By Micha Helbig, VP and Regional Head Financial Services, Infosys
While the financial services industry has transformed over the last few decades with technology adoption, the mortgage industry has lagged behind considerably. There are several reasons for this –unlike daily banking, applying for a mortgage is typically a once or twice in a lifetime event, and so the perceived need for the use of technology to create efficiencies in the process has seemed less critical compared to high frequency transactional banking services like Payments.
This had already begun to change as customers became more demanding and newer (digital first) lenders and Fintechs created a significant change in the customer experience by introducing straight-through processing to offer almost instant pre-approved mortgages. Then, the COVID-19 pandemic hit, unleashing massive operational challenges on mortgage providers owing to lockdowns and social distancing protocols. The pandemic dramatically accelerated the demand for mobile first, digital everything solutions to ensure more contactless interactions. What’s more, loss of productivity and data security concerns due to remote working resulted in higher application rejections, as evidenced in the findings of our recent Global Survey looking at acceleration of digital transformation in the heated mortgage industry.
Our survey also unearthed that a staggering 97% of respondents accelerated digital transformation between March 2020 – March 2021. While half of respondents tripled the pace of digital transformation, about 20% said they were transforming four-times faster. While the drivers for change vary across regions, customer service, efficiency and cost savings, and innovations were some of the top focus areas for all lenders.
Over the coming years the unprecedented upheaval caused by COVID-19 in the mortgage industry, coupled with changing customer expectations, will continue to make it essential for lenders to embrace digital transformation. Our survey also revealed that only 4% of mortgage lenders are fully digital, while 10% have a high usage of paper in their mortgage application process. Undoubtedly, digital transformation is likely to pose significant market challenges for organizations that are yet to embark on digital transformation, but it is inevitable.
Here are some of the key areas of transformation that mortgage organizations must consider in order to survive and succeed in the future.
Review the need for Digital Transformation holistically, but prioritise
There are many opportunities to digitise and digitalise the mortgage business, including but not limited to origination, servicing and collections. Each of these have their value and should be included in an organisation’s “North Star” state of the organisation to pursue through Digital Transformation. However, our research shows that different regional markets are in different business cycles leading to the need to consider different short-term priorities. In the US, the immediate emphasis seems to be a lot more on creating efficiencies across the business, whereas in Europe the need for improved customer experience and faster origination are key focus areas.
Getting the Basics in Place
Lenders need to focus on implementing a combination of technologies that allow for increased digitization of both their origination and servicing processes, ensuring maximised speed, efficiency, and superior engagement. This is a key element of providing greater transparency and speed and also forms the basis for advanced technology implementation.
Strong API Platform
Lenders communicate with customers via a variety of different channels – email, web portals, call centre, etc. At the same time, lenders also typically need to deal with a number of external parties such as credit agencies, notary publics, tax authorities, market data providers etc. Therefore, a strong API platform can ease the data exchange drastically by providing an integrated digital connect.
Data processing for origination can be simplified considerably through capabilities such as OCR, which can help easily validate the veracity of data provided by the customer by comparing it with official data. AI/ ML can help ease decision making and allow for straight through processing of ‘happy flow’ applications that tick all the boxes for the lender – good credit history, track record, etc. Differentiating the ‘happy flow’ cases from those that need to be scrutinised can help optimise efforts to focus effort only on customers that require attention.
AI/ ML for better decision making and insights
With customers becoming more assertive and taking an active in understanding, evaluating, and comparing lenders, and regulations allowing for easily moving between lenders, customer attrition is becoming a concern in the mortgage industry. Therefore, AI/ML can play a key role in helping lenders pick up tell-tale signs that a particular customer might be looking to move on. Also, the various government subsidies and moratoriums for COVID-19 taper off, defaults on payments are likely to increase. AI/ML can help here too.
We have engaged with many of our clients to reimagine their business processes and boost competitive edge in the emerging digital market. We are engaged in rebuilding sales and marketing, operations and business processes from the bottom up, and the journey is exemplary of what today’s mortgages marketplace could achieve with an experienced digital transformation partner. Here are a few examples of how we are helping our clients:
Sales and Marketing
Overhauling the digital front office experience, collaborating with Fintechs to develop a brand-new mobile apps to boost loan officer productivity, and built a new CRM for better lead conversion.
Automating processes using industry leading AI driven Robotic Process Automation tools across processing, underwriting, closing and post-closing. We have benchmarked industry leading Loan Origination Software (LOS) and are modernizing the entire loan processing life cycle to enable clients to close loans faster.
Business Process Re-design
We use techniques such as Failure Mode Effect Analysis and Business Process Mapping techniques, to arrive at both immediate short term pain points as well as the North Star Business and Technology Target State that is helping drive the entire transformation roadmap.
Enabling transformation will require a structured approach and investments to allow for capabilities such as straight through processing powered by smarter, more integrated, digitization processes. It’s also poignant that our survey highlighted that mortgage firms that accelerated digital transformation by four times their previous pace were likely to see profits about 2.4 percentage points higher than the average. By contrast, firms that slowed their digital transformation twofold were likely to find their profits nearly 10 percentage points lower against the average. The emphasis on digital acceleration couldn’t be more obvious — mortgage providers that don’t invest in digital transformation risk becoming irrelevant in the future. The bottom line is clear for the mortgage industry – digitise or die.