We are all now used to using digital channels when booking a holiday, buying a car, selecting insurance or a personal loan.
We like the easy interface of a smartphone or laptop screen and automated decisioning, and increasingly dislike analogue routes to these products.
In this age of instant gratification, we want a seamless and rapid route from A to B. Anything less than this and we are likely to lose interest.
According to a recent report* more than 30% of consumers abandon an online form if they are forced to supply information ‘out of channel’.
We want intelligent interfaces which make the application process easy and which provide a definitive answer at the end. And, in most areas we already have this, including some areas of financial products such as the personal loan sector.
The end of ‘learned helplessness’
Pundits are increasingly referring to this shift to more automated, digital interfaces as heralding the end of ‘learned helplessness’ for the consumer.
Up to now, we have accepted being ‘helpless’ in the face of an unfriendly application process because that is all there is.
But, not now, when consumers know there are much better options out there.
So why are mortgages the most reliant of all financial products on ‘learned helplessness’ and the least digital?
Undoubtedly, the much larger loan amounts involved and the higher degree of risk entailed means that the process is resistant to such change.
And there are aspects of the application process that require intensive human input, for example the valuation of the asset and the conveyancing.
However, even if you accept this, there is still the ‘front end’ of the mortgage application process that is amenable to automation.
The front-end application experience seems to be stuck in a timewarp. It is substantially still a relic of a bygone era – a drawn-out business of paper-based historic proofs and last-minute product adjustments, all in pursuit of a non-definitive decision-in-principal.
Consumers are driving the change
The answer to why this is still happening, is that like so many legacy systems that have gone before, lenders are reluctant to move with the times when they have procedures and infrastructures that work and have served them well. Why fix it if it isn’t broke?
The danger of this inertia stance though is that consumers, increasingly used to instant gratification, are migrating to digital application interfaces.
They do not have the patience for the application processes that some mortgage lenders present to them. A report out last month** found that 69% of consumers had ditched a financial product application midway in 2020, up from 40% in 2019.
The same report found that 69% thought mobile-first providers were superior to traditional operators.
There are early adopters in this space, such as those in personal loans, and they are moving further on and focusing on digitally ‘delighting the consumer’ with ease-of-use and time-to-decision being their mantra.
They will admit that it is not them that is driving the change, but the consumer.
The ship is sailing on this revolution and those not on it are going to find the future tough going.
Those who do not invest time and money in automating are going to run the risk of going the same way as the companies that one day open their eyes to find that the world has moved on without them.
Broker requirements
What is obvious to me is that not only are consumers wanting an easier application process, but also brokers.
They can see that automated underwriting – where platforms such as our own ADP automatically tap the Open Banking revolution to interrogate hundreds of applications a day in real time – will lead to more consistent decisions (not dependent on the variables that come with manual underwriting) and a relatively rapid ‘yes/no’ that cuts the need for shopping around and leads to a greater conversion rate.
Knocked sideways by the no win/no fee ‘mis-selling’ bandwagon, they can also see the regulatory gain of having a digital system in place where every single automatic decision is supported by a comprehensive audit output, where every bit of data on which a decision is based is recorded, and where every calculation made against that data is logged.
For example, an income calculation is made at a precisely logged moment in time and comes with a never-before-possible level of granularity thanks to Open Banking.
At last, a solution to the tidal wave of spurious mis-selling cases that they have had to deal with and a robust electronic audit trail that will stand up to the scrutiny of any regulator.
And, for lenders, the upsides for them are obviously not limited to ‘delighting’ the customer. There is an ability to scale lending, where the underwriting has been automated and manual involvement limited to getting a minority of cases over the line.
And, instead of the labour and time-intensive decision-in-principle manual process, there is a consistent automated result in minutes based on real-time data backed up by credit referencing.
I admit this will not be an overnight delivery of a silver bullet. The conveyancing procedures amongst others outlined above for example will obviously remain in place, but, as we have seen, there is still much that can be digitised.
And doing so will benefit lenders and their brokers massively in the immediate, as well as the longer term.
David Wylie is commercial director of LendingMetrics
- *FICO Survey, November 2, 2020
- **Battle to Onboard, Signicat, November, 2020
