Steve Morgan (pictured) is managing director of Europe for Intelenet Global Services
This summer the level of mortgage lending hit its highest level since 2008, driven by first-time buyers and remortgages in a climate of low rates. This amounts to a huge business opportunity for mortgage lenders. But as the number of loans for house purchase in the UK increases, banks will need to make sure their systems for approving mortgages can keep up with the pace of requests. At the moment many traditional banks, including the Big Six, rely on outdated legacy systems that are often several decades old. This means that the approval of mortgages takes up a lot of time. But as new, agile fintech challengers begin to enter the market and offer quicker digital services, traditional lenders will need to act fast.
In recent years new fintechs have been emerging onto the financial stage and taking away business for the services traditional banks usually offer. From payments to international transfers to account services, these new providers have been winning over customers by offering superior convenience, speed and agility – and mortgages are no exception. A variety of new digital companies offer mortgage services that are personalised and, crucially, have an application and approval process that is significantly quicker than traditional bank loans.
At more established banks, it can take customers weeks to be approved for a loan. In a competitive housing market, this is far too long for some potential buyers. New fintech lenders, on the other hand, have cut this time down to days or even hours, offering a clear competitive advantage that threatens to mop up the extra business created in the recent rise in the number of people looking to take out a mortgage.
Many banks have seen the rise in digital challengers as a sign that in-branch banking is over. The response of many established banks has been to close branches, with a record number of 762 closures this year in the UK as reported in Reuters. But this risks losing out on the main advantage established banks have over fintechs: their in-person services.