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April 21, 2020updated 23 Jun 2020 3:39pm

Banking & Payments Predictions 2020: Digital Mortgages

By GlobalData Thematic Research

Strictly speaking, digital mortgages refers to the entirely paperless research, application, approval, and release of funds when applying for a mortgage and buying a property. In practice, many so-called “digital mortgages” are only “digital” through the customer-facing application phase. We use “digital mortgages” as a catch-all term for the digitisation of the mortgage process.

Listed below are the top digital mortgages predictions, as identified by GlobalData.

Despite being the anchor of the customer relationship and the primary revenue generator for banks, the mortgage application process remains antiquated and bank-centric. In 2020, fintech will address the considerable friction and unmet need head-on and take share from incumbents.

Many new digital banks now offer mortgages, with Australian provider 86 400 becoming the first neobank to offer home loans to Australian customers, boasting application approval speeds that are six times faster than those of the ‘Big Four’. In that same market, digital mortgage broker Uno is pushing more mortgage leads to smaller players, creating a more transparent, competitive marketplace.

2020 will see more incumbent banks working with digital mortgage brokers to optimise their processes, as Nationwide in the UK has done with a dedicated API for brokers. In India, Bank Bazaar, India’s largest price comparison site, has bank partners such as ICICI Bank allowing applications directly from its site.

Firms ahead of banks in the value chain, such as a property search site, will move into loan fulfillment to enable an integrated home shopping experience. In the US, search sites Zillow and Redfin already offer loans. In India, Square Yards, the country’s largest property search site, launched Square Capital to offer loan fulfillment.

Digital mortgage brokers, price comparison sites, and credit bureaus will combine to enable one-click product research, threatening to relegate banks to back-end product providers. Price comparison sites and PFM apps will merge, combining a proven business model around product comparison with deep financial insight.

New digital lenders, with end-to-end control of processes, will begin to take market share directly from banks with quick and easy applications. Digital distribution means a Rocket Mortgage equivalent could launch in the UK tomorrow. Molo, in the UK, launched a minimum viable product in buy-to-let and is now moving into the mortgage market.

The basic mortgage product itself and its 25-year term, which have remained largely unchanged for hundreds of years, will evolve to be more flexible and portable. Innovations around the likes of credit assessment and repayment horizons will expand reach. But incumbent banks’ flexibility will be constrained by Basel III risk-weighted mortgage servicing.

The speed at which digital capabilities need to improve will see big Software-as-a-Service spend by leading mortgage fintechs such as Blend and Roostify in the US. In Europe, we expect Infosys’ acquisition of Slater, the Dutch mortgage lender, to begin delivering a step change in capabilities among some leading European banks.

To build engagement further, banks will move beyond just the basic mortgage product to support broader home-buying journeys. So too, they will optimise mortgage products for third-party distribution through consumable APIs, helping to protect against disintermediation.

This is an edited extract from the Banking & Payments Predictions 2020 – Thematic Research report produced by GlobalData Thematic Research.