As a massive mortgage refinancing wave looms over banks next year, many homeowners will shop around to make sure they get the best possible deal in the higher rate environment.
This is driving banks to create “direct-to-customer” home loan offerings, backed by new digital approval technology. Some are building this in-house, but others are turning to fintechs such as Nano, which has built a mortgage assessment platform as a “banking-as-a-service” offering.
Players in the emerging digital mortgage space say quick approval times – an unconditional “Yes” provided in minutes, rather than hours or days – will create a new baseline for customer expectations in the $2 trillion mortgage market.
“One of the trends we are seeing globally – which will hit the Australian market – is the service standard of very fast turnaround times will be the key battleground for success over the next three or four years,” said Nano CEO Andrew Walker.
Commonwealth Bank’s move into the space last month with its Unloan product will help set the new standards, he says. CBA has created a process allowing customers to apply for credit in 10 minutes. It aspires to actually approve a portion of these loans in 10 minutes as well, once it can use the government’s open banking regime to check application.
Nano can already approve a loan in 10 minutes. In a presentation to reporters this week, it showed a simple, dummy loan being fully approved in 5 minutes and 20 seconds – the time it took to make the application. This included the property valuation, extracting customer loan repayment history, an income and expense check using a process that “scrapes” bank account data when the applicant shares their banking details, loan serviceability calculations and identification to meet know-your-customer rules.
“We have made a decision at the time other lenders are just starting the credit underwriting process,” said Nano’s chief experience officer, Chris Lumby.
Nano says that even when more complex applications require a more detailed assessment, this can be done in an average of 18 minutes.
As property prices fell in response to higher interest rates, borrowers would still want faster approval times, especially as they look for alternative providers, Mr Lumby said.
“Technology matters in up and down markets, people want a quick time to yes, to reduce stress and anxiety from the process,” he said. “We will see $400 billion to $500 billion of loans refinanced in the next two years. People will naturally shop around, and you will see a move to the direct-to-consumer channel.”
Nano has been testing its system with its own direct lending. Since launching a year ago for refinancing, it has made $550 million in loans, to 1100 borrowers, funded by warehouse facilities provided by one of the major banks and another lender. Its direct loans require at least 20 per cent deposit, so do not require lenders mortgage insurance.
It aspires to grow this to more than $1 billion by the end of the year, after extending the product to new loans, minuscule compared to the overall market.
Getting to a 1 to 2 per cent market share in the next four years, would be considered a big success, Mr Walker said. But the main focus would be licensing the technology as software-as-a-service (SaaS), including to banks overseas. Other lenders using the platform could set their own risk parameters.
It is a similar strategy to Tic:Toc, which lends using Bendigo’s balance sheet but also has an SaaS product known as XAI Validate.
AMP Bank will use Nano for its new digital mortgage to launch in the coming months. Nano has signed a second lender that will come online in the second half, and is talking to a further four, including a large bank.
“The platform is going to be licensed to incumbents. We are building infrastructure for the industry,” said Mr Walker, formerly chief operating officer of BT Financial Group.
AMP Bank said last month its new digital mortgage would appear in the third quarter. “We’ll reduce the time to unconditional approval for a residential home loan from days to hours and, in many cases, minutes,” said AMP Bank group executive Sean O’Malley.
National Australia Bank has developed new mortgage assessment technology in-house, which it calls the Simple Home Loan. This is being used by all of its mortgage bankers, some brokers, and could be rolled out via a direct-to-customer channel in the future. NAB says 30 per cent of customers get unconditional approval in less than an hour.
NAB is doing this without “screen scraping” data from another bank account; it still asks customers to share bank statements via an email, which is read automatically to determine income and expenses. Like CBA, it could move to open banking to accelerate this process when data provided by the open banking regime improves.
For now, open banking’s teething problems are providing fintechs and banks using screen scraping with an advantage. “Open banking isn’t fit for purpose. When it is, and that is likely to be early next year, yes, we will move to open banking. But for now, it doesn’t work for joint accounts,” Mr Lumby said.
Originally published by James Eyers on 17 July 2022, full article here.