A range of lenders, including HSBC Australia, are currently trialling the “world’s most advanced end-to-end loan origination solution” that harnesses blockchain to take loans from application to settlement.
Homechain, a 14-step origination solution developed by Australian fintech start-up Moneycatcha Pty Ltd, is currently being trialled by a range of lenders to see whether the blockchain technology could drastically reduce turnaround times while complying with regulation.
The technology was developed by former CBA and Mortgage Choice franchise employee Ruth Hatherley, after she identified frustrations with the mortgage market.
Speaking to The Adviser, the former marketing and operations manager for a WA-based Mortgage Choice franchise said that while at Commonwealth Bank, she had seen the processing centre where there were “piles [of applications] around credit officers and the turnaround times were blowing out to 50–60 days for an application to get to settlement and people were losing properties because they weren’t meeting finance due dates”.
“I couldn’t understand how in a day of such modern technology their process was so broken,” the CEO and founder of Moneycatcha said.
However, after leaving the bank and joining Mortgage Choice, Ms Hatherley realised that the problem was affecting all banks, saying that “no one bank does it better than another bank”.
It was after meeting Jonathan MacDonald — now chief strategy officer at Moneycatcha — at an industry event that Ms Hatherley first heard about blockchain and how it could change the finance industry. According to her, the two of them spent eight months researching how the technology could be used before teaming up with a Sydney-based blockchain developer to create Homechain.
The system can reportedly reduce the processing time for home loan applications, from an industry average of 42 days, to five days.
How Homechain works
Ms Hatherley explained: “There are all of these processes online, but no one had stitched it together… If you think of recording information in a spreadsheet, I can type information in and I can send it to other people and there is the possibility that others can change or delete fields. Or I can send a new version with updated fields. But with private-permission blockchain technology… you can give permissions to a whole pile of users in the ecosystem (brokers, bank managers, even customers) to view that shared data, but when someone augments or add information, then a whole new block is created. There is no such thing as deleting. So, it keeps a very clean audit trail.”
The system, which has been created for use by financial institutions, enables users to create a “source of truth” and create rules so that when those rules are met, a smart contract is drawn up. The system can retrieve and verify data via API calls to data providers (such as land agencies or government bodies) and effectively move on to the next stage of the application within minutes.
Ms Hatherley elaborated: “Let’s say we’re fetching title details. Instead of me sending a request off to the title office and them looking into it and sending it back, we send off a ‘call’ to their system via an API, with specific instructions on the information that we want back (set by the lender).
“In a number of seconds, we receive back all the attributes about that title from that authenticated source of truth, which means that the information is true and correct and can immediately move on to the next step, which is valuing the property, and that then happens via a valuation system. Then that moves on to verifying the credit attributes of the person through a bureau check and that also happens in a matter of seconds.”
She added: “You repeat that process over the whole blockchain, so there is one smart contract for ID, one smart contract for valuation, one for asset identification, etc. And then we can document it by electronic systems and open up a PEXA window and settle it digitally.”
It’s the last step that reportedly makes Homechain unique.
The CEO said: “The other [loan origination] solutions that we are aware of in the market do some parts of the workflow, but then as soon as they actually reach the end point of that system, they push it back to the banks for the final stages. So, the key for us is that you can get from application right through to settlement without having to leave the Homechain system.”
Moneycatcha has emphasised that it is channel-agnostic, and if adopted by lenders, could be used by brokers, bank managers, customers and even regulators.
The founder explained: “Regulators can absolutely be involved — if the financial institution wants to, they can give permission directly to APRA or ASIC via a viewing capability to look at the data set that is sitting inside the Homechain system.
“That provides a whole new approach to regulation where we are not downloading or creating or exporting reports; we are all looking at the same data in real time. That provides a real trust and transparency that I don’t think exists in the environment today.”
Ms Hatherley concluded: “I think private-permissioned blockchain technology will underpin infrastructure of financial services technology in the next five to 10 years. Because the usages of it are sensational in this type of environment.”