15 minute read
Technology review
Interoperability is the future
Steve Carruthers
head of business development, IRESS
There is an adage about the efficacy of fitting square pegs into round holes, and it serves to illustrate the problem faced by many mortgage lenders – in fact, I’d wager all mortgage lenders that have been around longer than a year or two. The problem hinges on plugging new technology into legacy technology so that processes can become automated, costs cut, and time saved. Old technology used by lenders to manage reconciliation processes, credit, authorisation, record-keeping, and transactional data is nearly always bespoke, and has been patched repeatedly to fix minor glitches. Workarounds make systems more and more convoluted and less and less accessible to integration with newer technology. Over time, different coding languages have come and gone, as have the systems they support – often creating silos and preventing efficient integration.
Transition on a wholesale basis is fraught with risk, however, as the experience of a number of major high-street banking brands has shown. Data security, cyberattacks, system stability – these are all things that can become vulnerable when updating technology. But doing nothing is also fraught with risk. Customers are notoriously uninterested in brand loyalty when it comes to choosing a mortgage. Rate matters, flexibility matters, added incentives, speed of transaction, and certainty of early DIPs all matter more than whether a mortgage comes from the same bank or building society with which a customer has their current accounts. B2B relationships operate on the same basis; ask a broker which lenders they prefer to work with, and they’ll rank them on speed, service, and certainty. Perhaps even more important, the banking relationship depends on trust. Older tech is more vulnerable to cyberattack than new systems. When you’re custodian to millions, if not billions, of pounds’ worth of customer mortgages, hoping for the best with old systems makes a lender a sitting duck for fraudsters. As well, the carbon cost of old systems may not figure in balance sheet risk right now, but in a few years, disclosure rules will mandate companies and mutuals to report emissions. Failing to prepare will cost dear. It’s all very well knowing what the perfect solution is in theory, but in practice we all know we have to make the best of the situation we’re in. So how to fit the square peg of legacy technology dependence into the round hole that means staying competitive, relevant, and secure? And how do you work with what you have rather than replacing it with another thing that will be out of date again in a couple of years? Interoperability is the key to this. We recently worked with another technology firm and a regional building society to create a robotic process automation (RPA) integration between Iress’s MSO software and the lender’s core banking platform, using the other technology company’s RPA software. Due to challenges with optimising their core banking platform’s APIs, the society had been manually re-keying mortgages completed through Iress’s MSO software into their banking platform – a problem those in the mortgage market are only too familiar with. Clearly, that presents efficiency issues, as well as increasing the risk of inconsistencies in data input. But while APIs tend to be today’s normal method of integration, it’s not always possible to use them – particularly if you are not processing at scale. A recent increase in lending volumes meant this manual process was no longer viable; but short of throwing the baby out with the bathwater, our client couldn’t simply plug-and-play with an off-the-shelf product. What did we do, then? In collaboration with the client, Iress approached a partner to design and build the RPA tool to automate the task. The solution we’ve helped to create has saved this building society considerable time and cost. It’s also been created in a way that’s easily transferable to other lenders and other core banking systems. It can be customised to work with any core banking solution, providing a robust alternative when core banking APIs are not readily available. What interoperability offers every lender – regardless of size – is the prospect of developing situations that allow them to overcome the square-peg problem. The potential and accessibility of these will only grow with more development and hosting happening in a cloud environment, which offers a more agile and creative environment for all technology firms to deliver interoperable solutions. It means over time we can overcome and probably abandon many legacy platforms that offer more risk than reward – and that can only be a good thing. M I
Technology should deliver continuous improvement where and when needed
Jerry Mulle
MD, Ohpen
When it comes to upgrading technology, by which I mean big core operating systems, making decisions comes with considerable cost and time implications, not to mention security risks. For this reason, most executives wrestling with the final say on investment decisions as big as technology upgrades or system replacements are under a lot of pressure to get it right. Where lenders are smaller, and boards perhaps don’t include a chief technology officer (CTO) with the depth and breadth of specialist knowledge to back up a decision like this, it can often fall to others or those in charge of business operations. Indeed, most boards do not have members with coding experience (although this is changing). In stark contrast to engineering firms and car manufacturers, where many directors will be engineers, the tech infrastructure in financial services is often a mysterious world to those at the top who understand funding, banking, lending, and saving. Knowing what to do is no less important or expensive in this case, but the knowledge and experience that are key to an excellent finance director don’t necessarily overlap with those of a CTO. This is where paralysis can occur. The miscalculated conclusion becomes “Do nothing, and there will be no opportunity to do it wrong; just wait for the best solution to present itself.” Unfortunately, doing nothing is doing it wrong. The absence of action in maintaining IT security and functionality is as bad as, if not worse than, choosing an imperfect solution. Death by a thousand cuts is assured. When it comes to changes in technology, it is natural for board members to find themselves battling significant conflicting emotions. These present constantly, and generally manifest in the form of excitement at the prospect of something new mixed with a simultaneous feeling of resistance. We naturally resist change because we fear what we don’t know. These instincts are born of millennia of human experience. But in technology, where innovation is constant and rapid, waiting before launching a new service or idea often leaves it dead in the water. That’s why today, in technology, we operate using the minimum viable product (MVP) concept. This is a product or service development technique that allows products to be used despite being imperfect or unfinished. A minimum viable product in SaaS is an early version of a product that has only the core features but still delivers enough value to customers. The ability to learn as you go, improve, and implement at pace becomes its own reward. The recent history of IT is bursting with tales of product developments that evolved into more successful versions of the original and that in the end may have been unrecognisable when compared to the original concept. Agility of this nature is invaluable. Received wisdom has it that you need to know what problem you’re trying to solve before you can solve it. It’s true, but easily misinterpreted based on the best of intentions. You might assume the problem you’re trying to fix is the speed, cost efficiency, cybersecurity, or interoperability of your existing tech systems. In that case, the solution is to find a piece of tech that makes your systems faster, cheaper, safer, and more flexible – correct? Looked at another way, the problem isn’t finding a better system. The problem is that you don’t know what you’ll need in the future, only what you need now. The answer is to have an architecture and platform that accommodates change and can interoperate with other solutions rapidly – without incurring huge costs or having to design a bespoke system, with all the challenges that presents. You do not want to create a new generation of future legacy systems, but a solution that delivers progressive transformations that can solve the largest problems first. You’re opting for continuous improvement where it is needed, when it is needed. This offers the added advantage that because you’re improving systems every day, you’re using the systems you want to improve. At Ohpen, we offer cloud-native agility, scalability, and speed, all through an affordable and robust SaaS platform. We do this partly because we can, but also because we ought to. Ours is a platform built on a philosophy that recognises that clients need control to cope with the rapidly evolving future. This approach allows lenders to change systems and also change their ways of thinking, working, and doing business – from front-end customerfacing technology through to backend systems of record. The new generation of platform solutions offers lower cost of entry and an interoperability that is the future of technology everywhere. It offers an opportunity to do the right “something.” M I
Tech is key to breaking completion logjams
Neal Jannels
MD, One Mortgage System (OMS)
Social media can be both an uplifting and an exasperating place, often at the same time. On a personal level, I am more of a voyeur than a participant, but it certainly has its place when one is trying to gauge attitudes and trends within the mortgage broker community. And there’s certainly always plenty of insight, opinion, and sometimes frustration from the intermediary community, especially when it comes to the performance of some lenders in the current marketplace. First, let’s just say how difficult a time this is for lenders, as is evident in the recent decision by some to halt mortgage applications temporarily due to high demand or tech issues. That’s not to make excuses for some poor performances from a service perspective; it’s just a general observation. On the flip side, there are far fewer grounds for blaming a lack of technological capability to accept and process incoming cases in 2022. Many lenders are working hard to update legacy systems and newer lenders continue to push the tech envelope. Challenges will always emerge for lenders and frustrations will be evident for brokers, many of which will continue to be aired on social media. I say this after reading several comments on Twitter in recent weeks from brokers trying, and struggling, to submit cases via lender portals. We know that activity levels remain high across the mortgage market and that the role of brokers is to try to make the homebuying journey as seamless and stress-free as possible for their clients and themselves. Managing client expectations also plays a key role within this process, and this is becoming increasingly tough as the links in the chain break and completion times rise. According to a recent report from Smoove, one in three homebuying transactions is falling through the cracks, representing tens of thousands of broken dreams and huge sums of money essentially poured down the drain. In addition, the report outlined that the average time to complete within the last six months was 153 days, the equivalent of more than five months. In the pre-pandemic conditions of 2019, this number was 124 days – indicating an increase of 23 per cent since that time. In addition, nine in ten homebuyers found the process of moving home stressful, with the length of time it took to complete (40 per cent), the lack of certainty (34 per cent), and waiting for exchange and completion dates to be finalised (33 per cent) cited as some of the main reasons. The increase in time to complete is suggested to be a result of the postlockdown boom, as changing consumer lifestyles and demand outweighed supply, combined with greater capacity constraints for solicitors, and local authority searches taking longer to complete due to backlogs. So, with brokers frustrated with lenders, and consumers increasingly stressed as the length and complexity of the whole homebuying process grows, what is the answer? This is a complex issue and, as suggested in the commentary around this data, creating more certainty around property transactions is essential. Technology has an integral role to play in this process. From an intermediary standpoint, brokers need speed, clarity, and efficiency when placing an application. Platforms, portals, and systems are all about making life easier for their users, maximising time constraints and making processes more effective. A desire to transform the mortgage journey was a primary reason behind our recent integration with Lendex, the multi-lender application and submission gateway from Mortgage Brain. This helps save our users up to 20 minutes per case, as it will allow them to pre-populate data directly through this gateway to the lender’s platform, therefore allowing them to submit a decision in principle or a full mortgage application through a single login. To explain more about how this works, the Lendex tool connects brokers with the back-office systems of participating lenders. A full audit trail supports them in meeting their compliance requirements, and client documents can be uploaded directly to help track the progress of individual cases. Importantly, it also allows brokers to place applications with an array of lenders without the need to rekey data. Now this is just one example of how technology can support brokers, lenders, and clients and help to streamline the mortgage process. This is only the beginning of the tech revolution in the mortgage market; there is much more to come. So watch this space – on social media and beyond. M I
Tim Hague
MD, Sagis
With so much turmoil in the market now, your instant reaction might be that there is no time for the sort of investment I refer to in the title of this article. But it is more important than ever. Over the course of this year, we have heard little else than the devastating effect inflation is having on household finances. The costof-living crisis has been fuelled by massive financial bailout schemes during the pandemic, global energy price spikes amid the ongoing Russian war in Ukraine, and sharply rising food and clothing costs driven by persistent supply-chain blockages. In July the International Monetary Fund published updated global growth forecasts, warning that from next year “disinflationary monetary policy is expected to bite, with global output growing by just 2.9 per cent.” In a rather depressingly titled report, World economic outlook: gloomy and more uncertain, the IMF said, “The risks to the outlook are overwhelmingly tilted to the downside. With increasing prices continuing to squeeze living standards worldwide, taming inflation should be the priority for policymakers. “Tighter monetary policy will inevitably have real economic costs, but delay will only exacerbate them. Targeted fiscal support can help cushion the impact on the most vulnerable, but with government budgets stretched by the pandemic and the need for a disinflationary overall macroeconomic policy stance, such policies will need to be offset by increased taxes or lower government spending. “Tighter monetary conditions will also affect financial stability, requiring judicious use of macroprudential tools and making reforms to debt resolution frameworks all the more necessary.” I personally think the biggest risk facing the economy is uncertainty. Over the first half of the year (indeed, until about six weeks ago), swap rates – a supposedly accurate reflection of where markets believe interest rates will be in the future – and consumer rates had appeared increasingly disparate. The recent re-convergence is welcome, but no-one can take it for granted. Good commercial practice means lenders must be fleet of foot in getting products on and off the market. There is lots of opportunity if you can get it right. Fixed-rate mortgages still account for the lion’s share of the market, with Bank of England (BoE) figures showing that 83.1 per cent of existing mortgages are sitting on fixes. Furthermore, 32.7 per cent of those deals have less than 24 months left to run, meaning borrowers will need to remortgage while the current economic uncertainty endures. Rates are exposed to uncertainty. Moneyfacts data shows the average standard variable rate (SVR) for June reached 4.91 per cent. That following a rise of 0.13 per cent compared to May’s equivalent rate, and a rise of 0.51 per cent since December 2021. This is the highest recorded since February 2009, when SVRs were averaging 4.94 per cent, surpassing the pre-pandemic average revert-to rate of 4.90 per cent seen in March 2020 at the very height of pandemic uncertainty. For the eighth consecutive month the average overall two-year fixed rate has risen, and in June stood at 3.25 per cent, up 0.22 per cent from May and 0.91 per cent since December 2021. The overall five-year fixed rate average sits at 3.37 per cent following a month-on-month increase of 0.20 per cent, and is the highest on Moneyfacts’ records in seven years. As a response to this uncertainty, we have seen a gradual increase in the number of 10-year and some seven-year fixed rates in recent months, recognising an increasing concern amongst borrowers about the uncertainty of interest rates in the next few years. With the BoE hiking the base rate by 0.5 per cent and expected to raise it twice more before year end, pricing pressure is only going to intensify in the coming months. Product withdrawals and replacements are happening almost daily, to the point where lenders have barely seen the impact of a price change before they are having to hike again for fear of being left at the top of sourcing systems and swamped with volumes they can’t afford. The market is replete with stories of lenders whose service has fallen over as they have been caught out by rate rises. Others report that to make money, avoiding service catastrophe is essential. It is a real headache for mortgage lenders, particularly those relying on legacy product factories that are notoriously slow to implement repricing. What’s the answer? When times call for rapid responses to avert costly consequences, it’s time to consider investing in systems, processes, and thinking that can cope. The business case for moving to SaaS and cloudbased digital platforms that can swiftly deliver operational excellence based on strategic understanding has never been more compelling. M I
