Over the past two years, businesses worldwide have had to fast-track the implementation of technology to simply survive.
As consumers, we've become increasingly used to – and reliant upon – excellent digital experiences, and we now have an expectation of how things should be done, as well as an understanding of how they could be done.
Waiting days for a business to manually process an online request simply doesn't cut it any longer.
And this digital fast-tracking has affected banks as much as any business out there – particularly when it comes to the home loan process.
Research has shown that almost half of Australians are frustrated by the paperwork that comes with home loans, 25 per cent say it's too slow, and 75 per cent say it's a 'slow and tedious process'.
The days of it being acceptable to request customers submit countless pieces of information you already have access to – while keeping their finance application waiting for days, or weeks, on end, are over.
Of course, this change in customer expectation and how lenders are tackling it comes at the same time as a significant change in the property market.
Prices are inflating – affordability in some areas of Australasia is at its lowest level for at least a decade, with increasing property prices overwhelming record low interest rates. We're also seeing people move to areas they would never have been able to live in before, by virtue of the newly-established work flexibility.
"Technology is putting the power back in the buyer's hands," says Ross Watts, Chief Customer Officer at Sandstone Technology.
"Customers can be taken out of the cycle at any point now, right up until they've received unconditional approval and they've signed on the dotted line.
"Lenders can expend a lot of time and money getting a customer to that point, only to lose them to someone with a better rate, a faster process, or simply an organisation the buyer has more confidence in."
A primary driver of the adoption of technology in processing has been the rising expectations of customers, however there are still vast differences in how one lender processes to another.
Michael Johnston, Senior Manager, Home Lending Distribution at Aussie, asks, "Why can you identify a customer digitally with one lender but not with another, when the technology exists today, and has existed for a long time?
"The variation in process between lenders is wide and impacts the customer experience, in most cases negatively."
From a customer's viewpoint, delays in decisions are among several frustrations about the loan process.
Mark McLean, CEO, SBS Bank, says, "Delays in decisioning from lenders and the volume of information required are hugely frustrating to customers, in addition to the inability to self-manage their lending structures when their personal circumstances change."
The whole finance environment is becoming increasingly competitive. New innovative entrants are coming onto the market and building the capability to quickly and smoothly manage loan originations as a minimum standard, rather than a differentiator.
"Traditional lenders are being forced to respond just to remain relevant to the end consumer," says Poli Konstantinidis, Executive General Manager, Origination, AI & ML at Sandstone Technology.
Lenders admit that speeding the process up is something they're focused on.
"One of the best opportunities for us is reducing time to yes; reducing the time it takes from a customer enquiry, whether that be a broker or a direct loan, through to a decision that the customer can rely on," says Simon Burt, Head of Digital Customer Experience and Innovation, Newcastle Permanent Building Society.
The race for speed and efficiency in the loan origination process is well and truly on.
Those organisations that can process unconditional offers quickly and efficiently – and in doing so, take customers off the market before a competitor even has a chance to move – will hold a significant advantage in the months and years ahead.
McLean says, "The reality is that lenders that don't adopt technology risk not being in existence in the future through poor customer experiences and escalating costs through slow and manual end-to-end lending processes."
It's that simple.
While the notion of using technology to speed up the whole loan origination process and deliver a far greater customer experience is sound in practice, the reality of getting to that point can be perceived as challenging.
"One of the key questions banks today have is, 'How do I provide that experience to the end customer whereby the actual granting of the credit is still responsible and compliant’,” says Konstantinidis. “Regardless of customer expectations, the lender has still got all of the regulatory obligations to meet.”
Speeding up that process – enabling lenders to deliver quick outcomes that adhere to regulatory compliance and deliver a stellar customer experience to both consumers and business clients – is critical to the future of lenders across the country.
Some are getting it right, and in doing so, are setting the gold standard for others.
"Over the past ten years, the change in the process and the speed of the process is miraculous," says Watts.
"You're talking now about the benchmark of around one to three days for pre-approval being not just aspirational, but being the expectation.
"If you can't get that pre-approval out to customers in that period, it's not only creating a poor impression of what getting unconditional approval is going to be like, but you're creating reasons for the customer or the broker to go elsewhere."
While some banks – particularly new market entrants or those not heavily constrained by legacy issues – have invested heavily in their digital experience and are reaping the rewards, others still operate in a very manual fashion, which can be detrimental for clients and brokers.
"Some of the more digital banks have got the systems that enable them to provide a superb customer experience," says Konstantinidis.
"It's fast, it looks good, and it feels good. It's amazing how much look and feel gives customers confidence. It feels like things are transparent, and it puts the customer in charge of the process."
The processing of documents to verify loan applications is a significant part of the loan process. And, unfortunately, so too is incorrect documentation being submitted, duplication of requested information and a lengthy wait for verification.
"Having that good digital experience goes a long way to ensure people upload the correct documents," says Watts. "It's clear, it's easy, they understand where they are in the process and what's needed from them."
Burt says the duplication of information being requested is a major bugbear.
"Customers expect a lender to use what they know about them in an application, including all of the transaction data a bank holds on them. Don't ask what you already know about me! Customers are looking for a lender to make it easy for them to apply."
The validation of the information uploaded, too, is a continual challenge for many in the industry. While conditional approval may have been granted, the process to unconditional can be fraught.
"The number of loans that get declined after conditional approval is quite significant in Australia because loans are often pre-approved without that information being validated," says Watts.
That's a big issue because not only does it waste significant time internally for the lender, it also puts the broker and the borrower back to square one – potentially damaging the customer's relationship with both the lender and the broker.
The ability to offer straight-through processing while complying with responsible lending and verifying documentation is vital for lenders across the industry.
"People question why they need to click any more than five times," says Watts. "They have the attitude that, if you as my bank can't help, I'll go elsewhere because I've already got other people telling me I'm good for it.
"This emergence of lightning lending, which is driven off the back of accounting integration and very quick validation of income, is a real threat to traditional lenders, and they've got to compete."
McLean says technology enables the business on several levels.
"It enables customers to apply for and receive lending decisions when and where they wish.
"Technology provides lenders access to markets in which they don't have a physical presence and reduces the reliance on intermediaries. With automation and the use of AI (artificial intelligence) in the end-to-end lending processes, faster and improved credit decisions are made while removing and reducing costs."
For banks to accelerate and innovate to drive responsible growth – and to meet their customers' growing expectations – they need to move away from manual, time-consuming processes and automate the whole customer journey.
Because, if you don't, your customers will move somewhere that will.
Systemically, however, many financial institutions aren't structured to operate in a digital, streamlined way, and the prospect of change – both operational and technological – is often daunting.
"The biggest challenge – and the biggest opportunity – for lenders today is the ability to process the application through all the various stages," says Konstantinidis.
Typically, multiple teams facilitate those stages, resulting in several issues that could – and should – be avoided.
"One team will do the application prep, another will do the underwriting, and they'll pass it on to another team that will do the income and expense assessment and document verification," says Konstantinidis.
"There's human intervention at multiple touchpoints, and from a customer's perspective, that means double handling, it means repetition, it means lost time, and it often results in errors being made."
Being able to process that seamlessly and without any friction, quickly and accurately, is vital. If customer information and documentation are already available – either within the institution or available externally – why should there be a need to resupply it?
"If I'm a customer who's been banking with the same bank for ten years, why should I have to give you any information?" asks Watts.
"You've got all my details, you've got my bank statements, you've got my employment history, you've got my rental history.
"You can see dividends that are coming in from shares, you can see my insurance going out. Asking for that information again is frustrating from a client's perspective and a waste of time from a lender's perspective."
Burt agrees: "The process to evidence a customer's financial position with manual documents, after the customer has already provided all of their information in their application, is a real challenge. So much time can be spent reworking application data, from what the customer has told us to what the supporting documentation tells us. This isn't a new problem, but one where data is going to change that process."
Currently, for many lenders, the loan origination process is dated, cumbersome, error-prone and time-consuming. Unnecessary hours are spent processing, and customers and brokers become increasingly frustrated with those delays.
There's a severe lack of consistency between lenders too – something that adds time and increases the complexity of applying for finance – and the industry as a whole would benefit from a more consistent approach, says Johnston.
"If you look at the origination process in the UK and the US, there's been a move to a more consistent needs analysis form, which ensures the information a customer or broker needs to provide up front is the same no matter which lender you go with,” says Johnston. “We are seeing customers here start to migrate to models that support that same single application, multiple lenders model.
"It’s a no brainer really, and makes it simpler for all concerned."
To meet customers' expectations, the requirements of regulatory compliance, and to deliver significant business value, lenders need a loan origination solution that caters to all types of finance – home loans, personal, credit cards and overdrafts – and can seamlessly integrate into the organisation's existing core system.
"Lenders need a straight-through-processing solution that is built around their business and policy and the regulatory rules they need to adhere to," says Konstantinidis.
"The solution must enable a bank to have necessary controls to ensure it aligns with its risk appetite, as well as different delegated lending authorities and teams with different abilities to lend different types of loans.
“Additionally, it should also utilise data and information captured through the lending process, to help the bank drive a superior user experience and yield operational efficiencies.”
The more digitisation within the system to get to pre-approval and then to unconditional, the quicker the process will be.
Integration with accounting software means immediate income verification is possible – saving time and making it difficult for applicants to portray income scenarios more favourably.
For self-employed clients or those who have variable income, AI (artificial intelligence) and ML (machine learning) technology can assist experienced back-end human processing to ensure those 'non-vanilla' applications are managed in a reasonable timeframe.
While elements of the process today may rely to some extent on manual communication, a digitised process will notify users to take the necessary steps or flag issues that need to be addressed.
"That kind of seamless user experience between all parties in one central place is essential and has been one of the successes of Sandstone's LendFast solution," says Watts.
"We've been able to seamlessly integrate with all of the ecosystems that are involved in the home-buying process to make it very easy for the user in the bank, the broker, and the customers themselves."
For lenders to get to this solution sooner rather than later is critically important.
"If a lender doesn't adopt technology that streamlines a customer's application journey, they are at real risk of no longer being competitive," says Burt.
"They may still be successful in that traditional market, where a customer wants to sit down with a lender, with all of their printed documents, but we’re seeing a growing number of customers who are looking for a much smoother process, one that requires far less effort on their part."
Ultimately, the time for lenders to act is now. By rebuilding the loan origination process from the ground up – from the perspectives of the many different customers and considering numerous scenarios – lenders can ensure brokers and customers are engaged and delighted, rather than disenfranchised and frustrated.
"With good processes, banks can create happier customers, and create happier brokers who will bring them happier customers," says Watts.
With a digital solution that ensures regulatory compliance and responsible lending, lenders can significantly streamline the process, delivering on customer expectations and simultaneously reducing internal time and costs.
Concludes Burt: "The key is doing away with as many of those documents as possible, and using data to populate the application and evidence the customer's position in one digital action. For us, where we’ve been able to achieve this, it’s been a real game-changer and, when customers realise it is possible, they will demand it. And lenders who can provide it will prosper, while others will struggle to compete."
Published, February 2022