Not every unicorn has a point…

Kevin Duffy

December 21, 2017

Kevin Duffy (pictured) is managing director of MortgageForce

The reader is probably totally sated by now with Yuletide analogies.

It is however the season for magical and shiny metaphors.

So apologies therefore for giving you one more, that of the self-confident fin-tech start-up, or its common euphemism, the unicorn.

These entrepreneurial and highly digitalised businesses possess inventive flair, unrestrained optimism and seemingly end-game telephone digit enterprise valuations.

And unlike ours, possibly redolent moreso of clicks, rather than bricks.

But I’m afraid that I end 2017 in the firm (and albeit luddite!) belief that not all of these near-illusory creatures is as wondrous and even relevant as it might first appear.

For sure. The likes of the now long-established sourcing sites and their attendant lead generation engines have earned their stripes.

As have recent entities such as MortgageGym and far elder operators such as Equifax whose own highly tech-centric and recent investment in London and Country actually augurs well for us all.

But the noisy narratives around some of the other “me too” offerings appear far less substantive, and dare I say it, of a nursery nativity standard.

They probably won’t see much Christmas cheer in my labelling of them, for I’m minded to call them the Camberwick Green Brigade. But in place of Cuthbert, Dibble and Grubb we have the likes of Trussle, Habito and Hoocht.

Now before all of these guys pummel me with snowballs let me just grant them a sincere concession.

Their advances in the (partial) digitalisation of our industry are both noteworthy and inevitable.

There will doubtless be collaborative gains for customers and us all in the food chain further down the line.

Otherwise why would lenders such as Santander and their peers and own fintech partners be so active behind the scenes in the engineering of more prolific B2C platforms, investing millions?

Furthermore, these sparkly new businesses have enjoyed significant start-up funding, sometimes even from fabled intermediary titans – who may admittedly only be making defensive and self-protective plays at this stage.

Their business plans (on the face of it, anyways) certainly appear very ambitious.

But one wonders what actual non-hope / EBITDA formulae is being applied to their eventual exit routes; given the size of the start-up capitalisations I simply can not see how they will produce sufficient transactional traction and net earnings within at least the next five years and possibly even 10.

One thing is for sure, they don’t lack confidence either in themselves or in the near religious belief that UK mortgage applicants seem to want to (and even should!) jettison face-to-face advice in favour of an almost entirely digital approach.

Trussle, for example, told us back in June that the process of buying a house is “overshadowed by how complicated the mortgage process is…”.

Errrrmm, I’ m sorry guys. But I simply cannot agree with what is a disingenuously huge and generalising statement.

Because the actual mortgage application process today isn’t complicated at all. It is actually as slick as it has ever been and unlike 20 years ago homemakers very rarely find their chains breaking because a party isn’t ready or the offer letter took too long to produce.

Deals actually become protracted not because of the process but due to unavoidable and irrefutable occurrences such as down-valuations, gazzumping and gazzundering or complacent and /or untruthful applicants.

None of that is process-related. The complicated bit is more often than not the clients’ unique or complex circumstances, not the process itself.

Maybe these keyboard warriors will now move on to digitalising and customising the actual human beings and we can all go home? A glib point, but you get my drift?

The sales pitch at Hoocht was no different where last month they made a promise to “…take the drudgery out of the mortgage application and reduce the typical process to 15 minutes…”.

Hmmmm… two initial observations here.

First, so bloody what? So you reduce it to 15 minutes. That is utterly academic given that most vendors will take up to 3-5 days to consider the offers made by viewers and agents in any event, whilst property completions themselves still extend beyond 70 days.

Second, how much actual advice will the client actually get in that 15 minutes?

It’s actually not much different to the wise old starter at my golf course on a Sunday morning saying: “Morning lads…. We can get you round in 15 minutes this morning. No need to smell the flowers, have the usual craic, or to enjoy the walk!”

I mean, who actually really needs or wants that degree of alacrity in anything in life? Just when did we all have to live at 3000 miles per hour?

My predictably staunch defence of F2F advice isn’t simply an unscientific and partisan turkey refusing to vote for Christmas.

Nope. I actually wanted to delve more deeply into this almost scare-mongering trend regarding digitalisation.

So at my own company we recently looked at a meaningful sample of the 4000 transactions we undertook this year. We commissioned and paid for a digitalisation ‘expert‘ to assess this sample, the aim being to identify precisely how many of these cases could be re-executed digitally tomorrow and in a way which provided a discernibly faster and more efficient customer outcome.

The project was very granular. And the results were well worth the expenditure. Once we stripped out any non-vanilla buy-to-lets (including the ever-increasing company buy-to-let portfolios); complex prime, near prime, adverse cases, unusual properties, short leases, guarantor loans, cross collateralised cases, a whole assortment of bridging scenarios, expats, bespoke high net worth cases and also those seemingly headstrong punters known to us who were adamant from the beginning that they wanted to deal with a human being, only a risible 11% of the sample cases remained.

These were generally sub 75% LTV applications with squeaky clean credit profiles for clients who had never returned a library book late in their life and with not even a tattoo or a body piercing of any kind, let alone a slightly blemished credit profile.

They fitted because they were mainly seeking the cheapest deal but virtually none needed to complete within three weeks at the outmost.

Further, of this 11% it is debatable whether had these cases been re-executed digitally that they would have produced a superior customer experience than the one originally given by the face-to-face broker.

Now this was of course an arbitrary and subjective exercise.

Because a fundamental analysis of the human versus the de facto robo-adviser concept is nigh on impossible.

Yet alas, all too often this kind of push-back from the traditional broker to the unicorn disciple is met with the caustic or patronising rebuke from these digital timelords “…you don’t understand”.

And you’re right, guys. We don’t understand at all. We certainly don’t understand how in 2014 there were 39 unicorn tech companies – yet by this year there were 170 emerging, worth £1bn.

Really?

Nor do we understand phenomena such as the tulip mania in 17th century Holland, the South Sea Bubble in 18th Century London, or more latterly the countless basket cases that populated the dotcom era meltdown.

Enough of the impassioned humbug. I’ll try to be balanced.

Like everybody else, I have absolutely no idea what the intermediary market will look like in 10 years’ time. But everybody has at least an uninformed hunch. And mine is that generational and traditional brokers and brokerages will still be doing very nicely virtue of them providing a fully advised and holistic service to their own generational set of clients, their clients’ colleagues, their children and even their grandchildren.

We can thank certain lenders’ wholly premature contacting of our clients on product transfer work for some of this.

As we are now seeing the more lazy and complacent brethren amongst us finally starting in invest in a decent CRM with a view to retaining their clients.

But moreso, it’s because in a terminally constrained housebuilding market with no more than a million transactions occurring a year, speed is no longer a differentiator.

And ultimately it’s because in the final analysis, when people are making the most important financial decision of their lifetime they will want to seek choice, accountability and reassurance from the whites of a human being’s eyes as opposed to the microbytes and pixels on the latest Apple.

I guess that some unicorns are real.

But some are surely just the stuff of fantasy and a world of peripheral advertising and click measurement. But what do I know?

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