Technology is as much a threat to established lenders as it is anyone else
Mark Davies, (pictured) is managing director at Link Mortgage Services
Trying to see how technology will impact mortgage lending over and above cost cutting is a bit like rock pooling. You have to look hard but the future business models and organisms of the future are there if you know where to go and what you’re looking for.
Chief among these is the notion of disintermediation which is defined as the removal of intermediaries in economics from a supply chain, or “cutting out the middlemen” in connection with a transaction or a series of transactions.
In today’s rush for digital solutions, many pundits band the term about but few have really considered what this might really mean and make a huge assumption that those being disintermediated are, well, intermediaries. But on closer inspection there is an uncomfortable truth in financial services which is that often the real intermediaries are staring us in the mirror. It’s comforting to look to others to suffer in this process but no one is immune from the effects of technology on the value chain.
We may not need intermediaries for ‘vanilla lending’, nor require conveyancing (we could insure that). Technology has already reduced the need for many physical valuations. But to imagine this is the only end game reveals more about the lack of imagination of current industry minds than it does the potential of technological innovation.
Most lenders look at technology as an opportunity to cut cost. Few have the balance sheets or desire to really reimagine an entire value chains and those that have regard their size to be the critical factor in their future success.
This may be true but what if technology, as I firmly believe, allows us to go beyond processing and making digital more efficient versions of old processes? For decades the way that we borrow mortgages has remained largely unchanged. We may have moved on from the days of visiting a building society branch manager in person, to speaking to an in-house adviser or mortgage broker who speaks to the lender on our behalf, but essentially the chain of command still runs from the lender down to the borrower.
But recently we have seen both Habito and Landbay change and adapt their models to disintermediate lenders and the capital markets respectively with arrangements that allow them to compete with established lenders and build longer-term value into their businesses. We have ourselves recently had two enquires from directly authorised brokers looking to achieve a similar outcome. Armed with an origination license (which we have) and with access to funding readily available, this is arguably a viable way of building value into the traditional broking model.
It’s only surprising that, given the volume of 5-year fixed and automated product transfers, networks, larger brokers and clubs have not woken up to this possibility sooner. The threat to the traditional broker model is clear and for many, directly authorised or simply network members, the challenge of maintaining a revenue stream from the ever reducing flow of deals has to be something that is on their strategic radar.
Servicing, origination and funding expertise and capability are all available and on hand to anyone with the will to do it through companies like ours. We expect to become very busy over the coming months.