Richard Carter, Managing Director of Equiniti Credit Services, explores how adopting open technologies can help mortgage providers accelerate their digital transformation, improve customer services and boost their recovery in a post-COVID-19 world.
In terms of technology adoption, it is widely acknowledged that the mortgage market lags behind the consumer credit sector. The COVID-19 pandemic in particular has highlighted the need for lenders to boost their automation capabilities to enable better digital services for customers, enhance their risk management capabilities and streamline their operations to aid recovery.
As the impact of COVID-19 has been felt across the country, mortgage providers deserve recognition. They have acted quickly to assist their customers in this time of crisis, granting payment holidays to a staggering one in nine mortgage holders since the UK’s lockdown began. But such unique and (almost) overnight demand pressure-tested lenders’ operations, with some customers complaining about being put on hold for hours, as staff grapple to support as many callers as possible. Official advice from UK Finance[i] has warned consumers that ‘telephone lines remain extremely busy’ and advises them instead to turn to their lender’s website as a first port of call.
Those mortgage providers that have already set out on the road to digital transformation have been able to perform better, communicating more effectively and offering their customers a level of autonomy through automated self-service facilities. As with any service sector, customers remember the experience just as much, or sometimes more, than ultimate benefit gained. Although no-one can yet say for sure what the post-pandemic world will look like, it is fair to anticipate higher demand for seamless digital services.
The mortgage market, therefore, needs to up its automation game to prepare for what lies ahead.
Encumbered by their legacy systems, mortgage providers need to think strategically about how they can bridge between their existing infrastructure and the ability to deliver new, consumer-centric service offerings, all while reducing costs to recover lost income. In this instance, finding the right technology partner can unlock a number of significant benefits throughout the entire lifecycle of the mortgage management process.
Servicing existing customers
As households begin to get back on track, those who took mortgage holidays will need to have clear sight of how their payments terms that have changed. Others may be looking at how they can release equity from their existing mortgages to support family or secure themselves against any future financial crises, some may want to switch products entirely to secure more stable interest rates. All these scenarios will create additional administration for mortgage providers already contending with outdated internal processes or outsourced servicing platforms. Integrating API-led technology into their existing systems will enable mortgage providers to simplify these complexities and reduce the operating costs associated with mortgage management through increased process automation.
With social distancing measures likely to impact human interactions for months, perhaps years, after lockdown has been lifted, we are also likely to see an increased demand for remote access and self-service environments from existing customers. Mortgage providers have been traditionally been slow to adapt to consumers’ demand for fast, online access to their accounts, which is the norm across other areas of the credit industry. Granting access to digital self-service environments, where customers can manage their own accounts and make payments will create both internal efficiencies for lenders and give customers added reassurance that they are in control.
By integrating API-led platforms now, lenders can also ready themselves to launch new, consumer-centric services enabled by artificial intelligence (AI) and open banking data. Consumer research conducted by Equiniti Credit Services pre-pandemic, found that just 40% of those surveyed said they would be unwilling to give a lender temporary access to their bank transaction history if it could lead to a better, more personalised mortgage rate. With only 12% saying they would seek the advice of a broker when their mortgage deal comes to an end, open banking data not only opens up the chance to keep customers once their current period has ended but also creates an opportunity for lenders to deliver, more flexible and tailored products. Imagine a mortgage product that could flex according to life circumstances offering holidays and flexible payment terms to suit different life stages.
Creating an end-to-end process
Such technologies can also support efficiencies in the mortgage application process. Currently dominated by intermediaries, who require lengthy face-to-face appointments to support applications, social distancing may see a move to increased remote application processes either as a result of extended measures or through consumer cautiousness. Open banking data, integrated via API-led platforms, could create opportunities for real-time affordability assessments, derived from bank account data, transforming the current admin and paper heavy process. Only 26% of those questioned in our research study said they would not trust AI tools to determine their credit worthiness, showing that consumer willingness to accept such services already exists.
Planning and remaining complaint
Any event on the scale of COVID-19 offers a chance to integrate learnings into future scenario planning. Having a contingency and risk assessment for pandemics and other incidents will certainly be on the agenda, both for internal stakeholders and regulators alike. We expect to see stricter regulations on lenders’ reporting practices. Choosing a technology platform that provides access to real-time data monitoring tools, as well as FCA-regulated personnel, can help lenders to quickly identify and responsibly manage risk and remain compliant the throughout the mortgage life cycle.
Finding the right partner
While supporting customers must remain the key focus, mortgage providers need also to prepare for what’s to come. With this in mind, the mortgage market can no longer afford to be behind the curve. Finding a partner that can integrate an open platform which is adaptable and flexible to accommodate in-house origination systems will be a key factor in post-lockdown preparation. This will arm mortgage providers with the tools they need to adapt to the new market dynamics, and launch competitive new services while remaining compliant with the sector’s regulation.
FINASTRA GLOBAL SURVEY SHOWS APPETITE FOR OPEN BANKING PICKING UP PACE WORLDWIDE
- 86% of global banks surveyed are looking to use open APIs to enable Open Banking capabilities in the next 12 months
- Banks believe regulators are stifling innovation: almost half (48%) believe ‘regulation is too tight’ and that there is ‘not enough government or industry support to foster innovation’
Finastra research reveals that 86% of global banks are looking to use open APIs to enable Open Banking capabilities in the next 12 months. In addition, 30% of banks surveyed believe Open Banking is already making a tangible impact in delivering improved overall customer experience. This is against a backdrop where regulation is perceived to be tighter than a year ago and close to half (48%) of those audited believe that regulators are holding back innovation.
The research, which was conducted prior to the Coronavirus outbreak amongst 774 financial institutions and banks across the US, UK, Singapore, France, Germany, Hong Kong and UAE1, shows a maturity of API adoption and calls for the harmonization of regulations between geographies.
Key findings include:
- Open banking is on the up in 2020 compared to 20192: The percentage of financial institutions looking to leverage open APIs has substantially increased in the US (+23%) and UK (+17%), while Singapore (+1%), France (-1%) and Germany (-4%) are relatively stagnant since our research in 2019.
- Improvements in the overall customer experience accelerate API adoption: the US (45%), Hong Kong (42%) and France (36%) are leading the way in harvesting this benefit of Open APIs (UAE: 32%; Germany: 20%; Singapore: 20%; UK: 19%). Overall, 41% of global banks say that they are ‘still in the early stages of adoption’, so it’s difficult to measure the impact of Open Banking on their business so far.
- Regulation is perceived to be tighter than a year ago and industry or government support is required to foster innovation: Almost half of those audited believe that regulations are holding back innovation. 48% state that ‘regulation is too tight’ – 10% more than 2019 – and the same percentage (48%) believe there is ‘not enough government or industry support to foster innovation’, particularly so in Hong Kong (62%), France (50%) and Singapore (49%), compared to 38% in the UK.
- A call for harmonization: 83% of financial institutions and banks agree that regulations regarding fintech innovation should be harmonized across different geographies.
- Cost of fintech research and development is of concern in some regions: Cost of R&D in the US, UAE and APAC regions is highlighted, more so than in the UK. (USA: 55%; Hong Kong: 55%; Singapore: 51%; UAE: 46%; France: 43%; Germany: 34%; UK: 33%).
Simon Paris, CEO at Finastra said, “It’s encouraging to see Open Banking maturing on a global scale, but it’s still seen by many to be in its teenage years, with scope for creating even greater opportunities. We believe it will be the first step towards Open Finance which will see the next wave of innovation in financial services being created through collaboration on open platforms, like FusionFabric.cloud, using open APIs and open software solutions.
“Currently banks and technology vendors are rightly focused on business continuity and keeping their workforces safe. We’ve also seen many of these firms moving with amazing pace to bring innovative solutions to market, with the help of technology, to support customers in this new environment. As we come through this situation together, we must endeavor to emerge stronger, and it will be interesting to see how Open Banking and collaboration accelerate when this outbreak ends.”
LIBERTY BANK REINFORCES ITS FRAUD STRATEGY TO FURTHER PROTECT ITS CUSTOMERS
Liberty Bank, the third largest bank in the Georgia, has reinforced its fraud strategy to address the rising volume of fraud the industry is currently seeing. The bank has teamed up with long-term partner Compass Plus to launch a new fraud detection and prevention system built on their solutions.
Following the completion of the project, which was implemented with technological support from Compass Plus, Liberty Bank can efficiently and effectively monitor and act on suspicious transactions, enabling them to substantially reduce the risk and losses associated with a wide range of fraudulent activities, while protecting their customers.
The key drivers for Liberty Bank choosing Compass Plus software were the ability to quickly create their own algorithms to detect and prevent suspicious transactions, the integration of the solution within their existing infrastructure, and the capability to provide services to sponsored banks.
“The partnership between Liberty Bank and Compass Plus began in 2005, and the implementation of this project has, once again, demonstrated the flexibility of Compass Plus’ software and its ability to meet the latest industry requirements and trends. With the help of our new fraud detection and prevention system, we are able to combat fraud on a brand new level – not only can we promptly respond to any potential threats, but also prevent suspicious transactions, making our card products convenient and safe for customers,” said Levan Tkhelidze, Deputy Director General at Liberty Bank.
“Our long-term partnership with Liberty Bank is important for us, and for them to choose our software to build their fraud strategy around showcases not only the strength of our relationship, but the reliability and robustness of our solutions. This project has once again confirmed that Compass Plus solutions meet the advanced industry standards and correspond to market conditions, in which the volume of card fraud is constantly growing, and methods used by fraudsters are becoming increasingly complex,” said Dmitry Lenshin, AVP & Regional Business Development Director at Compass Plus
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