02 October 2014

Retail Finance

Henry Woodcock - IRESS

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Innovation in Financial Services

A discussion of trends in innovation management within financial institutions, and the key processes, technology and cultural shifts driving innovation.

MMR and Technology - Mutually exclusive?

04 July 2014  |  1754 views  |  0

Earlier this year, FStech magazine looked at technology predictions for the year ahead.

I’ve picked out three areas I believe to be very relevant to the UK mortgage market, in this year of the Mortgage Market Review:

  • 2014: the year regulation gets serious
  • Leveraging the benefits of electronic channels
  • Improving customer service while reducing costs

The article was predicting that technology investment in these areas would both increase and demonstrate real returns. Let’s examine this.

2014: the year regulation gets serious

MMR came into force in April and discussions with the regulator on implementing the EU Mortgage Credit Directive are already under-way.

So regulation in 2014 is serious for all mortgage lenders and our customers.

Lenders have had to invest across the business to be compliant in three main areas:

People – a challenge for many lenders is both having enough mortgage sellers and raising their qualifications to at least CeMAP© level 3

Process – as non-advised sales have gone, the advised sale must not just be compliant but fully support the seller in what could be several hours of discussion with applicants

Systems – reducing manual process where possible and enabling on-line execution only sales, whilst ensuring no direct interaction takes place

A number of lenders have taken the opportunity to review processes not just from the perspective of meeting MMR requirements, but to implement real change; engaging technology to deliver greater efficiencies, increased flexibility, reduced cost and an improved customer experience.

Regulation or compliance is sadly just a cost of business; but lenders with an eye on increasing their business in a growing market, will need to look beyond compliance and invest now before greenfield and challenger lenders do more than nip heels.

Leveraging the benefits of electronic channels

Next we look at electronic channels and being able to differentiate your proposition and business.

Although the Financial Conduct Authority appears to see execution only mortgage sales as an exception, preferring all borrowers to seek advice, the reality is likely to be that today’s Google and WhatsApp generation will think differently.

This connected and often first time buyer generation typically research and buy online whilst listening to social media feedback on the companies they look to deal with.

Execution only could therefore hold considerable appeal, as it will be better aligned with their usual buying behaviour.

The trick will be to engage the consumer – in particular, the first time buyer generation - using technology to deliver a similar slick buying experience.

There will be opportunities for lenders with a compliant, smart and joined up on-line offering and who can deliver a quality and efficient service as funding eases and if the market grows as predicted.

It’s no longer enough to simply cater for iPad users; today a best practice proposition needs to be device agnostic and tailored appropriately to the context and the consumer.

The circle has be fully rounded, enabling on-line research via mobiles, tablets and the web, seamlessly transferring without data loss to an advisor if required and providing transparent Omni-channel access to the originations process through offer to completion and finally the welcome letter/email/SMS.

Although currently a minor channel for most lenders, commentators predict the consumer channel will become more than a low cost self-service option and turn into a key channel to market.

Improving Customer Service and Reducing Costs

The consumer buying experience has changed dramatically in the last few years. These changes have been driven primarily by on-line retailers such as Amazon providing a next day service, to mixed brick and click propositions as offered by John Lewis where the consumer can buy on-line and choose between a variety of delivery methods and times, including pick up from a store or a local service depot.

Consumer expectations today are of a personalised and efficient service across all transactions, from the electronic wallet on their mobile, or even their smart watch and up to the largest financial purchases, including buying a home.

In the mortgage world, the cost of acquisition inevitably rises as regulation changes and becomes more onerous. Likewise delivering a superior customer service can raise costs further unless processes are streamlined and highly automated.

Time to completion is often outside of a lender’s control, depending on third parties, house purchase chains and the unexpected. However, time to offer, valuation service pressures aside, is very much in the hands of the lender.

Third party added value on-line services and automation of standard processes can make a market-leading difference and provide an efficient and transparent service to the consumer.

Smart systems can orchestrate what were once manual processes into an automated series of processes, only calling out to mortgage origination staff when a case hits a risk or process boundary.

Once reviewed and validated, the satisfactory case should be able to be returned back into the straight through process.

Added value services such as address targeting – validating both the post code and that the applicant is known to live at the address, reduce manual intervention and later re-work.

In a similar fashion, sophisticated rules based credit/risk assessment services can do more than provide the traditional pass, refer or decline decision. They can generate and diarise a list of proof requirements for both applicants and the application and automate the chasing of such requests to lender service level agreements.

Where such automation, workflow and straight through processing have been implemented, alongside mortgage lending best practice, lenders have seen acquisition costs reduced between 35% and 40%, year on year and significantly reduced time to offer.

These are not future technologies, but already here and deployed by a number lenders.

Even the FCA supports innovation, with Martin Wheatley announcing in May what he called “one of the most important pieces of work currently emerging at the FCA, a project to help support industry innovation: from smaller start-ups to mass market with new models.” Link -http://www.fca.org.uk/news/making-innovation-work

He noted that London, in particular, has become a European trend-setter. Its booming tech scene, accelerators and primacy in financial services combining to create a marriage made in innovation-heaven.

So a combination of the right strategy, systems, processes and staff can deliver a “the computer says Yes” experience for today’s mortgage buyer.

 

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Henry Woodcock

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Principal Consultant

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IRESS

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Cirencester

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