"The species that survives is the one that is able best to adapt"

Originally published in Society Matters magazine

By Steve Carruthers, Principal Consultant (Lending), Iress

By Steve Carruthers, Principal Consultant (Lending), Iress 

Originally published in BSA Society Matters Magazine - Winter 2020

COVID-19, Brexit, and a rancorous US election have all underpinned a sense of volatility in financial and housing markets which will be with us beyond 2021. Lenders have had to respond quickly to the furlough scheme, mortgage deferrals, and the fiscal shot in the arm in the shape of a stamp duty holiday.

In our Mortgage Efficiency Survey, conducted in the first lockdown, we gleaned some particular insights into the challenges and opportunities facing building societies and how evolving views and demands of technology are shaping their thinking and that of lenders generally.

Technology will enable risk management and operational change to lending models

It was clear that some once standard processes have been reassessed and changed. Physical inspections and wet signatures are two tactical examples where previously unthinkable change occurred rapidly for many societies.

Many risk processes are being rethought. Making more of risk data available in the market will support more efficient decision-making without losing the personal touch. Some are fast-tracking investigations into open banking and other data opportunities so decisions are less about the toing-and-froing of information for underwriters and more about focussed decision-making.

If banks, as some relayed to us, embrace a more manual approach, societies will need to embrace more automation to meet them in the fight for this middle ground or find themselves forced to embrace more risky lending. Automation is key here but must deliver value at the requisite scale and be flexible and precise enough to deliver nuanced outcomes that support societies’ strategies.

In the longer-term, Covid’s impact on capital and cash-flow has meant for some lenders that ‘quick fix’ projects were fast forwarded but others may be delayed. Market share was less of a concern than operational sustainability in 2020. This will continue to be the case for many in 2021 as lenders look to improve the infrastructure and security of a significant home-based workforce. A quick fix now does not lay the path for the future. Whilst in this disrupted world, forward thinking lenders are accelerating their strategic plans to ensure they have a platform fit for the future and not a temporary knee jerk fix for today's problems.

Technology will change the nature of intermediary and direct distribution

All lenders remain committed to intermediary distribution as they want scale at short notice and value outsourced advice and this will underpin further investment in intermediary distribution. All the lenders with branches foresaw a repurposing of these and acknowledged their distribution footprint might further change to an intermediated one in a post pandemic world where borrowers’ requirements will be more complex. We expect from our conversations that lenders will continue to grow their share of the product transfer market and will develop their online solutions for this.

The consumer push to adopt new technology

The digitalisation of the consumer world in every other walk of life will drive the re-invention of business origination which will increasingly be online. Interfacing with third parties through APIs will eliminate many current frustrations and inefficiencies and will be the focus of more effort going forward. Consumers will not expect to have to meet face-to-face in the future and those that facilitate this quickly will likely steal a march on the competition.

Our findings were of course extensive but while the challenges were common to all lenders, the responses for our building society partners are nuanced and specific. 2021 will offer many opportunities to those that adapt their models quickly and efficiently.

Next steps:

If you want to read more download the survey at:  iress.com/software/mortgages/mes2020/