The future of mortgages — lessons from a service design approach
“Hello sir, can I talk to you for a few minutes about mortgages?” I pleaded with passersby. A few shook their heads, but most fully ignored me. I did receive a few grunts and “Never again”s, but no one wanted to take more than a few seconds to actually talk about the stressful subject of mortgages, which I was researching for an upcoming design pitch.
This was an insight in itself, and I used it to reframe the question. “Hello, sir, do you own a home?” I asked the next traveller passing through King’s Cross Station in London. “Would you be willing to talk to me for a few minutes about your experience becoming a homeowner?”
With this shift of perspective, many more people were willing to share their stories. They recounted how taxing the mortgage process was, how it was obscure and anxiety-producing, but how “it was worth it” for the pride and security of owning their own homes. Mortgages, it could be summarised, were seen as a “necessary evil” by those I interviewed.
Many people can relate to these feelings of confusion and frustration that accompany the lengthy mortgage process, and many lenders, solicitors and brokers are aware of the cumbersome bureaucracy that defines the business in borrowers’ eyes. Without tough competition, however, the banking industry has been able to rely on new homeowners as a dependable market for fixed- and variable-interest loans.
Recently, trends in consumer thinking, as well as new government regulations, have tilted the playing field toward a slightly more consumer-controlled deal. This year, the revised Payment Services Directive (PSD2) will help people to get unique financial advice, services and projections from third-party applications that streamline and optimise personal financial data. If innovative startups take the bait, this requirement for “open banking” might even remove the hassle of sharing all documentation needed to apply for a mortgage.
Open banking means that comparison applications, which many people already use, will become better at their jobs. Sites like moneysupermarket.com will threaten the job of the mortgage broker, which derives much of its value from having inside information. Fintech startups like habito are already harnessing Application Programming Interfaces (APIs) to empower customers to make effective financial decisions on their own, without having to hire a third party.
Pair the immanence of disruptive third-party APIs with the growing trend of shared products, services and experiences, and we have a recipe for transformation. The recent shift in consumer culture has gone from ownership to the rise of business models that allows the customer to share or pay-as-you-go. House prices have been increasing, and first time buyers are finding it more difficult to get on the property ladder — while home ownership among younger age groups generally has declined. This “sharing economy” has led to services like Tandem, which offers co-owned bank accounts in an attempt to garner greater buy-in and attachment to the service. Collaborative consumption is transforming business, consumerism and the way we live.
During my interviews, a common complaint from homeowners was the “black-box” nature of the mortgage process. Confusion and legalese have often worked to the advantage of the big banks — the less consumers know, the more they need to rely on overpaid consultants. As third-parties like habito begin to educate a new class of future homeowners, how might traditional institutions streamline their digital services to compete in the shared, data-driven economy? Could there be a financial hub, that allows users to gather all of their financial data and manage relationship in one secure platform? Could your bank help you move, re-decorate, install smart appliances? Could an AI “money mentor” help people navigate through the process? Could we view possible homes through VR? How could these emerging technologies be integrated to provide more clarity for borrowers?
It should be noted that people do not want digital experiences for the sake of being digital — good personal relationships are highly valued and increase trust in the financial institution associated. When size constraints force these relationships to be one-off and impersonal, however, digital can provide the constant and attentive service that prospective homeowners require when applying for a mortgage. Banks have an opportunity to foster lifetime relationships with customers by rewarding loyalty and providing “off the clock” digital services that feel personal and increase trust. Traditional institutions are at an advantage because they hold all the tools to actually get things done rather than just present what’s possible, and forward-thinking banks are beginning to reframe their products as touchpoints in a holistic lifelong experience.
With strategic digital transformation, the future of mortgages could be, if not fun, at least a little less painless.
