To explore global innovation in mortgages, NZ Adviser talked to two experts with truly global outlooks.
Mike Abel is managing director of credit services at Accenture Australia, consulting closely with banks, focusing on mortgages, commercial lending and payments. Lisa Claes is executive distribution of ING Direct Australia, and thus works closely with brokers. She also chairs the bank’s Global Mortgages Forum and sits on its Retail Council; given that the ING Group spans over 40 countries, she gets a wide ‘helicopter view’, as she puts it.
Both understand people’s uneasiness with US and European innovations. “I think adversity breeds innovation,” says Claes.” I certainly have some rational sympathy with that objection, but with my ‘helicopter view’, some of the innovation that’s occurred in the markets in which we operate has been certainly remarkable.”
Abel believes we need to draw a distinction between these markets, pre- and post-GFC. “These are post-GFC innovations, and these are what happened in response. They’re working in a very tight environment. So these aren’t cowboy or cavalier types of capabilities that people are launching; these are real innovations that will find their way here.”
The mortgage consumer
So what is coming here? The discussion begins with the Australian consumer, and his or her openness to getting a mortgage in a different way.
“I’d classify the Australian consumer in two ways,” says Abel. “In their expectations around banking products and mortgage products, Australian consumers are very sophisticated. So they’ve grown accustomed to offset accounts; they’ve grown accustomed to having multiple accounts linked – mortgages, credit card accounts, etc. From a digital/online perspective, the market in Australia is a bit behind where it is in other areas – the US and the UK.”
However, Claes insists that digital deficiency in financial services is not a problem of demand.
“I don’t think we’re conservative … to the contrary, the digital comfort of Australians – and I’m talking generally, beyond financial services – is one of the most advanced in the world. We have a very strong appetite and comfort with interacting digitally in financial services.”
You don’t need to look outside your own home to see validation of Abel’s and Claes’ arguments: Australia is infamously amongst the world’s top illegal downloaders per capita, yet US streaming service Netflix only arrived here in April 2015, a full eight years after it started streaming in the US.
Some examples might seem remote to finance, but consumer behaviour crosses industries, Abel cautions, and it’s not coincidence that the US is well ahead in digital finance: “[There is] the speed in the US at which they’ve adopted online as a medium for commerce – they’ve had things like Amazon and eBay for a long time; American consumers are used to buying goods and services online, and banking is an obvious extension.”
Meanwhile, Australian consumers are missing out, starting from the moment of application. An increasing target for banks abroad – and one that brokers can certainly empathise with – is automatic collection of client data.
A practical example of why this is popular comes from an example of how not to do housing markets – Spain. Current account customers of ING Direct’s Spanish subsidiary are eligible for the Orange Mortgage, or, as Claes puts it, ‘the Spanish easy mortgage’. It requires the absolute minimum of form filling, because the bank already has most of the data it needs.
“They use the data from these customers to offer them a mortgage,” Claes says. “They know, based on your income into that transaction and account whether they are able to offer credit, which then needs to be secured by real property.”
There’s an enormous amount of data about your customers already available – it’s just not being shared. UK lenders also have been more effective at this, according to Abel.
“There’s been quite a lot of innovation in the UK market, and some of that was driven by a very sharp turn in the regulatory environment.” When new regulations demanded investment from lenders, they also took the opportunity to invest in other areas and rethink their value chain.
“They’re capturing data once throughout the entire life cycle and process; they have intelligent expert systems at the front end, helping customers choose product; they’re running end-to-end, mostly paperless processes,” Abel says. “They’re giving customers a full interactive view of what’s happening with their mortgage.” He cites Nationwide, a building society, as a prominent example.
Crossing the channel back to Europe, smaller Fintech companies are demonstrating that collecting data can be useful for more than the standard home loan. They’re extending it to the entire financial life cycle, Claes says.
“A customer will get digitally verified, and then all the data you usually seek on a step-by-step, sometimes painful process with customers, to verify their income and expenses, the valuation, etc, can all be done via external sources, APIs and external databases.” At the moment, this is being done for SMEs, but she expects similar processes to appear in retail.
Integrated value chains
Global innovation means more than investment in IT, both our experts insist. “Products are only part of the value chain; customer experience is becoming more important,” Claes says. For Abel, a more fundamental mind shift is required: “We don’t think of it as the mortgage market; we think of it as the home buyer’s market, because at the end of the day, that’s what customers want to do. They want to buy or sell a house, not get a mortgage; that’s just one of the steps in the process.”
The home buying process of the future truly will be end-to-end, Abel claims, combining everything from finding a home to the removals truck. But integrating the many component parts of the home buying process isn’t just a matter of expensive IT. “There’s some partnering [involved]; it’s figuring out how to leverage that trusted relationship that the banks have to go further in the value chain and try and sell additional services,” he says. “The banks aren’t going to be doing removals, but they can certainly partner with a removals firm.”
And beyond the banks, there will still be a number of roles in the process. As is also highlighted in our boxout (see page XX), players will have to fit into three roles: advisers, access facilitators or value aggregators. All three transcend this value chain, whether advising, becoming a ‘one-stop shop’ or putting together deals for several different services in order to get a better rate. Whilst a firm operating across the entire chain has yet to appear, Abel points to the US for ‘green shoots’ of such organisations emerging.
“A bank in the future can’t just be a lender of funds,” he emphasises. “Once someone else comes along and works out how to own that customer in an end-to-end home buying process – not the home loan process – then the banks run the risks of being regulated to commodity provider.”
ING’s Claes has come to a similar conclusion, and is aiming for the “full-service offering … a mortgage provider can move to providing an end-to-end service that goes from finding a home to inspection, through to loan, to settlement, even to moving in. So you bring the entire experience together in a smooth customer journey.”
Banks and non-bank players
If financial service providers can’t adapt to the new end-to-end experience, they’ll be vulnerable to organisations with better customer service and loyalty. Claes urges financial professionals to look at the ‘macro-consumer trend’ – non-financial businesses – “because when customers interact with service providers, their expectations are set on a highest common factor basis”. Selling mortgages doesn’t stop you being compared to Apple and Amazon, she insists.
More directly, the commoditisation of financial services means new competitors, Accenture’s Abel notes. “Something that you’re not really seeing in Australia yet is disruption coming from a non-bank or different types of organisations,” he points out. In the US, Costco has taken its warehouse club retailing model into mortgages, whilst in the UK, major retailer Tesco has built on existing loyalty schemes to also offer financial services. Abel also mentions Coles – the supermarket already offers insurance and has been inconclusively linked with moves into the mortgage market.
However, it’s not only the largest organisations that will get a slice of the financial services pie, Abel says. “I don’t think smaller disruptors are necessarily shut out. I think the smaller disruptors – if you go back to those three roles in the future ecosystem – might not be able to play one of those roles themselves, but might be able to partner with someone to facilitate someone moving into that.” He believes online comparison sites and other Fintech organisations are the most obvious fit for this role.
Complacent markets are ripe for disruption, and continually pointing to the supposed unique characteristics of the Australian market may well be an example of that complacency. Both Abel and Claes emphasise that these changes are coming here; what the Australian market will do is tweak them to fit local conditions, and those players that do the tweaking stand to profit handsomely.
“Australian consumers have a higher product expectation and a lower distribution expectation,” Abel concludes. “But that’s probably going to change, and when it does change, it’s going to change quickly; it’s not going to be two to three years when people get a chance to respond. Things that are working well in other markets will find their way into Australia … lenders in Australia really need to be watching what’s going on overseas.”
This article was adapted from our sister-site Mortgage Professional Australia, written by Sam Richardson.