Edward Murray: What impact has technology had on distribution?
John Heron: Technology has impacted on distribution a good deal less than it will going forward. We have been behind the curve of what it can do for quite some time. Although fantastic progress has been made since the 1980s I still don”t think that we have got to a level that really fulfils the potential that”s there. We don”t see enough mortgages coming through the electronic route despite some significant innovations in the market from both lenders and intermediaries. What could change that going forward is a shift in the structure of distribution. Lenders and intermediaries will need to work more in partnership on ventures, but at the moment it remains fragmented.
Bill Safran: We have seen a major shift in the number of transactions going through our platform and through other platforms and also direct through lenders. Halifax is getting about 90% of its business electronically, Abbey does over 90%, and Mortgage Express over 90%. It”s already happening but the question is where does this develop? What we”ve seen is just the tip of the iceberg and as time progresses we will see more transactions going through this route. At some point all intermediaries will contact all lenders electronically.
Sally Laker: Technology has made a huge change from the brokers” perspective because they are after speed and being able to get a mortgage completion as fast as possible. They have had to keep up with technology to be efficient. A lot has changed In such a short space of time. It saves time too – gone are the days when you wait three days for someone to approve a case.
Stuart Glendinning: It think it is worth making the point that one of the big advantages of technology is that it has allowed the lenders to reduce the cost of their operation. The internet will make life harder for the lenders, but offers opportunities for consumer-facing websites.
Richard Griffiths: I don”t think technology has affected distribution in the UK market. Technology is a means to an end not an end in itself. Intermediaries have to keep up with technology but distribution wouldn”t disappear if you took it away, it just makes it easier.
Rob Clifford: It”s not just about speed. It”s also about driving a compliant sales process. I think the way in which the sales process operates has been hugely helped by technology and we shouldn”t underestimate the fact that it has created standardisation which is necessary considering that from next year failing to be compliant will be a criminal offence.
Edward Murray: Are lenders going to have to pay more for online business?
Paul Howard: We hope we will be paying less. One of the things we suffer from is incomplete application forms. Hopefully that will be alleviated.
Julian Wells: The key thing is that although not all brokers are using technology to the maximum we have to make sure it”s ready when they do. Once they start they will carry on using it and savings will be made.
Stephen Atkins: I think we are still held up by the fact that the digital signature issue hasn”t been resolved yet. Having submitted information electronically you still have to send the application form and supporting documents by post.
Edward Murray: How long will it be until that is resolved and is it holding up development?
Bill Safran: I wouldn”t like to guess. A lender will save between £60-£90 by doing a completion electronically rather than on paper. By doing a real-time AIP we can weed out applications that aren”t appropriate for a particular lender. It”s good for the intermediary and it”s good for the consumer. One other thing we have had feedback on is that customers aren”t always accurate about credit conditions. So by using an online AIP you can see more easily if they”re going to qualify.
Paul Howard: I think there has to be a financial benefit to using technology most likely delivered through more cost- effective processing.
Edward Murray: Alliance & Leicester has said it will pay an enhanced procuration fee for online applications because it is saving money overall. Is this necessary and are others doing it?
Alan Clearey: We do pay an extra £75 per completion but what we are seeing with online trading is we have gone to 60% online in 10 months so we can give something back to the broker. We want to encourage them to use it. It”s one way to ensure compliance documents go out to the customer. There”s a culture that customers want everything to be quick and easy. Brokers who don”t use technology will find that their customers will walk and just go into the shop next door to get quicker service.
Stuart Glendinning: Part of the problem as far as the intermediaries are concerned is the main beneficiary of improving technology is the lender.
Julian Wells: I am not sure it doesn”t benefit the intermediary. They will get a faster service, and a quicker decision.
Stuart Glendinning: I don”t think there”s a 50/50 benefit, it”s more for the lender than the intermediary.
John Heron: It”s possible to overdo this technology thing. Technology is part of the much bigger picture. We have to bear in mind what”s going on in the market. The biggest challenge lenders face is the oversupply of capital. A lot of the drive to introduce technology is that one of the things you have to do to deal with lower margins is reduce costs. Technology can speed things up but the exercise of flexible lending is driven to the periphery of the business. For consumers it gives them access to products and speed. I am not sure it”s good for the intermediary. All this drive to reduce costs could reduce the traditional role of the intermediary.
Richard Griffiths: Again I think it”s the FSA regulation that changes the picture here where the intermediary will have to use technology to give best advice. They have always had to provide the best advice for investments and now they have to provide it for mortgages. How else can they provide it?
John Heron: It”s suitable advice not best advice. It certainly doesn”t always mean the cheapest.
Richard Griffiths: If a customer wants the cheapest monthly payment, how will they find that without using technology?
John Heron: I think it”s essential in terms of delivering compliance but I don”t think it”s necessarily good for the intermediary market.
Ben Marquand: Why? Will it reduce flexibility?
Phil Heaton Jones: A technology-based solution is not necessarily an inflexible solution. One thing we have to work harder on is making sure that the various systems are able to talk to each other and that will enable the flexibility to be brought in.
John Heron: If the result of all this technology is a higher concentration of distribution in the hands of a smaller number of intermediaries then there could be a demand for a higher procuration fee. And if the transparency of products drives prices down so you market more and more in terms of margin, it could force lenders to decide whether they want to remain in the market.
Paul Howard: No one is saying you have to use this technology. I think it will bring benefits to intermediaries. But at those times where they don”t want to use technology, they can still use tried and tested methods but for the more straightforward cases it”s got to be a real boon.
Rob Clifford: I agree that no one will say thou shalt use technology, but the FSA is already saying it will be asking for periodic reports to be submitted electronically.
Bill Safran: We just consider technology a tool. At the moment how do you sort through 7,000 products? We screen them and narrow it down using criteria from consumers. As far as the issue of IT and who benefits from it: it reduces the cost to the intermediary. How will a network be able to monitor what”s going on with its 1,500 members without using technology? How can you ensure everyone is using the same documentation?
Rob Clifford: I also feel strongly because it aids control of distributors and it aids control of distribution for compliance. But it”s not an alternative to field-based monitoring.
Edward Murray: Will it create problems for organisations looking to be principals who think technology will sort it out?
Rob Clifford: Technology is a brilliant tool but I have seen one or two who think that”s how they will monitor their members.
Richard Griffiths: It is no substitute for having field operations. I hope to get our team of six compliance officers up to ten. DBS has 80 compliance officers. What technology will do on the monitoring side is highlight the high-risk brokers. But anyone who thinks technology will do away with face to face field visits is crazy.
Sally Laker: I agree. Feedback we have had from brokers is that although they want to use technology they want someone to show them how to use it. Certainly to have efficient documentation it has to be through technology. But you have to be able to look at how they are using it so you need people out there monitoring it.
Peter Saint Ruth: We seem to have highlighted three areas – sourcing, compliance and transactions. They seem to be fragmented. Although IT is useful for intermediaries given sourcing systems with compliance, in order for it to be beneficial for intermediaries and lenders, we have to have a sourcing system that can meet compliance capabilities and move it through to transaction without having to duplicate. That will be the challenge in the next 12 months – getting IT to work together for the benefit of all.
Edward Murray: How far away are we from having all of this functionality for everyone?
Peter Saint Ruth: The major players here are the lenders and their willingness to work with sourcing and compliance systems is key. Some lenders are developing their own sites and that is maintaining the fragmentation. It is dependent on lenders to do something.
Stuart Glendinning: Consumers are using the internet for research and the internet is a great leveller. Smaller lenders become more competitive and effectively become stronger on the virtual platform.
Rob Clifford: I am not sure lenders want to level the playing field. Some lenders have a competitive edge and if I was a lender I would want to hold on to it for as long as possible. There”s a commercial pressure not to level the playing field.
Paul Howard: In respect of the common trading platform (CTP), lenders have invested huge amounts of money developing their own capabilities. I think the big decision we lenders have to make, and we must consider this very carefully, is how much benefit would come to the market as a whole through a CTP.
Sally Laker: The CTP issue is very important for brokers. Ours is one that the broker goes into and only has to do things once, but there isn”t a CTP that has access to all lenders. So they have to come out and go into another system. CTP is a utopia but it isn”t there yet.
Rob Clifford: I think lenders could have done it three years ago. I still think it”s something to do with competitive advantage.
Stephen Atkins: I think the jury”s still out because until we know how the sourcing systems can look after the ability to produce KFIs and therefore actually source mortgages based on accurate KFIs we don”t know how it will work. If they don”t solve that then it will force people like us to go back to talking to the lender direct which isn”t something we want to do. So KFI accuracy is the biggest thing for us.
Bill Safran: But the key is not necessarily for a CTP but for all lenders to be able to speak to all intermediaries. How that happens needs further debate but we shouldn”t narrow ourselves down to one solution. There are multiple ways of solving the issue. People need to work together to make sure that happens.
Edward Murray: Looking now at the role of the packager, will they be marginalised by technology?
Paul Howard: There are some very well set up packagers that will evolve their business, they also have direct to lender solutions and direct to customer solutions and they will do well. Others won”t. I think the smaller ones will find the challenge difficult.
Rob Clifford: The packaging movement has provided an excellent variable cost model for lenders. There will always be lenders looking to build these virtual businesses and grab market share without building a huge processing centre. I think that the well-run, well-funded operations will continue to do well.
Edward Murray: Is it a problem that the outsourcing businesses will run outside regulation?
Stephen Atkins: Yes, it”s a problem. You”ve got an authorised lender at one end and an authorised broker at the other end and a packager in the middle who isn”t authorised. Will the broker send client money to that firm?
Phil Heaton Jones: What they have to do is add value both to the lenders and the brokers so we may see some of them moving towards network-type models. The days of the one or two man operations are gone.
Alan Clearey: Packagers will become an outdated term. If you look at what is happening and look at whether you can add value and adapt your business model you”ll have a future.
Paul Howard: Most packaging is to do with sub-prime business because the procuration fees are higher.
John Heron: It”s important we are clear about who is doing what. What”s very important is that we know who works for who. If packagers are genuinely taking on work for lenders, then there must be a straightforward relationship.
Sally Laker: Can it still be cost effective to pay someone to package a case?
Stephen Atkins: The problem that the third party packagers have is what the lender is doing regarding the payment of the fee. If they give the whole fee to the packager to distribute, the packager only receives their portion. Almost undoubtedly the packager will then be hit by VAT. That means the lender will be passing a fee to an unauthorised firm which is a problem lenders will have to resolve.