Cracking agile home loan origination – Part 1
- Posted on April 4, 2022
- Estimated reading time 5 minutes
For two decades, top-line mortgage growth has been a primary driver of profitability and an engine of growth for Australia’s major banks. With strong credit growth, lower risk weighting and attractive margins, mortgages are a vector of strong profitability – recently assisted by record low mortgage rates, government incentives, demand for property outside of major cities and FOMO (fear of missing out).
But now this crucial banking market – accounting for between around 40% to 60% of loan books – is under threat from nimbler competitors.
Leveraging the luxury of starting without archaic manual systems, digital natives are using automation and data as key enablers to disrupt approval timing. As a result, fintechs and pure digital banks are offering home loan approvals in hours or days compared to the weeks taken by the majors.
In the home lending game, timing is everything
Brokers know that, in fiercely competitive residential markets, long delays in application approval are a buyers’ worst nightmare. Often, buyers anxious about being gazumped are prepared to take higher interest rates in exchange for fast approvals.
This is why approval speed is at the top of the list of attributes a broker takes into account when they present their customers with home loan options. Increasingly, banks that take weeks to deliver mortgage approvals don’t even make the cut in a broker’s ‘leader board’ of lenders.
The writing is on the wall: despite a stupendous housing market, banks are reporting flat home loans in their full year results.
How can legacy systems compete against digital natives?
Banks know they need to move to modern technology architecture, but they are also aware that this type of transformation takes 18-36 months. In the meantime, they must continue to run business as usual – and immediately move to improve their competitive edge in loan originations.
What’s required is a two-pronged approach:
- Get quick wins now over the next 6-12 months – using rapid speed-to-value plays to make legacy systems as agile and efficient as possible with digitisation, intelligent automation, cognitive and process improvement enabled by leading low / no code platforms such as Microsoft’s Power Platform
- Give the bank time to transform – driving more strategic change as banks move to a cloud-first, digital-first architecture
Based on our global experience of helping large banks digitalise, there’s no silver bullet. But, by capitalising on immediate quick wins, while in parallel establishing the foundations for true digital transformation, large banks can immediately make important inroads into accelerating approval turnarounds. This will help to reduce cost to serve while also improving the customer, broker and employee experience.
Get quick wins now
In most major banks, loan origination is highly manual and has a high cost to serve, requiring long turnaround times and hand-offs between multiple teams. Our clients are finding multiple opportunities across the lifecycle to use automation and analytics to quickly augment existing infrastructure.
Low-code, drag-and-drop tools and hundreds of prebuilt connectors through Microsoft’s Power Platform are now available that automate repetitive, mundane tasks with ease. Our clients are using these tools to address the priority pain points holding back rapid approvals, leading to immediate improvements in turnaround times. For example, they are:
- Automating the triage process – In manual processes, it can take days for team leaders to open a file. Then they have to review the application and decide which analysts have the capability to assess it based on risk scoring and availability. Now, we can use cognitive automation for this simple task, distributing an application in real-time to the appropriate analyst moments after it arrives. When files stop sitting around in inboxes for days waiting to be allocated, responses to brokers improve from 6-8 days to less than 3-4 days. The bank moves further up the broker’s ‘leader board’, offers are presented to more customers and conversion rates soar. At the same time, team leaders are freed up from mind numbing tasks and can turn their time and attention to more interesting and value-adding work.
- Missing documentation – Loan applications contain a huge amount of paperwork and 80% of applications arrive with missing documents. Intelligent automation can help analysts respond to brokers quickly and in a consistent manner. Providing reliable messaging within moments of identifying the missing information improve the broker experience. In addition, supporting the analyst by reducing manual effort and removing labourious administration means their time can be better spent on more valuable tasks.
- Using document intelligence – This takes automation a step further than the above example. Often, when banks receive paperwork documents or signatures are missing, it precipitates a time-wasting flurry of emails to chase the missing elements. Document intelligence and computer vision (e.g., using Microsoft Cognitive Services) can check to make sure signatures are correct and then automatically send emails requesting corrections if they are not. The same technology can also extract relevant information from various document types, including drivers licences, visas, insurances, pay slips and bank statements, and validate it against the application. The system can check, for example, whether payslips match the gross salary on the application, again sending brokers automatic notices if information is missing or doesn’t line up. In this way, application information is checked and processed rapidly and accurately before it gets to the analyst for final validation – often cutting days out of the approval process.
Our advice is to start with the top nine or ten opportunities (see break out box) to form a rapid value acceleration program prioritised against business criteria. Program velocity depends on the bank’s appetite for change. Some clients implement up to multiple quick wins in parallel. Others start with just one, to get the business comfortable with the process, and then ramp up to parallel implementation once everyone sees the value being delivered.
Importantly, the path to value comes from looking at process, people and policy changes to support automation. This might mean simplifying processes, reducing overlap between roles or restructuring spans of control.
In the next part of this blog post, we will cover the various benefits and how to start working towards new levels of operational maturity where, like digital natives, major banks can act faster and win sooner.