Over the last seven years, digital mortgage broking has gone from an idealistic vision to being part of the business-as-usual toolbox for the mortgage industry.
The pure-play digital vision
In 2015, digital mortgage broking seemed poised to become the next big thing. This was the year when Habito and Trussle were founded, fuelled as much by the idealism of a better consumer mortgage experience as by venture capital funding. Robo-advice became a buzzword, and even the Financial Conduct Authority (FCA) promoted innovation in the automation of mortgage advice. These early pioneers made rapid progress in a short time, and genuinely did build better digital consumer journeys, generating positive customer reviews.
The pivot to hybrid advice
The appeal of a pure digital journey was limited to a relatively small group of customers, and the economics of fee-free mortgage advice and low conversion pushed profitability well out into the future. By 2018, both Habito and Trussle had discovered that meeting customers’ expectations, managing complex needs and converting sales required a human touch, and had started hiring mortgage advisers to support ther models.
In the same year, Experian invested in telephone-based broker London & Country (L&C) with the vision of transforming the business to a digital hybrid model. L&C was already the leader in converting online price-comparison leads, had a strong existing customer back-book and would shortly launch its own online process. In terms of the economics of mortgage advice, lead conversion and cross sales trump productivity. And even the most sophisticated digital operations struggled to beat a well-run telephone based operation.
The lead generation challenge
The other problem faced by the digital pure plays has been generating enough leads to support ambitious revenue growth. The cost of online ‘pay per click’ leads spiralled upwards as online players bid up the price. And building a brand as a small business in a mature industry targeting an infrequent purchase is expensive.
Ultimately, the players best placed to generate digital mortgage leads are the price comparison sites, and they call the shots. The likes of Money Supermarket, MoneySaving Expert and Compare the Market have high brand recognition and are able to spread the cost of brand advertising across multiple financial categories, underpinned by insurance comparison. This gives them a lower cost of acquisition, and they are able to pick the mortgage partners who convert their leads most effectively.
At a smaller scale, Zoopla subsidiary RVU has integrated this model by putting together its stable of price comparison properties (money.co.uk, uswitch and Confused.com) with digital broker Mojo.
The shake-out
By 2021, venture funding for the digital pioneers was starting to run out, and along with many other businesses, mortgage brokers were reeling from the impact of Covid lockdowns and the rollercoaster housing market. A number of deals ensued with Trussle snapped up by US digital mortgage giant Better.com, and Mojo by RVU later in the year (again backed by US private equity money). Consolidation has further to run, with Habito and L&C still in play, and MoneySupermarket and Compare the Market yet to make a significant move in mortgages. Finally, Zoopla is reaching the end of its investment horizon with Silverlake, its US Private Equity owner, and may soon be looking for a new owner, which would come with new strategic priorities.
The endgame: mature digitisation
Elements of the hybrid model now exist in a variety of places. Some of the tools have become industry standards, with online form-fill now familiar and much improved, and eligibility tools widely available within price comparison tools and online brokers.
However, none has managed to deliver on the promise of a digital-first customer experience at scale. The promise of easy, automated advice and effortless applications is yet to be fulfilled. Most of the enabling technologies and data exist but have yet to be integrated, as they are not shared between brokers and lenders. The barrier here is less technology than the industry structure, which prevents common standards being adopted and shared.
The traditional route of estate agency referrals has proved difficult to dislodge, with brokers and networks such as MAB, Primis and Connells dominating this channel. They have taken a more gradual approach to digital transformation, looking to automate and improve parts of the process rather than build a digital-first proposition from scratch. These traditional brokers and estate agency businesses may yet surprise us by making breakthroughs in digital customer experience, and MAB’s acquisition of Fluent Money points in this direction.
The future for the remaining major digital players, Habito and L&C, may be more in the hands of the price comparison giants, and the appetite of private equity firms than in the traditional mortgage broking industry. The logic of lead flow from price comparison through an integrated digital journey is hard to beat – although these companies have other challenges, and other uses for their limited capital.
With maturity and learning from the last seven years, the dream of the ‘big bang’ fully digital advice experience is probably over and the future is shifting towards using digital tools selectively to improve broker efficiency and customer experience.
