With Payment Services Directive 2 (PSD2) legislation forcing banks to make the customer journey more seamless, Open Banking has seen a lot of traction within other markets.
But, the mortgage market has continued to face challenges.
Many predicted Open Banking would make a big splash in the mortgage market during 2020.
Some lenders did begin exploring Open Banking but the coronavirus pandemic forced many organisations to put their plans for innovation on hold.
And so very few are yet to move to accepting even basic Open Banking statements in place of the traditional bank statement.
While priorities shifted amid the pandemic with tech roadmaps changing to meet the demands of working in a remote world, 2020 certainly highlighted the need for the industry to embrace change. Lenders’ lack of operational resilience was exposed by the implications of hurriedly moving to a remote working environment.
This caused lengthy processing delays at a time when demand for mortgages reached an all-time high due to pent up demand following the first lockdown, as well as the stamp duty holiday.
Big brokers must buy-in
It became clearer than ever before that technologies including Open Banking have the potential to make the mortgage journey easier for customers and lenders.
With better technology integration, brokers will be enabled to more efficiently package loan application materials to ensure less back-and-forth between brokers and lenders, and ultimately, greater approval rates of mortgage applications.
The big question is whether 2021 will be the year Open Banking is adopted across the mortgage industry.
Switching to Open Banking would require lenders to change the broker document policy, which is often handled by a different department within a lending firm.
Alongside lender reluctance, there is also a lack of willingness for change among large institutional brokers.
We recently joined with other digital brokers to write an open letter calling on banks to make the move to Open Banking, but we need larger brokers to support this move if we are to ever to see it become standard practice.
Benefits for self-employed borrowers
There is also the question of consumer uptake. Open Banking has been introduced among personal finance management apps, because there is immense value for consumers who are transparent about their finances.
However, when applying for a mortgage, there is always a temptation to window dress our financial health as much as possible, which can include hiding accounts that have lots of spending.
Although Open Banking might seem to offer too much transparency, this is ultimately offset by the ease at which consumers will be able to offer more proof points.
In particular, those who struggle with the process most, like the self-employed, will more easily be able to offer evidence of different streams of income and budget management.
Open Banking offers massive potential for delivering a radically improved mortgage journey.
We hope to see more uptake across the industry, with lenders and brokers working more closely, to create a frictionless application process that provides customers with greater certainty over their financial options.