include more consistent outcomes and faster decision making, a full audit trail and improved customer experience. The regulator needs to ensure excellent customer outcomes, foster innovation and improve market competition
OPPORTUNITIES IN THE MORTGAGE MARKET
Improve Customer Experiences and Relationships
Each customer is unique and each should be able to get the best outcome for their needs, with minimal effort, at the pace that they choose and through a channel they prefer. To enable this, use customer research to design user journeys associated with defined customer segmentation, as well as develop technology that provides the flexibility for customers to seamlessly transition between channels of interaction. Quality of service and accurate decision making is imperative, including early visibility on the lending decision and status of the property. Increasing transparency, and more regular dialogue with customers, would help build and maintain customer relationships, ultimately aiding retention.
Put the Customer in Greater Control
Increased data availability, combined with digital capabilities, can help put the customer in control 24/7, and provide them with more information to make their decision. A key investment trend is an ongoing increase in the volume of self-serve tools available.
Improve Operational Capabilities
The customer experience can be further enhanced through a digitally enabled end-to-end home buying experience, where the front-end customer experience is supported by a digitally enabled back office. Digital mortgage changes will have a positive impact on the lender-to-intermediary interactions and that they will continue to invest.
Unlock the Power of Data
Data can be used to enhance operational efficiency (for example, through real-time reporting), or to enhance customer and colleague experiences. There’s a need to connect disparate systems. During the home buying and mortgage application process, the data could be used for targeted marketing campaigns and to offer bespoke product offerings to the customer. After completion, data help a customer manage their property and to ensure they remain on the best deal for their circumstances. In addition, data can be used to proactively assess when a customer may be getting into financial difficulty.
CHALLENGES IN THE MORTGAGE MARKET
Legacy Systems
Legacy technologies constrain agility and make it hard to innovate which leads established businesses to rely on incremental improvements. Due to the complexities and size of legacy systems, well-established companies have a backlog of changes and incur significant costs to realise change and run their IT systems. While established lenders do have more capital for investment and/or acquisition, new challengers are less constrained, making it easier for them to make changes with agility and get to market quickly. To overcome legacy challenges, companies can continue to make incremental improvements to legacy technology. Or they need to start again, outside of the legacy technology. In addition to systems constraints, companies need to ensure that they have the right skills mix. They should also keep colleagues aware, or involved, in changes being made and provide them with training opportunities
Regulation and Compliance
Significant regulatory change can impact lenders’ ability to innovate. Both because resources and budget need to be directed towards regulatory compliance, and because lenders are hesitant about investing in innovations that may be overtaken by regulatory change. Innovation is, therefore, easiest within a stable regulatory environment. The regulator will need to remain fully involved and assist companies as digital technology adoption increases, to ensure positive customer outcomes. Important topics for discussion with the regulator
- Data access and use;
- Cyber-security and fraud;
- How quickly customers can access funds;
- Ensuring that algorithm-based technologies are in line with risk appetite or refer as an exception;
- Conducting conveyancer interactions through increasingly digital means.