Although Open Banking has been around for a few years and Payment Services Directive 2 (PSD2) legislation is now forcing banks to make the customer journey more seamless for consumers, the mortgage market continues to face a number of challenges.
Todd Zino, Chief Technology Officer at online mortgage broker Trussle, believes there is a huge opportunity to transform mortgage intermediation so that consumers have an easy and stress-free experience throughout their home ownership journey, while lenders can generate more sustainable returns.
Here Todd discusses the key challenges and explores how the industry can try and overcome these hurdles to better serve consumers with their most important financial transaction.
Despite Open Banking data sourcing from their own retail bank arms, when it comes to mortgage applications, there is still pushback from lenders on accepting this data in place of traditional bank statements. This is mainly a question of internal policy alignment rather than risk tolerance – it requires changing the broker document policy which is often handled by a different department within a lending firm than the actual underwriting. By any measure, the statements sourced from Open Banking are more accurate, detailed, and less susceptible to fraud than PDFs that could be altered between the customer’s download from their banking portal and upload to their broker.
The customer journey needs more work
The PSD2 requires banks to enable app authentication when using your phone through TouchID or FaceID rather than a password. However, the Open Banking APIs provided by banks still lack reliability in real-world end-to-end mobile journeys. Our testing often found bugs with accounts not connecting properly or failing to recognise the app on your phone altogether. This has improved immensely during the past year as we’ve continued to test vendors.
Data categorisation still isn’t perfect
Accurate categorisation of banking transactions is key to the value add that online mortgage brokers and consumers can extract from Open Banking. Unfortunately, this remains far from perfect, with transfers between accounts being a particular issue. This is especially problematic for customers with multiple bank accounts and credit cards, which is increasingly common for younger consumers.
Most mortgages include more than one person
The challenges of data reliability increase further when bank accounts start to overlap. Whilst Personal Financial Management (PFM) apps focus on your individual finances, over 70% of our mortgage applications involve dual applicants. Designing a slick user experience for this customer group presents a different set of challenges, particularly for those who have shared outgoings and a joint account.
The consumer incentive is different for mortgage lending
When a consumer is using a PFM app, they will gain the most value when being transparent with their finances. When a customer is applying for a mortgage, they are often tempted to “window dress” their financial health as much as possible, which can include hiding accounts that have lots of spending. Whilst initially Open Banking would bring what seems like ‘too much’ transparency from some consumers’ points of view, this should be offset by other consumers who benefit from more proof points of solid incomings and budget management, particularly those who are self-employed and have previously struggled to prove their income from various streams.
To address these challenges three key strategies are required:
1. One seamless and unified experience for multiple mortgage applicants
Open Banking implementers need to follow the learnings from other industries where the notion of a shared account space is managed by multiple parties. Healthcare providers and, indeed, banks have made big strides here during the past few years. Online journeys for authorising different external bank accounts to a mortgage profile need to account for the nuances of things like joint current accounts and separate credit cards to ensure a complete financial profile is created with no duplicate account data across multiple parties applying for a mortgage.
2. Value-added pre-transaction product for mortgage customers
Given the friction in the initial authorisation phase of adding Open Banking accounts, it is imperative that Fintech companies providing this service to their customers introduce novel and ongoing value to offset the initial headache of setup. For mortgages specifically, this means leveraging Open Banking earlier in the journey to deliver more accurate budget planning and Mortgage In Principle guidance before a customer has even chosen a house to put an offer out on. This would ultimately lead to more buy-in by consumers.
3. Policy advocacy with lenders
Mortgage brokers should form a consortium to advocate for Best Practices with Lenders in accepting and vetting Open Banking derived financial statements to ensure more widespread industry adoption and allow for a greater ecosystem of technology partners who can help brokers make the transition from manual statement documents to automatic affordability and budget verification that Open Banking unlocks. This would ultimately lead to less fraud and higher fidelity of risk assessment on the part of Lenders, which is a good thing all around.
It’s no secret that applying for a mortgage can be a slow and arduous process. But, Open Banking could provide the keys to delivering a more seamless customer journey. We hope to see more uptake across our industry, with lenders and brokers working more closely, to create a frictionless application process that provides customers with greater certainty over their financial options.