Impeded by the credit crunch, the mortgage industry has fallen far behind consumers with investment in technology. A Mortgage Strategy roundtable explored brokers’ technological development and what they should do to catch up
Investment in mortgage technology has experienced a fallow period in the years since the financial crisis. The combination of slashed profits, closing firms and the later costs associated with implementing regulation such as the Mortgage Market Review and the Mortgage Credit Directive served to stifle progress in technology.
On the lending side, an April 2016 survey by Iress found that half of intermediaries (53 per cent) rated lender systems as ‘average to very poor’ for ease of use.
But the market is starting to pick up. This year alone has seen impressive steps forward by lenders: Lloyds has set up a video chat service for advisers, digital-only Atom Bank has launched, and New Street Mortgages has come to market with an analytics-heavy approach to lending – to name but a few.
Mortgage Strategy, in association with Homeloan Partnership, gathered a group of leaders from the mortgage and technology markets to discuss the present state of, and likely future for, technology in the mortgage industry.
- Paul Woodworth: Managing director, Gateway 2 Finance
- Kevin Paterson: Managing director, Source Insurance
- James Tucker: Managing director, Twenty7Tec
- Jeff Knight: Head of marketing, Pepper UK
- Carlos Thibaut: Chief executive, 360 Dotnet
- Martin Sims: Development director, HL Partnership
- Gareth Finney: Sales manager, LMS UK
- Nick Blatcher: Owner, Citrus Mortgages
- Christopher Tanner: Chief executive, HL Partnership
What are tech firms currently working on in the mortgage space?
Thibaut: The main focus is on client engagement, particularly around client-facing tools. That’s getting the consumer engaged with both the adviser and the process.
I think financial services are way, way behind. In fact, I would go further and say consumers are way ahead of our own industry in terms of the technology we should be offering them.
Knight: Data transfer did exist pre-credit crunch, between lenders’ systems and other people’s systems. But the credit crunch really hit technology advancements in this industry. When budgets get hit, it affects technology, staff and marketing, in my experience.
Then there is the focus on regulatory change; a lot of resource has gone on the must-dos, rather than the like-to-dos, from a lender perspective.
Tucker: The principle of data transfer is easy to achieve but it’s something we haven’t managed in this industry because we haven’t invested in those systems because of the credit crunch.
Knight: The collaboration hasn’t been there. Everyone has been focused on their own destination and, in many senses, survival. I think things will start to change. Lenders will have to engage more with other technology firms to make it happen.
Tucker: Particularly as the intermediaries become bigger, in terms of market share. That will drive some of that change.
Paterson: Technology was moving forward before the crunch. But after that the amount of underwriting required became significantly greater. So all the systems that had been rushed out, the streamlined workload – a lot of that went by the wayside as lenders needed more information.
Thibaut: It’s fashionable to talk about the FCA as having the right idea but not necessarily applying it in the right way to encourage technology. But I see something in the regulator’s MMR thematic review that is actually helping technology. It is very keen that clients are spoken to in the right order: capturing data, income, expenditure, going into sourcing, making sure the advice process is audited.
Finney: The Iress mortgage intermediary survey found recently that it took 90 minutes to go through the advice process and 44 minutes to complete the application online. If you’ve got to do that two or three times before you get an application submitted and accepted, there is a huge efficiency saving there with straight-through processing and instant decisions.
Will lenders increase their tech spending now that the MMR and MCD are out of the way?
Finney: We may see things start to define themselves a bit better as we move forward.
Knight: Historically, technology could actually differentiate lenders in the marketplace. I think that will change to more of a hygiene factor. You’ll have to have a good online system or you won’t even be in the game.
Blatcher: You need a couple of lenders to push things forward and the others will follow. Look at the introduction of live-talk systems: one or two pushed that out and now others are following.
Tanner: What we need is for lenders to link their technology to sourcing platforms or CRM systems. There was certain integration years ago but it reached only a few lenders and was one-way integration. We need proper two-way integration. That would save the broker a considerable amount of time.
Tucker: We are starting to see lenders come to market with that principle.
Tanner: One of the key areas lenders are working on is quality. If you have to keep re-putting in information, you will get errors; if you can enter it once at the beginning, you will iron out errors.
Paterson: A common complaint used to be that the regulator was a barrier to innovation. That’s no longer the case. The regulator has established an area within itself, most notably with banks, to encourage innovation and use technology-based banking. Atom has just launched its first app-based savings account; that doesn’t exist anywhere other than in the virtual world.
Knight: I think a lot of lenders hid behind regulation as an excuse for not innovating. The biggest challenge to innovation is inside companies, not outside. It is about culture.
Is it harder for smaller lenders to change their culture?
Knight: No. If the person at the top wants it, it will happen. So I think size is irrelevant. It is generally easier for a smaller organisation than for a larger one but, if it stems from the top, it will happen.
Blatcher: Can a smaller lender afford the cost of technological investment involved?
Paterson: I think you ignore disruption at your peril. Disruptors have come into every industry and ours is no different. Uber is the largest taxi firm in the world but owns not one vehicle. Disruptors can see how to do it differently and take your lunch money. That’s what keeps me awake at night.
Tucker: Some of these new entrants still have a challenge in terms of technology, from a lender’s perspective. Atom Bank is using Iress as an MSO platform. That’s the same as Nationwide is using. Atom is using what is still reasonably outdated legacy technology. How much innovation can it achieve with processing in the background compared with what it is promising consumers in the back end?
Paterson: There will be a first mover; they always get a bloody nose. The second and third movers see how to do it better.
Thibaut: But the winners with technology are rarely the innovators. The winners are the ones that get the business model and the combination of technology right.
It’s fashionable to knock banks because they haven’t done this, they haven’t done that. But behind the scenes I see a huge amount of R&D there. The Holy Grail for them is technology-enabled applications, straight-through processing, using their data knowledge of their consumers to provide a very quick experience in terms of clients obtaining mortgages – and cutting out the broker.
Finney: We’ve seen it too. There is a mantra with the challenger banks: a balance of automation with speed. With Atom it still maintains it is looking at intermediary distribution. It wants speed, it wants automation, but there is that personal touch too.
Tanner: The technology we are seeing from the banks, the insurance companies, the apps – we don’t really have that in the broker market.
Clients want to access their information easily. It doesn’t mean they don’t want advice at some point but they start their journey through the internet. If brokers don’t move ahead, they will be left behind.
What is the level of broker investment in technology?
Blatcher: The biggest hurdle for brokers is that they have a day-to-day job. Unless I was a bigger firm with people who could look at innovation, I would get wrapped up in the day job. So in that situation brokers get reliant on their networks.
Woodworth: Most brokerages are small businesses; they haven’t got the funds to invest in R&D in the way some companies have. What they can do is find a way of interacting with those particular lenders.
If you’re a vanilla customer, working out the best option for you is pretty straightforward. The more difficult part is where customers have different requirements and needs. As we move forward, those vanilla customers can be left to the lenders.
I don’t think the broker market will develop in that way; it will be more about customer needs at the point of sale. The worry for brokers will be the technology that lenders have in place for predicting customers’ needs.
Tanner: You’ve also got to look at the mindset of the broker market. A lot of the sector is made up of one- or two-man bands. For them, technology is an out-of-date laptop and a website that hasn’t been changed for years, and they will use one of the two CRM systems in the market. For them to prosper and move forward, they need to commit more money towards technology.
It’s a very different marketplace between the smaller brokers and the larger ones that have taken technology on board.
Blatcher: It used to be that the person with the fastest laptop was the best enabled; now it’s the person who thinks about the cloud, about the things they can procure for nothing. That will be a great leveller between large and small advisers.
Tucker: That’s where working with networks that understand technology and are constantly researching the best technology solutions will be increasingly important. If you’re being mandated a technology solution that’s two or three years behind the curve, your business will be two or three years behind the curve.
Knight: We are all talking about technological advancement but there is a lot of technology out there that isn’t being used properly.
It used to be that most brokers’ business came from word of mouth, which may still be the case. So how does that interact with technology? There is Skype, social media, things that exist today that aren’t being used properly. So there’s a risk, as we move ahead, that we forget these foundations.
Thibaut: I think attitudes are changing slightly, especially with millennials. Rather than responding exclusively to a contact from their broker, a lot prefer to have control.
Finney: We see that brokers who know technology can grow their business as well as support it, and that’s quite important for them to get their heads around.
How could the mortgage application process be different in five or 10 years’ time?
Knight: What would the industry like it to look like? Lenders can invest in all sorts of ways but what is important to brokers and customers?
Paterson: One example may be being able to take a photo of the agreement and have clients send in that. There’s a company called Cover that produces car insurance by the hour. It just needs a photograph of your licence and number plate and it’ll come back with a price. That’s customer engagement.
Signing agreements and putting them in the post – I can’t stand it, let alone the youngsters. That’s a big barrier to entry.
Tucker: That’s where screen-sharing technology comes in. That works very well in the credit card market and I think we will see it come into the mortgage space. The human level between adviser and client will start to disappear.
Tanner: For the mortgage application process there is a host of systems that lenders have access to and brokers don’t. If there was a way to open up these technologies to the broker market, I’m sure it would help dramatically.
Knight: It would be good if, in five or 10 years’ time, the process was as good as it used to be 10 years ago: if, for example, for a vanilla case, you could get a remortgage within 24 hours.
Thibaut: Two things will transform where we are on applications: one is my data initiative to allow bank sharing of data; the other is if every client had a portal with a broker.
Knight: It would be great to have a digital passport, where all your information was there before you applied.
Paterson: There’s almost a lender cartel. They feed the brokers just enough to keep them interested and supply them with a service, but behind their backs they do all these other things. They develop systems to go direct.
They’re the ones driving robo-advice; they’re the ones hiding behind the law of reciprocity.
Can robo-advice really take off in the mortgage market?
Thibaut: Yes. But it depends on a number of factors.
In the mortgage market I see it doing two things. Enabling the consumer to do their own application is something I envisage as part of the overall proposition. Equally, in the full advice area I see that as something that improves the efficiency of it. You can see banks adopting robo-advice to take that mass following into their branches and cut out a lot of the face-to-face traditional advice and methods they use at the moment.
Knight: In essence we are already seeing it. The remortgage market used to be bread and butter for introducers. That business lately has really struggled because a lot of clients get to the end of their term and go back to the lender, bypassing the broker. They can do that online.
They are not getting the advice, so it’s just a question of how that progresses into the purchase market and other, more complicated areas.
I think initially it will be more straightforward cases: low-LTV, vanilla stuff.
Blatcher: In terms of where we are as brokers, we have to embrace technology and use it to make the client’s journey a lot less painful. As much as the lenders may not like it, I can’t see how they could present an entire robo-solution and still find the best outcome for the client.
I think there is a real danger there in leaving it in the hands of automation or the clients to find the best way forward.
Tucker: There is still a knowledge gap, even among the millennial generation, about the mortgage market. We can sit around the table knowing the market very well but there is a generation of people who are very proficient online but in reality do not understand mortgages as well as they need to in order to do their own mortgage application or take their own advice online.
Tanner: The traditional mortgage broker communicates with the client three months before the loan expires because, typically, they’ve sold only one product, two if they’re lucky. If your relationship is a phonecall, that’s where you will fall, because the lenders will pick that up.
Thibaut: Much closer is robo-advice supporting the traditional mortgage broker, to make the whole process much slicker and engage the consumer in terms of what they do.
Tanner: You also have to look at some of the regulatory papers that came out some years ago about comparison sites. They said they were based on price, so people weren’t buying quality.
Could there be a danger, if the consumer puts in price, that they end up with products that are not suitable? That brings it back to an advised market.
Woodworth: With robo-advice, one of the biggest problems in the future will be when it’s just a B2C proposition. The people most likely to use it are the ones on the lowest incomes who don’t want to pay for financial advice.
Knight: I think it will make a big impact on branches. Those are a big cost for a lender.
Will customers trust robo-advice?
Knight: I think it’s generational.
Paterson: Often they won’t know, to some extent. Any avatar-based system, if you front it with a meaningful and believable avatar, they may not be able to tell the difference.
Tanner: Different consumers react in different ways. Some will just want to phone up because they’re busy; then there are those who don’t understand technology. So we all have to build a proposition that allows all types of consumer to access the service style that they require.
Tucker: There’s an even more basic issue here in that there are 120 lenders in the market. You’d be amazed how often you go on a lender’s website and their data is wrong.
Until you get to the point where lenders are automatically feeding their product data into systems, there is still a manual element that can create issues with product accuracy.