The pandemic has caused mass unemployment across the UK and the world as many businesses simply haven’t had the resources to sustain all of their employees. For many, their financial history now shows a blip that ordinarily would alert banks and lenders that the person applying should be investigated further. This is unfair to the borrower as no one was prepared for a pandemic. Not all hope is lost though. The mortgage industry has modernised and digitised allowing lenders to confidently lend to those affected by the crisis as new sophisticated fintech solutions arise.
Cloe Atkinson is managing director of Mortgage Engine, a fintech harnessing the power of APIs to simplify the mortgage process and improve customer journeys, founded in 2018. Previously, she was the former Head of Mortgage Transformation and Controls at Santander.
Here, Atkinson shares her thoughts on how fintechs can help get insecure borrowers back on their feet:
In the Spring Budget, the Chancellor announced further extensions to both the Stamp Duty holiday and the furlough scheme. While there have been high levels of government intervention for over a year now to help consumers through the worst of the crisis, it seems likely that covid will also leave a large pool of potential borrowers with disjointed work histories and tarnished credit scores. This presents a challenge for the mortgage industry that will take more than government involvement to fix.
Until now, many lenders have based their lending decisions on a snapshot of an applicant’s banking history and perhaps a small number of other documents, but this approach is clearly unsustainable with the advent of a ‘once in a lifetime’ health crisis that has left its unique mark on many people’s financial history. Whether through unemployment, periods of furlough or reduced income due to the pandemic, affected borrowers are already struggling to meet the criteria set out by traditional lenders and as a result may well find it harder to access to finance in the future.
Fortunately for the industry and for borrowers, technology may provide an answer. From video house viewings at the start of the pandemic, to more widespread adoption of automated valuation models (AVMs) and open banking, the mortgage industry has modernised its operations in recent months and is now more receptive to tech solutions than it has ever been. By continuing to adopt new and sophisticated fintech solutions, lenders can provide a more tailored and personalised service that benefits brokers and borrowers alike.
The role of fintech
In just a few years, fintech has become a fundamental part of consumer banking services. In part, this is because fintech companies tend to be more innovative and agile than their more established competitors, which means they can anticipate and adapt to change much more quickly. The mortgage industry has often lagged behind, but the pandemic has accelerated the rate at which it has adopted new technology.
Fintech firms are already creating solutions that can tap into the incredible power of customer data. The ability to gather instant information from a customer across multiple data sources, for example, without ever having to meet them in person, will be invaluable for the future of lending. Additionally, by using real-time verification processes and financial health insights, brokers and lenders will be able to respond to complex cases more easily than ever before.
Open banking has made processes like these even more efficient in recent years, since two-way APIs make it possible to transfer information between organisations seamlessly. As a result, lenders can quickly build up a more comprehensive picture of a potential customer’s overall finances, rather than relying on a limited set of data. This will become increasingly important for borrowers with more complex financial histories, for instance, many self-employed workers in sectors badly affected by covid. Open banking can allow lenders to see beyond the immediate impact of the pandemic and get a more three-dimensional picture of their customers.
There are other benefits to this kind of information sharing too. For example, documents that usually require input from an intermediary can be pre-populated automatically, which not only saves time but also eliminates the risk of human error. Benefits like these may sound basic, but when implemented at scale they can make operations much more efficient for brokers and lenders alike. Ultimately, it will be customers who benefit, since the time that used to be wasted re-keying data can instead be spent placing customers with the most appropriate lender.
The same is true for data security. Advances in digital ID technology now make it much easier to handle sensitive customer data safely and efficiently. Traditionally, physical documents are requested multiple times during the application process, which is both time-consuming and potentially less secure for all parties. By contrast, the latest digital ID tech can combine credit reference data, biometric facial recognition and fraud checks with other reliable public sources to establish identity.
The future of borrowing
Covid looks set to produce a whole generation of potential borrowers who might have been categorised as ‘non-standard’ pre-pandemic, due to their more complex financial histories or irregular work and income patterns. If the mortgage industry wants to continue to serve these customers, then lenders need to make substantial changes to their current processes.
Fortunately, much of this change is already underway and the pandemic has proved a successful catalyst for tech adoption. Lenders should seize this opportunity to build on the current momentum and look to incorporate more new technologies into their businesses.
Whether firms are using these solutions to deliver a more personalised service, to automate manual tasks, or to confirm customers’ identities with greater accuracy, this technology will improve their operations and ensure that underserved borrowers can access the finance they need.