The Instagram mortgage

In a world in which our use of digital channels and demand for instant gratification has never been higher, we routinely expect to be able to carry out almost any transaction online. Banks are responding, at least for their existing customers. Account balance updates and small transfers are now common place on mobiles, with even more functionality available using tablets, laptops or desktops. And buying financial products has never been easier – personal loans, credit cards, insurance and others are a tap on the screen away.

However, one core financial product remains firmly in the analogue age. Despite banking app updates being released weekly, you can’t yet get a mortgage instantly. But in the near future that may change. In the world of the Instagram mortgage, anyone will be able to walk down a street, snap a geo-located photo of the property they’re interested in, click ‘apply’ on their mobile application and have their bank respond instantly with an approved mortgage.

The Instagram mortgage may not yet be available, but the technology to provide it is already here. To make it happen, and take full advantage of the new front-end technology such as handheld devices, apps and fully interactive computer game-like user interfaces, banks will need to challenge their core mortgage application processes like underwriting and valuation. Even in the digital age these processes are still highly manual, requiring applicants to provide utility bills, phone bills, two forms of ID (often in duplicate) and with several follow-ups, by both the applicant and the bank, over the phone and even in branch. An ‘in principle’ mortgage approval in 2015 can still take several weeks to finalise.

Banks are already using the mountains of data they collect about us to drive automated decisions, but they’re still only scratching the surface of what’s possible. Automated Valuation Modelling (AVM) and Automated Income Verification (AIV) are already used in the mortgage application process, but there remains significant opportunity to move mortgages into what consultants like to call, “straight through processing” (STP). Today, the vast majority of mortgage applications require small armies of people in credit departments, fraud departments and call centres to be involved. Better use of data could make this process instant and reduce costs.

Using AIV, banks can check the wages we claim to receive against information they already share with each other in the Current Account Turnover closed user group. This data can be interrogated by the banks to understand a customer's income, outgoings, and mortgage affordability. AVM could also be refined against historical property sale prices (not just valuations) to provide greater accuracy and confidence. Property search websites like Zoopla can already provide this information in less than a few seconds.

Data cross-referencing is not a new concept for banks either. Almost without exception they will check out new customers against the electoral roll and credit bureaus before any lending decisions are made. The difference here is the full exploitation of new data sources and methods to cross-reference everything the bank needs to know, against a pre-set risk appetite, to make an instant decision without the need for human intervention.

Banks that can move towards STP of mortgages in the digital age will be delivering a highly-efficient and differentiated experience for their customers. Providing this service will undoubtedly drive competitive advantage – fending off new market entrants and helping them rise above the fug of the discredited sector as a whole. Banks will not only demonstrate market value and digital relevance to their existing and target customers, but also reduce their overall costs to serve – all because they’re embracing the Instagram mortgage.

This is what lending should look like in the digital age – and it’s going to be revolutionary for both borrowers and their banks. With customers demanding instant results, and an eager brood of digital disruptors marching towards the territory of the established players, there’s never been more urgency for the incumbent banks to get moving.

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