FF Virtual Arena: The Future of Mortgages: Digital or Hybrid?

Mortgages. A vast loan used for acquiring property. They are one of the largest financial products that a customer will use in their lifetime. After all, buying a house is no small feat. While the rest of the financial world was evolving and digitizing itself at a regular pace before COVID-19, some would say that mortgages had slipped behind on that. This lack of digital growth pre-COVID, the importance of customer experience, and the future of mortgage technology became the key topics behind our latest Virtual Arena. Featuring Laurean Herepean from FintechOS, Christopher Pearson from HSBC UK, and Tom Hodgson from Trussle, our own Douglas Mackenzie sat down with these figures and discussed the journey – as well as the challenges – that digital mortgages faced up until now.

Pre-COVID, many referrals for mortgages came from a non-digital environment. Word of mouth, estate agents, and physical ads; there were reasons to do this, of course, as the complexity of such a system was a difficult hurdle to overcome for that digital growth. Not only that, but people want to be nurtured through the mortgage process. It’s natural. We, as humans, rely on interaction in almost every aspect of our lives. You can’t just throw a bunch of algorithms at the mortgaging process and expect customers to be content with that.

That isn’t to say there has been no digital growth for mortgages. A lot of banks, even before COVID, had been investing in the customer experience, the journey to digital, and cloud-based platforms. That transformation simply hadn’t been as overt until COVID-19. This pandemic, while ghastly in every sense of the word, was a trigger for digital transformation worldwide. When every other channel is inconvenient, unavailable, or unsafe, we need to create a new channel. Before then, we were jogging. Now, we are sprinting. A fire was lit under our rears.

“Trussle were well set up for when the pandemic hit, we’ve been trying to bring this process online as much as we could anyway. We didn’t need people to go in or be anywhere physically, customers could go online and fill in their information, […] but we saw a big uptick in the amount of people that were coming to us because of the other channels being offline.”

Tom Hodgson, Commercial Director at Trussle.

Even with this digital growth, however, the actual components of buying a house – the system itself – hasn’t changed much. It’s a step by step process. You find a house, you go to an estate agent, you to a financial advisor, and so forth. Nowadays, however, we’ve seen an increased reliance (and necessity) on video calls rather than face-to-face interactions. In these times, you’d be hard pressed to find a service that still demands you visit a branch. Instead, you engage in calls behind monitors and talk through online chat platforms. Instead of filling out a mountain of paperwork and forms, there are automated evaluations and existing data that banks can use to gauge a customer’s affordability. Efficiency is the name of the game. It’s that efficiency that we’ve seen the biggest improvements on when it comes to digitization.

Simply put, we’re seeing more automation but the journey itself hasn’t changed. It’s smoother. It’s quicker. It’s efficient.

When making that transformation, however, the customer’s experience is absolutely vital. Building what the customer wants, tailoring it to their experiences and needs, allows for a solution that creates as little disruption as possible for the consumer. Open banking has that potential. We need to get customers more attuned to that open banking experience, however, and to get them more comfortable with it. A soft, guiding hand to walk them through is best. We can already see that; customers will regularly come onto live chat, or phone you, not only to make sure they’re going through the process correctly but to get as close to a face-to-face experience as possible. Anyone who engages in the mortgage business needs those interactions to build trust. A self-service approach can’t completely work.

A hybrid approach, where automation improves but interaction remains, is not only a possibility but a necessity and close to a reality. Why? It’s all about trust.

“The human element will remain critical to build trust. As a bank, you want to save human involvement for where it counts; you can digitize document uploads, ID verification, form signatures, but this human touch should be preserved in the mortgage process.

I think the approach will be a combined one; assisted together with self-service.”

Laurean Herepean, Digital Banking Product Owner at FintechOS.

So how are the different players positioned in today’s climate? For traditional banks, they’re in a better position to leverage these new mortgage approaches due to their funds, infrastructure, and most importantly the trusted brand that a customer can rely upon. For a bank such as HSBC UK, some of their customers and their customers’ families have been with them for over a hundred years. That heritage, that trust, is so valuable for them. With this new hybrid approach to mortgages, traditional banks are able to invest far more into these areas and are secure in their opportunities to lend for mortgages.

On the other hand, you have neobanks. While they don’t have as much of a trusted brand as traditional banks might, and might have access to less funds due to how recent they are, we’re already seeing them grow into that digital transformation. Venture Capitalists in the UK, in fact, are already branching out into financial services and mortgage lending. We’re seeing examples of Neobanks, like Starling Bank, take those steps into digital mortgages – to further the example just mentioned, Starling Bank acquired Fleet Mortgages. This is a growth market and it shows.

For this market as a whole, one of the things that’s really going to differentiate competitors is pre-approved mortgages and write-ups in front of the journey. Efficiency, in other words, and being fast. Not just in the offer, not just in the form filling, but across the entire sphere. This is the general direction that we should be looking towards and keeping our eyes on. We’ll see banks and brokers enabling much quicker outcomes, making the house buying process faster, and using data in innovative ways to provide the right product, at the right time, for clients.

This “battle” between neobanks and traditional banks might even see a third contributor to the space. Tech companies. They already add a lot to the space; they have the technology, the money, the process. These big names could very well become fintech businesses in their own right. That may become the future of the mortgage, as well as the future of financial services. But it’s not going to come suddenly. That change isn’t going to happen overnight.

“I see [the future] as steady, controlled change. I think we’re going to see more collaboration with embedded lenders. And now they’ve got more agility through cloud-based computing and the ability to link in certain component parts of that through API methodologies. I think it’s highly likely we’ll see a little more collaboration in that space.”

Christopher Pearson, Head of Intermediary Mortgages at HSBC UK.