A future in which tech giants like Amazon and Google compete with brokers no longer seems like science fiction, says Guy Anker
‘Alexa, can you get me a mortgage?’
OK, so Amazon’s home assistant cannot deliver a home loan, but some experts suggest there may come a day when it will compete with brokers or lenders.
Yet the industry will need to significantly modernise to get there, according to some in the market who concede the sector lags behind other areas of financial services in tech advancement.
Many advisers have previously said ‘robo advice’ is one of their biggest threats, yet a number of new and existing brokers have adopted an early form of robo advice in recent years so that fear is less prevalent. However, machines do not yet have the capability to give complex advice.
Many also point to improved lender and broker back office technology that can speed up applications, while the advancement of open banking is generally seen as the foundation for the next stage in making the mortgage sector more digitally-friendly.
Looking further ahead, Cherry Mortgage & Finance broker Matthew Fleming-Duffy says: “I wouldn’t be surprised if we see Google or Amazon offering mortgages at some point in the future, and these firms are hardcore market disruptors.”
Building Societies Association policy adviser Robert Thickett says those giants may even utilise their most recent tech to facilitate this: “There is a growing trend to use devices such as Alexa and Google Home. In 10 years, there may be more of a willingness to engage with these devices for financial advice. For example, the government is keen to get driverless cars on UK roads within a couple of years. If you’ve been happy enough to let a robot drive you around all day, the idea of letting a robot provide mortgage advice as well might not be as big a leap as it might be for today’s consumers.”
Yet all that is many years away, as it can still be slow to get a mortgage, with the process often taking weeks. That compares to current account switching which takes seven working days, though of course the mortgage market is more complex.
“It’s fair to say mortgages were one of the last areas in financial services to see innovation,” says Habito communications lead Naomi Lane, which employs a version of robo advice.
Fleming-Duffy says that while the mortgage industry is made up of various components, it has yet to fully integrate them all together digitally.
He says: “There is product pricing and design; funding; advice; underwriting; surveys; and conveyancing.
“You have a multitude of systems, procedures and regulations that need to be adhered to. The industry has a long way to go to join up these processes.”
Of course, when applying for a mortgage, clients must prove they are credit-worthy, can afford payments, that their home is suitable, and much more. It is arguable that no other area of mainstream financial services has as many cogs to its wheel.
Then there is the fact a borrower may want detailed advice which is not a quick process as human interaction takes time to set up and conduct.
With the embryonic robo advice models of today, we are not seeing lots of machines make big decisions. Human interaction still plays a critical role even with slick, mobile-friendly online application systems.
Habito’s system was launched in 2016 and is essentially a question set where clients can enter information about their income and property, but also their plans for the future such as how long they plan to stay in their property.
At the end of the form the client is directed to speak to a broker by live chat or phone, though the broker then has the core information to make a quicker recommendation once that conversation happens.
London & Country, one of the largest brokers in the market, is one of the leaders in embracing technology after the launch of its ‘Mortgage Finder’ system in 2017.
It has a similar question set to Habito but with a selection of personalised products alongside it. That gets whittled down as the system learns more about the borrower, though it gives the option to speak to a broker at any stage.
Once the form is submitted, an adviser will review the information and make a recommendation. The customer can complete an application online or speak to a broker. Both the Habito and L&C application systems look like a web chat to give them a modern feel.
“It’s not that long ago in relative terms that mortgage applications were paper-based,” says L&C director David Hollingworth.
“Yet the thought of a lender that doesn’t offer an online application process is now unthinkable. Customers increasingly like to initiate an enquiry online but still have the option to talk to an adviser at any point along the way.”
Lane adds: “Robo advice still sounds scary. We found there needs to be that human interaction to give people the confidence to make the biggest purchase of their life.
“It’s human nature to trust people over machines. What we’re seeing however is trust and respect for technology gaining momentum.”
Some argue even if technology allows computers to eventually make recommendations en masse, they are not infallible. TSB will likely acknowledge that point following its high-profile IT meltdown last year.
“We should not leave computers completely unattended to make decisions,” warns John Charcol product technical manager Nick Morrey. “Robo advice is coming but it seems to be a way off for anything other than simple applications.
“This is because many applicants who seek advice do so as their situations do not necessarily fit the criteria of the cheapest lender. More to the point, unless the system actually asks the right questions, then the key answers may not be uncovered and that can lead to a poor choice of lender.”
Fleming-Duffy goes further in what the industry must do to implement robo advice in its literal form: “I believe artificial intelligence and quantum computing both have to be operating successfully before robo advice can take the place of human interaction, and we are long way off from that.”
Yet amid the growth of digital applications, it is claimed lending decisions made by a human can still be a virtue, particularly in complex cases.
“For many building societies, their unique selling point remains manual underwriting,” insists Thickett.
Morrey echoes that sentiment: “There are many lenders, predominantly building societies, that have a credit committee set up just for making judgment calls and that will be extremely difficult for any software to replicate.”
As well as the early stages of robo advice, lenders insist other technological change has taken place in recent years.
A spokesperson for UK finance says: “Applying for a mortgage online and seeking financial advice via e-chat is now becoming an everyday occurrence.”
Other key developments include the use of application programming interface (API) systems to plug into lenders’ key criteria to help brokers make a recommendation.
Morrey says: “Desktop valuations have created many more products with free valuations. The public may not be aware, but it is technology that drives this cost saving. APIs are becoming more widespread and that helps reduce the time taken to key an application.
“Now a broker can find which lenders have what rules regarding Japanese knotweed in two minutes rather than hours on the phone or on intermediary websites.”
Thickett adds that many firms now use digital signatures to add to the suite of advances.
Many experts point to open banking as the potential catalyst for the next stage in the technological revolution.
Open banking allows clients to tell one financial services provider to share their data with another. In its simplest form, someone can view their bank account via another bank’s app.
In the mortgage industry, many experts predict it could allow far quicker affordability checks as it might allow a lender to access an applicant’s bank, credit card and other statements to understand their income, savings and expenditure without the usual questions and without asking them to send in the evidence.
Thickett says: “The long-term potential for open banking in the mortgage market could be huge, especially around affordability assessment.”
Lane adds: “Open banking has the potential to transform the relationship consumers have with their finances by giving people real product choice and access to better-priced deals – all aligned to their circumstances.
“For mortgages, the adoption of real-time affordability checks by lenders and brokers will happen with open banking APIs. The technology would also allow for making instantaneous assessments on a customer’s suitability to products by comparing their income and historic spending to borrowers with similar profiles.”
Another short-term development some expect is for quicker identity checks using digital technology.
Morrey says: “Open banking but also electronic identity checks are what most lenders and brokers are focusing on. The day when no identity documents are needed for the majority of applicants is coming.
“Right now, companies such as Equifax, Experian and Callcredit will perform a full ID check on someone but lenders cannot accept the results by a third party so they do their own which can require a full set of documents. These have to be certified which often means sending in a passport or driver’s licence that people understandably do not want to do.”
This is all a long way from being able to talk to Alexa to get a mortgage, yet were Amazon to make a move into mortgages it would not be a huge shock.
Rumours are already rife that it is considering entering the UK insurance price comparison sector. Meanwhile, Google dabbled in more general UK financial price comparison earlier this decade by using the technology behind comparison site Beat that Quote which it bought in 2011. However, it is has since ceased offering comparisons at the top of personal finance search results.
If that next level of technological advancement happens, some worry for the big banks.
Fleming-Duffy says: “They should be worried. Most small building societies work hard at maintaining a personal touch, they know their respective markets and so do not over-rely on technology for delivery of their products and services.
“But the rise of tech in mortgage lending may cause casualties with large institutions too languid to change.”
Lane concludes: “There’s no doubt the disruption we’re seeing is genuine and will result in long-term change.
“It saves brokers time, saves their customers time and gives people greater access to advice. It offers consumers new tools that make switching a mortgage as easy and commonplace as switching utility provider.”