Digital Lending

When it comes to digitization in business, it is now taken for granted that without digitization, companies can’t compete. Resistance to digital solutions is progressively fading, and this also goes for tasks as complex as mortgages. Even though the pressure to do everything online is strong, it needs to be done smartly, so you avoid confusing your clients and staff

Enrico Scopa, Co-Founder & CEO

Mortgages are among the last of the banking services to undergo #digitization, long after the "easier", more standardized, and higher-frequency services such as payments, trading, or consumer loans.

In the past years, we have been designing and implementing 6 different #digitalmortgage custom solutions across various countries in Europe as well as the UK. Different regulations, different customer habits, and different levels of maturity of the country-wide infrastructure and service ecosystem for client identification, retrieval of Customers’ financial information, and Real-Estate asset valuations. And, again, different distribution models (e.g. some more reliant on brokers, some not at all or very little), different ways to manage co-ownership of mortgages, different processes to register the final deals, different product structures and logic under the same name of "Mortgage" (e.g. Interest-only mortgages vs the ones with rates including the principal and interest components, buy-to-let vs residential, variable rate vs planned refixation rate), and the list can go on.

Practically, not only do #mortgages carry a process complexity unmatched in Retail Banking: but they also differ significantly from country to country, among Companies within the same Country, and between #fintech and Banks (and we’ve had the privilege of helping both industries). All of this means no one-fits-all solution and no easy solution overall is possible, yet digitization is a must-have to meet customer expectations (in a product that usually brings along a very strong and long-term "client relationship") and to stay afloat or competitive on the cost & risk side. And, if done well, it may bring massive incremental value compared to the status quo.

We have been working in very different contexts with different goals and we thus had to provide different business and technical solutions: from a full e2e digital platform for Customers to manage the whole process until disbursement order, a front-end solution for Brokers integrated with automated / semi-automated underwriting, front & back-end solutions that can be used both from the side of final customers and bank employees to a specific innovative digital solution to leverage mortgage-collateral evaluation information for commercial purposes.

Our platform(s) support a variable level of automation of each step along the E2E journey, depending on the country’s set of rules, the CX the bank wants to adopt and the available information sources. Together, we are working on a seamless journey towards fully digitized mortgages.

Martin Nemec, Partner

• 🇬🇧 We worked with UK’s first Fully-Digital Mortgage Lender since the first day of its founding, helping them to achieve the goal of approving mortgages in terms of minutes instead of weeks, and becoming able to advise the customer digitally on their choices (and such digital advisory has to be approved by the Regulator). With our Client, we created a coherent digital solution encompassing smooth User Experience, automated approval processes and credit policies incorporated in such processes, and the integration of external providers for Real Estate Evaluation, Credit Risk Assessment, and Identity Verification, among others.
• 🇬🇧Also in the UK, we built an end-to-end lending platform for brokers of mortgages top-up for another Fintech Startup, with an above-the-market level of automation of the underwriting process and integration of external services.
• 🇲🇹We worked with a large bank in Malta, enabling them to speed up 3x the time their branches spent on processing a mortgage request and to provide the same front-end to their customers for full-scale and assisted self-service, incorporating all they need to take an informed decision and obtain a "decision in principle" immediately, to reassure them that they “will get the money” once the paperwork, research, and verifications are completed successfully.
• 🇨🇿In Czechia, we supported one of the leading banks throughout the creation of an E2E digital-mortgage platform for their Brokers. We helped the Client to define the overall product vision and to design a non-linear user journey. The latter was tackling one of the main pain points of the brokers - at that time, no platform allowed them to cater for real-life cases of their Clients, who had their unique circumstances and preferences. Additionally, we focused on building the capabilities of internal teams in design-process methodology and implementation of API best practices.
• 🇸🇰We worked in Slovakia to help a large Bank in building a micro-service back-end engine that translates Cadaster data (available through APIs) into usable data objects and that supports the Mortgage OmniChannel platform in the Collaterals search/combine/ evaluate steps. This allows end-users (including Bank Clients in Self Service) to specify the Collateral to use for the requested Mortgage precisely and in a digital manner, increasing the efficiency of Bank processes, given that, aside from limited exceptions, the "Collateral File" is built automatically, in real-time.

In none of our experiences we tried to bend a one-fits-all solution. Instead, we searched for the right one with a fully open mind from the start.

Digitizing a process as complex as mortgages can be done in various ways. If you digitize an existing slow and user-unfriendly solution, then you might end up with a digitized mess. Instead, you should be asking first: what is our value proposition with a newly developed solution?

Enrico Scopa, Co-Founder & CEO

Clarifying the strategic final goals as the first step in our projects - what is the desired innovation in your Digital Mortgage Value Proposition? - and refraining from automating the as-is, we designed and developed vastly different digital solutions; yet they share some common business and tech elements that we found to be key for impact.

Here is a list of them:

1. Information, Education & Advisory along the Journey. A mortgage-rate simulator and the exposure of the terms and conditions are not enough: A mortgage is a life-changing long-term commitment and the average Customer needs and searches for guidance; financial institutions are expected, also from a regulatory perspective, to understand the level of financial education of their customers and to support them in making the right decision. A decision that always takes some time to mature, and therefore the digital journey can be interrupted to be restarted at a later time. A decision that can require having a human to jump in the conversation to build on the information collected until a certain point and resolve some open issues. Making this all really simple for the Customer is just a complex job.
2. Non-linear journey. Most likely, you need to support multiple ways of reaching the offer - i.e. one could start with the eligibility check to figure out how much they can afford, while others want to start with configuring the product and know the rate before having to submit a lot of personal data to check their eligibility. Some people are willing to grant consent to Open Banking, others prefer to type and submit data manually, etc. A linear journey with fixed steps (i.e. first eligibility then product configuration) works only for a subset of customers and creates friction for the rest. The underlying software platform needs to provide the understanding of where a Customer is along the decision journey and allow for the management of multiple exceptions/changes in the direction involving multiple actors; even if the overall “happy path” of the digital Mortgage journey seems simple at first sight, it reveals its sophistication as soon one digs into it and tests it with real Customers.
3. Time to Yes. You have to assume that a sizable amount of Customers shop around when it comes to Mortgages, both for better rates/conditions and for back-up options. Time is of course of the essence when it comes to responding to a Customer: the longer a financial institution takes to qualify with a viable, credible, and competitive well-targeted offer, the higher the risk of losing the Customer. At the same time, a responsible lender needs to manage the risks and respect its credit policies; which requires some calculations, not so complicated at the end of the day, and a lot of information verification - a really time-consuming activity that is not always possible to be fully automated. Fast time-to-yes, in our experience, requires first of all designing/engineering the credit policies, taking into consideration the automation potential offered by an API-based integration with 3rd-party information services and aiming. At the same time, it is important to minimize the amount of data required to be entered by the Customer for a smooth CX. Then, it is necessary to identify the Mortgage Journey in a sequence of transparent stages towards the final Yes, building up progressively on the growing set of verified information. As the final result of such design effort, the Customer should perceive increasing confidence that they will “get the money” and thus the property. A fine mix of credit rules definition, technology integration, customer experience, and process engineering.
4. Manual Underwriting by Exception. When it comes to the internal process of analyzing a Customer’s financial situation against their Mortgage request, the ambition should be to make it as automated/algorithmic as possible and to leverage human underwriters only to check the exceptions within a case, not the case in its whole. This objective can be rarely achieved in one go. It is more common (and probably wise) to converge to it progressively, increasing the level of automation over time while temporarily keeping a parallel human underwriter to check all or a sample of the cases end-to-end. Yet, the supporting technology platform should be designed from the beginning to enable this model “by exception” - fully integrated, with the same front-end that provides information/education/advisory and a fast time-to-yes - rather than a “traditional” workflow application. For solving such problems, we had more fun and impact experimenting with microservice-based custom architecture, queue-management logic, and external-service orchestration, rather than relying on well-established workflow market solutions.
5. Mobile-friendly or mobile-first web solutions, cloud-based if possible, have been the preferred option in our experience. We consider the ideal front-end to be a single one, consumable on multiple devices by multiple users, both employees and Customers, not hassling them with App installation. To stress modularity and flexibility, as well as to facilitate tighter integration with other legacy Front-Ends and therefore to provide a better Customer Experience, we built it combining several micro-frontends in some cases, although this required an extra investment and extra time.

The full list of our lessons learned (in particular of all the lessons we learned the hard way by making mistakes!) would definitely be too long - and probably incomplete anyway, given that every situation is in itself different and challenging in a new way.

We like Digital Mortgages exactly because they are a difficult thing to make happen every single time, and there is for sure much more to learn and discover out there in the years to come.