This week the Financial Stability Board (FSB) published a report about the financial stability implications of digitalisation during the pandemic, which highlighted the importance of cooperation between financial, competition and data protection authorities.
The report found that the pandemic had accelerated the trend toward digitalisation of global retail financial services and noted the significant developments in digital adoption across all financial products.
While data is scarce, proxies suggest that BigTechs and larger FinTechs have further expanded their footprint in financial services, potentially destabilising the financial market as a whole. However, the report also notes that this isn’t necessarily a bad thing as it brings improved cost efficiencies and wider financial inclusion for previously underserved groups.
How will this trend affect the UK mortgage market?
Richard Merrett (pictured), head of strategic development for mortgages at SimplyBiz, told Mortgage Solutions that while the industry hasn’t seen as much of an impact as other areas of finance, it hasn’t been unaffected either.
He explained: “It is probably fair to say that while the mortgage market has definitely evolved during the pandemic, as a customer journey the mortgage process is not quite where certain other financial products are… yet! For example you can open a bank account taking a selfie or be underwritten for insurance risk instantly using data-driven decisions – for many mortgage providers you still have to print a form and get the customer sign it so there is a level of disconnect.”
Adviser engagement sets the industry apart
Unlike many other services, a lay buyer investing their life savings into bricks and mortar often has no expertise with a lot of money on the table. Most buyers therefore still want personal engagement and advice from trusted specialists, beyond what can be found online, especially with the growing number of more complex cases due to the fallout of the pandemic.
Merrett said that while more borrowers were starting their advice journey online, they would still turn to an experienced, quality adviser for help in finding a mortgage, arguing that the need for good advice has never been more pronounced.
He continued: “Mortgages have become increasingly more complex during the pandemic with sweeping criteria and propositional changes from lenders, set against the nuances of the rising costs of living and interest rates in particular.
“During the pandemic we have seen some excellent development of criteria and affordability tools and the direct to lender application functionality is now making progress, although it requires increased adviser engagement and adoption, so clearly things are improving all the time.”
“Digitalisation and a more frictionless process will clearly be a good thing, and will certainly enhance customer engagement, but I believe this will come from the excellent intermediary businesses we have in our industry utilising more of these tools and using technology as an enabler, as opposed to Big Tech or digital disruptors trying to come in and get the complexities of advice and good customer outcomes right.”
The FSB findings stress the importance of cooperation between financial authorities and, where relevant, with competition and data protection authorities.
It goes on to say that there could be negative financial stability implications from dependence on a limited number of BigTech and FinTech providers in some markets, the complexity and opacity of their partnership activities, and potential incentives for risk taking by incumbent financial institutions to preserve profitability.
It warns that there could also be consumer protection risks from greater dependency on technology and data protection issues. In addition, the limited number of cloud service providers could magnify the impact of any operational vulnerability.
The growth of BigTechs in particular underscores the need to address data gaps that currently hamper the assessment of those firms’ financial risks and systemic importance, since such data gaps make it difficult for authorities to decide whether and how to regulate BigTechs.
The FCA was also approached for comment.