Why aren’t Australians getting home loans from their main banks?

According to RFI Global research, nearly 40 per cent of Australians described their main financial institution as the one they’ve been using the longest and the same percentage said it’s the one with which they transact most often. Around one-third said it’s where their salary is deposited (36 per cent), the one that gives them good customer service (33 per cent), or where they hold the most banking products (30 per cent). 

While all of those reasons make sense, why doesn’t “that’s where my home loan is” make Australian banking customers’ top five? 

Perhaps because fewer property-obsessed Australians are heading to their banks to ask for home loans than ever before. According to the Mortgage & Finance Association of Australia (MFAA), between July and September 2022, mortgage brokers facilitated 71.7 per cent of all new residential home loans. That’s a record high for mortgage broker market share, the first time it has exceeded 70 per cent in the 40 consecutive quarters the measure has been tracked.

Anyone monitoring the Australian real estate market is across the steep rises and recent tumbles in property prices. Yet, according to the Australian Bureau of Statistics, the total value of owner-occupier home loans written in the month of October 2022, alone, was over $17 billion. The total value of new borrower-accepted loan commitments in that month was over $25.7 billion, with mortgages to investors making up the balance. 

Whether they deliver home loans via mortgage brokers or direct to consumers, lenders striving to gain or retain their piece of the mortgage market pie have to strive for a competitive edge where they can find it.

A McKinsey study suggested that, even though getting the best rate plays a critical role, exceptional customer experience can make or break the decision on which lender to choose. The same study said that the mortgage experience breaks down into four dimensions that matter to borrowers: reassurance, transparency, simplicity, and speed. Getting these elements right, especially in our increasingly digital age, requires getting technology, automation, and personalisation right.

Yet, during the past couple of years, many financial institutions were caught flat-footed by the disruption and rapid digital transformation with technology that simply wasn’t keeping up. 

It’s also worth noting that recent Forrester research has shown that the mortgage borrowing journey is not just a transactional one, it is an emotional one.

It makes sense; not only do many people get emotional about finances, in general, but mortgages involve the milestone of buying a house that may be a home or an investment property to contribute to family or business income.

Lenders can transform the mortgage experience by identifying moments that matter and designing CX to better engage with borrowers in those moments. 

Tech issues exposed

According to another 2021 Forrester report, several cracks were exposed in terms of lenders’ technology stacks during the global surge in mortgage applications over the course of 2020, resulting in a range of issues. From poor customer experiences, higher processing costs, and long approval times to handling errors and compliance challenges, the revenue boost offered by increased demand for mortgages came with an associated exposure to risk. For some, it resulted in a loss of market share.

Insufficient automation extended the application process, as loan offers took weeks and even months to manually verify customer documentation. The fact that many financial institutions are dealing with numerous, standalone interfaces and data silos causes issues with mortgage origination and processing. The information required is not easily accessed, nor is it easily collated across disparate systems such as watchlists and anti-money laundering solutions, causing “disjointed CX, poor employee experiences and process inefficiency,” said the Forrester report.

Finally, issues with connectivity to mortgage broker platforms and a lack of automated processes affected mortgage customer acquisitions. 

Get rid of outdated manual processes

The technologies required to automate and digitise parts of the mortgage application process are readily available and must be adopted to retain, let alone grow, the mortgage sector market share.

• Use open API, machine learning, and AI: Why take up agent hours and skilled people resources for manual validation and data entry? Using API and AI/ML technology, data should be extracted from unstructured material like bank statements, pay slips, and tax returns and converted to electronic documents. It can then be further used for transaction analytics using advanced AI. 

• The time for integrated platforms is now: Some financial institutions require dozens of different systems and interfaces to process a mortgage application, drawing on external information from credit score providers, watchlists, anti-money laundering resources as well as data from across numerous systems within the organisation. In too many cases, the gathering together of data from these sources is the time-consuming job of a mortgage specialist. The obvious step to create the most efficient process is to deploy a microservices-based single platform where all internal and external checks can be completed. If you don’t have a ‘single pane of glass’ view of this information, the decisioning process is nowhere near as efficient as it could or should be.

• Make sure brokers don’t have to key in all the applicants’ information: With more than two-thirds of mortgages in Australia being facilitated by brokers, that means a great deal of documentation is uploaded to broker platforms during the application process. Unless there are effective bridges between those platforms and mortgage providers’ platforms, brokers must enter information from one platform to another. It’s a poor experience for brokers and injects unnecessary time into the application process for the borrower. Lenders should consider brokers part of their ecosystem and expose their technology platforms — securely — to their broker partners, allowing for integrated information sharing and management. 

Overcoming technology gaps

After auditing the organisation’s existing platforms, systems, and data sources and then assessing its digital capabilities versus a desired end state, a strategy must be established.

As part of that strategy, mortgage lenders will need to achieve simplicity and speed by levelling up their usage of automation and artificial intelligence (AI). Both are critical tools in any lending process, to support operational efficiency and data accuracy. There are numerous steps in application and underwriting processes that are ripe for automation, such as document verification, transaction analysis, income and expense estimation, and overall digitisation. 

More of the right data will enrich the information lenders use to assess applicants and make better, more efficient, and less risky decisions. Next-generation decision management technology will allow lenders to operationalise the use of more data sources, support financial inclusion, and help mortgage lenders increase their customer base.

Not only will modernising the mortgage lending process streamline workflows, but, more importantly, they will accelerate time to approval and improve borrower and broker experience. 

Lenders can improve CX in other ways as well, striving for better levels of customer satisfaction.

By transforming operations and reducing data silos with sophisticated analytics technology and solutions that allow for customer management and data access to be centralised, banks can: 

• Make data-driven customer decisions by predicting, analysing, and optimising customer interactions in real time
• Radically enhance customer experiences to help cultivate engagement, loyalty, and lifetime value 
• Drive business acquisition successes with precise insight into optimal interactions and offers that would work best for customers.
• Decompose decision services by creating microservices-based decision services. These services can be either specific to a particular line of business like mortgage or shared across the organisation like customer segmentation, fraud, pricing, or customer level limit. Such architecture lends itself to ease not only in roll-out (avoiding LOB-dependent release cycle and prioritisation) but better control, testing, and overall better use of shared decision assets. 

Ultimately, banks need to ensure that customers are at the centre of their actions and decisions, that they have the tools available for agile yet risk-averse decisioning, and that partners like brokers are integrated appropriately into their IT ecosystems.

Aashish Sharma is segment leader for risk life cycle and decision management at FICO’s Asia-Pacific team. He helps financial institutions around Asia Pacific to improve their decision management and risk life cycle strategies, which requires understanding clients’ current challenges and being acutely aware of emerging business and technology trends.

Aashish holds an MBA and a bachelor of engineering in computer science. He is also a certified financial risk manager (FRM) from Global Association of Risk Professionals (GARP).