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Keeping the balance

Despite worries that consumers will use the internet to cut out brokers and go straight to high street lenders, the signs are that the balance between business channels will be maintained, says Barney McCarthy

Many people would herald the internet as one of the most life-changing inventions of the past couple of decades and it has certainly made life that bit easier for most. Those who work in offices probably take the convenience of email for granted and don’t fully appreciate the usefulness of being able to browse the web for anything their heart desires.

But brokers are likely to be glad of the strides technology has taken in the past few years. Online sourcing systems give intermediaries the latest information regarding products and rates at their fingertips and save them from having to make endless telephone calls. But while the internet has simplified things for lenders and brokers, it has also caused a shift in operational focus for some, with branch networks being trimmed as companies do business online instead. Lenders continue to stress the importance of business they receive through their intermediary channels, but will the amount of broker business be compromised as more customers go direct online?

Several high profile lenders culled their branch networks this year citing a variety of reasons. Newcastle closed 19 branches in August saying they were becoming under-used by customers, and warned the trend was likely to continue. Although the society still has 33 branches in which it plans investment and development, the cost of maintaining the failing branches was becoming detrimental to the society’s efficiency. HBOS also ditched the Birmingham Midshires branch brand after seeing no value in retaining duplicated networks in prime retail trading positions. BM Solutions, the intermediary arm, now carries out 100% of its new business online and has done since March 2005.

Just recently West Bromwich urged financial organisations to think carefully before closing branches, saying such closures denied traders and local people choice and service.

West Bromwich quoted figures from the Annual Abstract of Banking Statistics when expressing its concern. The data revealed that more than 6,000 bank branches have closed since 1990 and that banks have reduced their networks by 27% since 1995. In the same period, societies have trimmed their branch networks by 5%.

The number of branches being cut might adversely affect consumers as they have fewer options when going direct, but it could benefit intermediaries in that consumers denied a local branch may seek to go through a financial adviser.

It is also important to emphasise that while internet usage is increasing and has changed the way consumers research and apply for mortgages, many still like to use more than one method when securing a loan and will require face-to-face advice at some point in the process, even after having used the internet to start the ball rolling.

A year on from the advent of regulation, more lenders now offer online applications, and an increasing Mamount of business is conducted online. In fact, some pundits predict we are not far off carrying out all business via the internet.

James Rodea, commercial director of Cluttons Private Finance, believes this is the case. “I have no doubt that within the next few years all mortgage transactions will be processed online – and we are not too far from that now,” he says. “I don’t believe we will ever see the day when consumers arrange all of their finances online as most use the internet just for browsing, but you only have to look at the younger generation becoming more au fait with the internet to envisage complete online fulfilment.”

BM Solutions conducts all of its business online and Clare Mortimer, spokeswoman for the lender, says the decision to do this was natural. “We decided to do this as most of our business was already being submitted online,” she says. “It was a reflection of how intermediaries that deal with us wanted to work, although we believe the human touch should not be undervalued. This is why we have support available through helpdesks and business development managers.”

While it is undeniable that more business is being conducted online, most industry figures believe there will always be the need for a variety of channels and that customers will always value dealing with a person as well as a computer.

Nick Robinson, managing director of Intelligent Finance, is confident the different methods can exist together harmoniously. “During the internet bubble there was a lot of hype that online banking would revolutionise the way people banked and that the demise of branch networks would result,” Robinson says. “We never subscribed to that as people like talking to each other. It was for that reason that we launched as a telenet bank – offering both online and telephone services. There will always be a place for branches. The footfall delivers an important strand to any major organisation’s overall business plan.”

Brokers are certain that the two channels will continue alongside each other. The internet has made life easier for intermediaries in that processing has become easier, and for consumers in that they have an effective research tool available to them. But this does not lessen the importance of consumers wanting human interaction – whether it be in a branch or through an intermediary.

James Cotton, mortgage specialist at London & Country, says online systems have come on a great deal but that the two channels needn’t compromise each other. “There are lenders that deal exclusively with intermediaries and some that only go direct, but most realise the benefits of both and receive business through both channels,” he says. “At present brokers have an advantage in areas that require specific advice such as self-cert and sub-prime, but for standard mortgages there will always be those who prefer to just go through a high street branch.” Chelsea acknowledges the importance of branches as a part of its distribution strategy and is reinforcing its commitment to direct business by changing the emphasis in its offices to direct business only by October 2006, allowing branch staff to specialise in customer service. Jeremy Hicks, spokesman for Chelsea, says the number of intermediaries registering for its service has increased since it has given the intermediary market access to a single point of reference at head office where brokers can work online or have direct access to underwriters.

Hicks says the internet has made consumers better informed, which benefits all parties. “Customers welcome the ability to find details in the comfort of their home or office in their own time, but many still call or visit to confirm the arrangement and ask questions,” he says.

“The human touch still counts for a great deal and technology serves to refine the conversation as customers have access to more information.”

Alliance & Leicester is another lender that has shown the importance it attaches to an intermediary market that has become even more prominent since regulation, and has an often lauded online offering. A&L also has a 254-strong branch network and is constantly assessing the viability of additional premises.

Mehrdad Yousefi, head of intermediary mortgages at A&L, says there is no hidden agenda behind other lenders choosing to close branches and that it’s a simple matter of business rationale. “With people working longer hours, not everyone has the time to make it to a high street branch for their financial needs so the internet plays a useful role,” he says. “Our research shows that one-fifth of people who visit a branch have already researched their options online.”

So, are there any ways in which technology can be a hindrance?

Colin Dale, head of lending at Skipton, says consumers are more savvy as a result of online research but that some are bewildered by the quantity of information available.

“There is a danger that with all the data the internet offers, consumers might suffer information overload, but overall technology has helped consumers in becoming better informed about what is on offer,” Dale says.

Cotton adds that while technology can be a good thing if everything is running smoothly, its usefulness is reduced if it requires constant human intervention. Halifax, the largest lender in the UK, says that online operations are just part of a mix that includes branch networks alongside telephone and postal business. Paul Fincham, spokesman for Halifax, says the development of the internet can only be a positive thing. “Intermediaries are embracing technological solutions after a gradual process of introduction,” he says.

“Which channel consumers go down is usually dependent on the product they are after.” Although the internet is playing a larger part in the day-to-day operations of all companies, this does not have to be at the cost of branches closing. After all, online business is not the first threat they have faced.

Linda Will, managing director of Accord Mortgages, says there will always be a market for face-to-face advice. “Companies have been doing business over the phone for years and that has never eliminated the need for consumers to come in and see who they are dealing with,” she says. “If five years ago someone had suggested to me that Accord would be doing all its business online I would have thought they were mad.”

Will adds that while intermediaries may initially be resistant to change, they will soon adopt a way of working that is efficient and financially beneficial to them.

This year’s branch closures don’t appear to indicate that consumers are not continuing to go direct – more that lenders are constantly assessing how much business goes through different channels and occasionally redressing that balance by shutting branches. Lenders do not close branches lightly. The negative publicity it creates through job losses and depriving communities of financial services can have as adverse an effect on a company’s reputation as decreased footfall. It’s certain that they will only shut branches as a last resort. The direct and intermediary channels have operated alongside each other until now without serious problems and there is no reason to think that will change in the near future.

Cluttons’ James Rodea says intermediaries certainly have no reason to fear for their livelihoods with more than two-thirds of mortgages now being processed through brokers. “A mortgage is the single biggest purchase a consumer will make and a significant proportion want to talk through their options,” he says.

“Most people will go to a broker but confident consumers who have already had a mortgage will cut out the middle man and go direct.”

Either way, the future looks bright for brokers. If more high street branches close, more consumers will seek out financial advisers. It doesn’t seem like it right now, but lenders are increasingly appreciative of the business they receive through the intermediary channel. And brokers should not worry that consumers will go direct to lenders because of the internet. The signs are that while many consumers use their computers to research the best rates available and ascertain what kind of product they require, the vast majority still require further advice and assurance.

Technology has made life easier for both consumers and intermediaries and should be seen as a valuable asset and not a threat to business. Intermediaries who operated in the market before the advent of online sourcing systems and applications will join with consumers in saying amen to that. l

Brokers can compete with other channels by offering enhanced valueJeff Knight, head of marketing services at GMAC-RFC When it comes to obtaining mortgages, consumers have choices. They can contact a lender directly by phone or via the internet, they can pop into their local high street branch, they can go online to an intermediary website or they can go and visit an intermediary in person. The market is not homogeneous and consumers will have differing needs and desires that influence how they source their mortgages. They will examine the options they know are available to them, and make a suitable choice.

Intermediaries are not only competing with each other but they are also competing with every other distribution channel. They should not expect consumers to automatically choose them and so will need to market their services to ensure they are selected by adding value. There are many ways they can offer a superior proposition to other channels. For example, brokers can provide greater choice by having access to a much wider range of products than a high street lender will offer. This is obvious but it should not be forgotten.

Another area where intermediaries can win is speed. In today’s hectic world, consumers want everything quickly, including their mortgage. Intermediaries have access to lenders such as GMAC-RFC which can deliver binding decisions in just 30 seconds. Through technology they can also book funds and a valuation. This adds real value at point-of-sale. By accessing the wider market, brokers have an edge when a client gets initially rejected for a mortgage, perhaps due to adverse credit. Not many high street and internet lenders can offer a range of products like brokers.

Where intermediaries lose out is in name awareness. Some of the big names spend huge amounts of money on TV advertising and intermediaries simply cannot compete with this.

There is still a degree of lack of awareness about the real value of using an impartial intermediary among the general public. But this is growing, with the help of the likes of IFA Promotion, which is one reason why I believe intermediaries will command a greater share of the market in the future. Another is word of mouth which remains key to intermediaries, and why service is crucial to them. Intermediaries will also continue to benefit from the growth of more specialist sectors such as self-cert, buy-to-let and sub-prime, which tend to involve more intermediary-led products.

So, brokers win hands down because they can access a number of products, they can provide faster decisions and they can provide a more personal service.
Intermediaries will always be important in the specialist marketAdam Henry, director of sales and marketing, Money Partners The three distribution channels – intermediaries, the internet and the high street – each play an important part in the mortgage market.

It is a customer’s circumstances and borrowing needs that determines which option is most relevant and appropriate. This has led to the mainstream and non-standard sectors differing in their commitment to any one route.

There are significantly fewer opportunities in the specialist market for a customer to go direct and so there is greater dominance by brokers. The individuality of each customer requiring a specialist lending solution is best served in a one-to-one environment with an expert. And regulation has helped build consumer confidence in this process.

All specialist lenders in some way rely on intermediary distribution. And technology is further driving market development as lenders and sourcing system providers commit unprecedented levels of investment.

For example, 60% of all intermediaries can now access the products from 80% of specialist lenders through Trigold’s ENC system. Other developments, such as online binding decisions, will ensure that technology continues to set the pace in the sector while boosting service standards.

As technology evolves, so do the business opportunities available to intermediaries and, by default, the product choice for customers. For intermediaries this has not only translated into higher service levels but also lower operational costs and greater productivity.

Technological advances have also satisfied the rising demand for home ownership by increasing competition and product choice in recognition of the true spectrum of non-standard nuances. Intermediaries are uniquely positioned to take advantage of this.

But what has been accentuated through this advance is the question of availability and its related impact on service levels. A number of specialist lenders have made their technology and their products directly available to the wider community.

Others, such as Money Partners, have limited their access points to a smaller intermediary group. This choice of strategy is not designed to create an elite panel but to ensure service quality is not compromised – a key requirement of any intermediary.

As long as consumers continue to have diverse and individual financial histories and needs, the intermediary distribution model will be an integral part of the specialist market.

Mortgage sector benefits from technologyPeter Charge is director of sales at The Mortgage BusinessThe financial services industry has been one of the heaviest investors in the web revolution since it began in 1990, using the channel to provide constantly up-to-date information and to transact business online.

Datamonitor figures suggest 90% of IFAs had installed broadband by the end of 2004, far exceeding the national average figure for SMEs. This can only mean that intermediaries intend to make full use of online benefits to stay in competition with the high street.

An AIP returned in seconds with KFIs saves mortgage brokers time while giving a strong service impression to a client, especially when it happens via a laptop in a person’s office or home. The AIP can be converted to a full application with minimal extra keying, saving yet more time. And for straightforward cases the decision should be on your screen within a minute. Automatic handling of standard cases frees up underwriters to concentrate on more complicated applications, so these days you can expect individual underwriting to be turned around within 24 hours.

Working online gives brokers more control than they’ve ever had before. They can instruct valuations online, place general insurance – if they have FSA permissions – and now arrange conveyancing, which earns them extra commission. They can also track each case in real time, receiving email updates.

As well as giving brokers more productive time and enhancing their service image, working online also gives an extra level of protection with regard to duty of care. Certain lenders are now providing robust affordability models that can easily be accessed online before the AIP is requested. Keeping a record of the result helps show the broker has taken a client’s ability to repay into account, as demanded by MCOB 11.3.1. Where applicants have relatively low commitments the use of an affordability model may provide a larger loan than conventional multiples would have done, so everyone wins.

One group currently less well served by lenders online are packagers. The technical issues relating to packagers are quite complex and TMB is developing a packager-friendly online system scheduled to go live next year. The objective is to allow packagers to enjoy the benefits of submitting cases online while allowing them to add value to the process in their usual ways, such as by speeding up processing times.

From a marketing perspective there are also benefits, with online website information able to be produced in less time and at a reduced cost than comparable paper material.

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