Last year proved to be a hectic one for the mortgage industry, with lending growth reaching record levels and presenting great opportunities for both lenders and advisers. However, pressure from new entrants, survival in the sub-1% world, the continuing regulation malaise and the need to launch new products quickly are all threatening the survival of players in the mortgage market.
Despite the Treasury’s decision to postpone N3, 2002 will see many of these pressures intensify ‘ and no doubt see more pressures emerge. This means lenders and advisers need to act quickly to equip themselves with the ammunition necessary to compete in this increasingly competitive industry. New tactics will need be deployed if they are to fend off threats and embrace opportunities and ensure their future.
This climate produces a number of challenges for lenders. They must lower operating costs and deliver increasingly competitive products to customers. At the same time, they must win new customers and retain existing business by offering better service to an increasingly financially aware customer base.
Part of the customer service challenge is that selling mortgages is not an easy process. Even with a simple case, the adviser and the borrower will need to obtain initial quotes, select an appropriate lender, complete applications, chase references and organise valuations, let alone present documents to the chosen lender, chase offers, select a solicitor and chase completion from all parties. All this before the adviser can even think about chasing the lender for fees. From the lender’s point of view, keeping track of the paper trail and respective channels is a challenge in itself ‘ one that diverts far too much time away from their core business of lending.
With this in mind, it is not surprising that lenders often struggle to provide optimum levels of customer service to advisers ‘ and that advisers’ service to customers takes a back seat ‘ all in all, a highly frustrating situation for everyone involved.
However, it is not just a lack of resourcing that is to blame for lenders’ perceived poor servicing of advisers. A common grievance is when, after the initial introduction, lenders bypass the adviser and go direct to the customer to catch up on their administration backlogs. This makes life confusing for the customer, who suddenly has another party to deal with. Typically, the lender will also ask customers for information that has already been given to the adviser. This frustrates the customer and, through no fault of their own, makes the adviser look inefficient.
Other lenders make the process more protracted by making unnecessary administration errors. Such errors are common and are often caused by a combination of outdated and disparate IT systems, heavily paper-based processing and human error.
Lenders clearly cannot afford such inefficiencies going forward. It is clear that a new business model is required to achieve this much-strived-for best practice in customer service. But what are the options and where should the lending community start?
Considering the options
There are several options open to lenders looking to achieve best practice. First, they can do nothing and simply continue as they are at the moment. This may ensure their survival in the short term, but it will not bring prosperity or even survival in the long term.
Second, lenders can improve their existing processing and administration systems so that they are capable of the levels of efficiency required to operate in the current volatile markets. This should ensure survival and potential prosperity ‘ certainly during 2002. However, to keep pace with changes in the market, trends and new regulation, lenders must ensure that these systems can respond to market fluctuations quickly, and they must be prepared to make regular investment to ensure their IT systems are meeting the requirements of the business.
Third, many lenders are deriving significant benefit by using the expertise of third-party administrators (TPAs), who take responsibility for elements of the mortgage supply chain. These processing specialists can provide an entire mortgage processing and administration operation, which includes all front-end sales functions, application processing, correspondence generation, loan servicing and securitisation.
There is a fourth option, however. The customer service challenge is clearly about more than just reducing costs ‘ it is about delivering a more customer-focused offering, and it is this gap that business service providers (BSPs) can help to bridge.
Not only does a BSP offer managed services, application service provision and TPA services, it offers many more added value resources. These include thin layer management, mortgage consultancy, business implementation services and technology solutions that are flexible enough to evolve with the demands of the business, regulatory environment and the acquisitive demands of the market.
As with today’s IT consultancies, a BSP can help to strip out any supply chain inefficiencies, such as how a mortgage firm can reduce the time it takes to process an application from approval to completion. Hence, they can help to improve the customer service advisers offer.
BSPs can also help lenders and intermediaries gain competitive advantage through increased support and advice on organisational processes and company strategy.
The flexibility of BSPs means that solutions can be tailored to lenders looking to boost productivity and customer service while reducing costs. However, these services are not simply tailored to suit existing players. New lenders who want minimum in-house infrastructure, or even intermediaries looking to source and process leading products, can take advantage of these offerings.
The key benefits of this are that new products can be launched quickly, existing business can be increased while portfolios can be managed without stretching internal resources and business systems. In addition, having a BSP to support these business objectives means that lenders’ service to advisers can be greatly improved.
Neither party wastes valuable time chasing components of the mortgage supply chain, so both parties can focus 100% on their common goal ‘ winning and retaining customers through the provision of excellent customer service.
An eye on the future
As market conditions get tougher, it is likely that some form of BSP/TPA will become the favoured solution. As specialism and best-of-breed become preferred approaches industry-wide, lenders and intermediaries alike will be forced to focus on their core competencies in order to flourish.
While lenders are confident that intermediaries are meeting this customer service challenge, both parties are able to focus their resources on exploiting new market opportunities. Two fundamental aspects of success are choosing and deriving efficiencies from an appropriate common trading platform and adding value to customers by improving aggregation capabilities.
As pressures faced by the industry intensify, all parties will need to concentrate on their customer facing resources and start looking to outsource processing and administration. Lenders and intermediaries cannot afford to bury their heads in the sand and simply hope that their existing operational infrastructure will cope ‘ in many cases, it will not.
As the mortgage market gets increasingly competitive, lenders and advisers will rely on the support provided by TPAs and BSPs for their future survival. If the lending community becomes bogged down with administration ‘ the time spent selling will be reduced and so lenders and advisers will not survive to see the fruits of the new world’s market opportunities.
The core business of lending must be kept in-house. Most other processes can be outsourced ‘ not just IT. If service levels to both advisers and customers are to exceed expectations, some form of process outsourcing is essential.
BSP’s technological solutions can meet demands of lenders and can adapt to the changing regulatory environment.
Utilising a BSP’s IT system enables lenders to process cases quickly and efficiently, enabling them to focus on their core business of lending.
Lenders using a BSP can offer advisers and their clients an improved level of customer service.