Let’s get digital

Publication Date: Monday, 11 April 2022
This article originally appeared in The Adviser

What is the current state of mortgage technology and what lies ahead?

It was already a rapidly digitising world before the pandemic, but when COVID-19 hit, it made digital solutions even more necessary. When people weren’t allowed to meet, they turned to Zoom, they completed virtual property inspections and they skipped wet signatures, signing legal documents through their screens.

The Australian economy has since begun to reopen and has returned to some form of pre-pandemic activity. But, certain changes are expected to stay and technology will remain key, in what has been termed the “new normal”.

Mortgage lending wasn’t exempt from the COVID shake-up, as demand for housing finance surged and lenders had to move quickly to keep up with demand, Some, such as ANZ, have revealed they were overwhelmed by a flurry of activity through the pandemic and needed to overhaul their systems and invest in new technology.

In the past year, the rise of automation in application assessment has been one of the largest changes in industry tech, Brighten Home Loans chief technology officer Craig Thompson reports.

“Having the platform dexterity to adapt to rapid change, new products and regulatory requirements” are the largest challenges for lenders around technology,” Mr Thompson elaborates.

The other major change he says, is the refining of the digital-only lending experience.

From broker to lender

Brokers have always needed to work with lenders, but now the loan application process from start to finish also requires different pieces of technology to slot in and feed into each other, effectively like cogs in a machine.

For Kate Gubbins, founder of mortgage technology provider Simpology, the most important development in the space has been the integration of different tech from different providers.

“I think that’s an exciting opportunity for all of us, actually, is that we can all use all of these tools and capabilities to better digitally collaborate, with all the different participants in the origination,” Ms Gubbins says.

“There’s a lot of opportunity for brokers to become the central piece of the relationship, and become more digital, between themselves and the customers, and also themselves and the lenders as well.”

More and more, technology is being developed to make parts of the loan origination process more efficient – especially those that focus on how to digitally acquire all of the data required for loan applications, so that customers won’t need to rifle through Manila folders in a filing cabinet.

This saves time, but it will also become important for a later part in the loan application process; when the lender receives the data that’s already verified as coming directly from the source, rather than it needing to be validated during the assessment process.

Other third-party services that have become available to brokers are digital VOI (verification of identity), digital signatures, valuations, open banking, services to validate PAYG income, and fraud and compliance checks.

Loan Market for instance, has changed the way it engages, onboards and helps clients, by making the process entirely digital. It has also introduced an end-to-end technology-enabled marketing solution, including SEO optimised websites and automation of Google reviews, which are integrated with group’s CRM system.

According to Loan Market managing director Andrea McNaughton, brokers have been freed up to focus on their clients, while their marketing is automated.

“Right now, we’re focused on automation, business process efficiency and complete business visibility,” she says.

However, while there are a lot of third-party tools available to brokers, they take a lot of work to integrate, and can be difficult and expensive, Ms McNaughton says. This is where an aggregator or a platform with the right tools already embedded can step in.

“For the average broker, leveraging new technology such as open banking is not something they can do on their own. You need deep integration and a high level of technical skills – an aggregator who can bring the technology to you,” she says.

“Smaller, growing broker businesses need a platform in a box, whilst larger businesses who are looking to drive efficiencies, need an open and integrated platform with open APIs to plug into.”

Similarly, Australian Finance Group (AFG) has invested heavily in tech, having acquired a 70 per stake in mortgage broker software provider BrokerEngine. BrokerEngine will integrate with AFG’s technology platform, although it will retain its brand and product offering to the broader Australian broker market.

“Investment in our own technology and recent fintech acquisitions position us to maximise growth opportunities and continue to improve the broker and customer experience across multiple asset classes,” AFG chief executive David Bailey told shareholders in February.

Lender tech is also expected to keep evolving (depending on company systems, policies, capabilities and risk appetites). Right now, automation and instant data verification seem to be allowing a number of lenders to head towards shorter turnarounds for simple loans, with some expecting approvals within the hour, minutes or even seconds. More complex applications are also expected to benefit.

For Tony Carn, chief customer officer with NextGen, one of the largest developments in mortgage tech has been the formation of benchmarking data, around processing and turnaround times.

“For broker groups, access to this real-time data means they have the ability to monitor lender turnaround times and communicate this to their brokers,” he says.

“It has also allowed lenders to focus on how best to empower brokers to submit applications that can be straight-through processed. And this is not just for vanilla loans, but all loan types: company loans, guarantors, construction loans, mortgage-insured, investment, self-employed, multiple securities, multiple applicants, etc.”

This has led to lenders accelerating the number of loans they can process without having to ask for more information, which NextGen reports has more than doubled in the last 12 months.

Machine learning is expected to keep improving efficiency and to provide further insights around credit analysis and customer assistance, Mr Thompson from Brighten Home Loans adds.

Looking towards Australia’s largest mortgage lender, CBA has launched a new digital identity verification process that will replace its current manual checks.

The bank has also recently extended its DigiDocs solution that it launched at the beginning of the pandemic, allowing customers to receive, sign and return documents electronically. It has expanded the feature previously only available to customers in NSW, Victoria and South Australia; to all states and territories, after a pilot in Western Australia.

According to Adam Croucher, general manager of third-party banking at CBA, the group’s investments in its operations, including its training hub for brokers, have raised the proportion of new business received via the broker channel from 44 per cent in June 2021, to around 50 per cent.

Open banking

In January, mortgage repricing and refinance platform Sherlok gained access to the consumer data right (CDR) scheme, by becoming a CDR representative with data intermediary Adatree.

Sherlock, which already offers an automated repricing and refinancing tool for mortgage brokers, would receive data in real time. Tapping into open banking would allow the provider to offer brokers live insights across product rates and customer data. The platform could monitor patterns in the consumer’s data and predict if they are going to switch providers – presenting an opportunity to brokers to improve customer retention.

The access to open banking data is also set to underpin a new single-click refinancing product for brokers, expected to launch in the second half of the year. As Mr Grocke told The Adviser previously, the ability to refinance a client in one click, could squeeze the time frame for switching lenders from a matter of weeks to minutes.

The Sherlok story is an example of what open banking could do for broking and mortgages. Many technology providers are optimistic about the possibilities posed by data, analytics and artificial intelligence.

Gustavo Quiroga, APAC vice-president at banking software provider Mobiquity says the sharing of data in open banking will allow lenders to create a customised product for every customer. He believes the scheme will improve the lending process by making pricing more competitive and the time to approval faster.

“Access to more detailed and broad transaction data allows lenders to tailor products to smaller segments of customers and reduce the incidence of false negatives,” he says.

“It offers customers a secure and safe way to use financial products and services from regulated applications and websites.”

Brokers are also set to gain access to customers’ open banking data, after the government made amendments to the consumer data rights (CDR) rules last year.

Customers will be able to share their open banking data with trusted professional advisers, which include their mortgage broker, financial adviser, accountant, tax agent or financial counsellor. Mr Carn from NextGen calls this a “game-changer”.

“Going forward this gives the mortgage broking industry a huge advantage in capitalising on the utilisation of open banking data and is potentially a competitive advantage over the proprietary banking channels of many financial institutions,” he says.

“We have a number of lenders who are deeply invested in preparing their readiness to utilise open banking data in the application process. In the coming months brokers will start to have the tools available to utilise open banking data.”

It has been 20 months since open banking launched in Australia, but while lenders have had somewhat of a head start on brokers, there is still a way to go. Simon Docherty, chief customer officer from open banking platform provider Frollo says the focus so far has mostly been on building the ecosystem and making sure that the data is available and reliable.

“For banks that has meant a focus on compliance and updating their systems to be able to provide CDR data, rather than use it themselves,” Mr Docherty says.

“Although there’s been a lot of interest from banks and lenders in using open banking data, we’ve only recently reached the point where the regime is mature enough to facilitate the most popular use cases.

“With more than 100 banks providing data, tiered accreditation in place and two thirds of banks and lenders saying they want to start using open banking data in 2022, we’ve reached a tipping point.”

Mortgage lending is one of the areas where Frollo expects the largest immediate impact from the data-sharing scheme. The company has predicted that it will slash on the amount of time for time to loan approval by 40 per cent.

“The ability to streamline the mortgage application process using a real-time, accurate snapshot of someone’s financial situation is enormous,” Mr Docherty explains.

“The new access models for CDR representative and trusted adviser make it easier for CDR data to find its way from a broker to a mortgage lender.”

However, lenders will need to adapt their internal operations. Staff need to be trained, processes need to be updated and risk models will need to be adapted to account for the replacement of bank statements, says Mr Docherty. There also needs to be a backup plan when certain data is not available or when there are technical hiccups.

Mr Thompson from Brighten also warns the industry will be forced to change how it operates.

“The design and architecture of lenders platforms will be tested in the coming year as servicing like open banking are adapted. This is likely to accelerate a push to cloud and need to move off legacy tech to support these types of services,” he says.

Many customers are expected to consent to sharing their data, in favour of convenience. Mr Carn from NextGen has predicted Australian consumers will follow the UK, where almost two-thirds of adults will adopt open banking by the end of 2022.

But Ms Gubbins says any good technology providers, lenders or brokers should be able to facilitate those who choose not to participate.

“Poor old brokers, there’s never one way to do things,” she says.

“Good systems have to be able to support both the traditional, more manual way of putting our applications together and also the newer digital ways of doing things as well.”

Keeping up with customer expectations

Aside from providing brokers with more seamless experiences, the industry will need to embrace technology change to meet changing customer behaviour. Consumers now expect more from digital  experiences, with limited friction across products and services. But technology providers have suggested there are still gaps in the user experience when applying for a loan.

Mr Quiroga says banks, lenders and developers need to standardise identification between their platforms – or risk losing customers altogether.

“Onboarding is one of the key processes that need to be digitised due to the high costs of cumbersome processes,” Mr Quiroga explains.

“However, Australian lenders lack uniform digital identity processes. This hampers the ability for banks to safely, securely and conveniently onboard customers – checking their identity and validating their credentials.

“Banks, lenders and developers need to act now and prioritise taking a uniform approval to onboarding, as repetitive and redundant processes can potentially destroy brands at the starting gate.”

Mr Docherty from Frollo also believes that the use of open banking to streamline mortgage applications will be a differentiator for consumers.

“Right now, banks and lenders have the opportunity to get ahead of their competition by offering a superior user experience,” he predicts.

“Soon enough it will become table stakes though. Similar to how consumers expect a bank to have a mobile banking app and offer Apple Pay, they’ll expect their mortgage lender to offer them account linking to streamline the process.”

Meanwhile, Ms McNaughton from Loan Market says time-saving technology that “blends the client and broker experience” is important and exciting, but the human connection remains king.

“This goes far beyond having an ‘online fact find’. It’s about facilitating connections to more data sources and designing a seamless technology ecosystem that offers the best of all worlds: digital and personal experience – that’s where the magic is,” Ms McNaughton says.

“Our focus is on technology-led tools and integrations such as comprehensive credit reporting, bank statements and open banking to help minimise the duplication of effort for both the client and the broker – yet ensure personal guidance from the broker remains front and centre.”