Insights & Opinions

Bye-bye Instant Payments, welcome Instant Mortgages

Tue, 15 Oct 2019

Rik Coeckelbergs Founder and CEO The Banking Scene

I’m exaggerating this of course. In the payments industry, instant payments are still the talk of the town, it is still dominating the conversations at the coffee machine. Whether that is pricing, use cases, the national schemes, SWIFT gpi, N27, the acquisitions of Visa and Mastercard, EMPSA, Western Union… instant payments are everywhere today.

As instant payments are becoming the new normal, professionals start looking for the new instant though. I mean, after some time, most has been said, no? So professionals look for something else.

The Instant Mortgage

KBC reached these people a hand: they announced the instant mortgage loan, even non-customers can now get an instant credit estimation and interest rate. OK, it is not in 5 seconds, it is 10 minutes. Even that is still pretty impressive compared to the 10 days in the early times, isn’t it?

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In a market like Belgium, this kind of innovations is a big thing today! After 5 months we got a first (!) new government. A new government means new rules and this time the real estate business and mortgage loans don’t escape from it.

I won’t go too much into detail, but bottom line: people that are looking for a house, can save huge amounts of money over the term of the mortgage, on the condition that the purchase of the house is done in 2019.

Suddenly this nearly instant loan approval is a highly valued USP for the bank, and a key differentiator for consumers, for sure in the coming weeks, but probably also in the years to come.

That not only customers but also non-customers can now benefit from the 10-minutes rule, can be seen as a revolution in the industry. The announcement for KBC customers came already in January, but last week, KBC announced the same conditions for non-customers. They don’t just provide an interest rate, but a personalised, competitive rate, and guaranteed by the bank.

I did the test and unfortunately, it didn’t work the way I hoped it did. I couldn’t get to the end of the process. Probably that is just a matter of finetuning.

Looking for peace of mind

Looking for a real estate property and a mortgage loan is a stressful process today. Not only are you deciding to buy a very expensive and important good, that will change your life, you are also exposing yourself financially to an external party. You become dependent on a bank.

On top of that, you are under enormous time pressure by the real-estate agent and the seller of the house. They expect a quick answer, and while you are looking for a loan, they don’t wait for other potential buyers to take their chance as well.

So you need the right decision… as soon as possible… to ease yourself and the counterparty.

In that context, the instant mortgage loan is reducing stress and creating a peace of mind that provides to a quick response to start chasing another bank.

Open Mortgage

In the context of Open Banking, this should evolution not be underestimated. I blogged before about the ambition of Immoweb to start selling mortgage loans. They have all the data of the real estate someone wants to buy. With these assets, they believe they can make the whole process for a mortgage loan shorter.

Although that is definitely true, the identification of a customer and the credit scoring takes a lot of effort as well. What should not be forgotten either is the insight information on the bank strategy in terms of lending and deposits to determine how they position their mortgage loans in the market.

Proving creditworthiness with the necessary official documents is also still a necessary pain in the whole process (unfortunately I didn’t get that far in my KBC process).

Some would say that if a bank can do an estimation for non-customers, Immoweb can do it as well. I’m not convinced of that. The interest rate will depend on the excess of deposits and the risk a financial institution is willing to take, they will not delegate that to an external party.

So unless Immoweb will start producing mortgage loans themselves, it will be impossible for them to do it all internally.

I do believe in the collaborative, Open Banking API approach, where Immoweb finds a partner or a standard interface with multiple partners. Immoweb would provide the interpretation of the real-estate and acts as a broker for financial institutions. They provide a competitive platform for financial institutions.

These financial institutions offer their mortgage loans, their credit scoring and their, or a standardised, KYC process.

This kind of customer journeys is what many consumers are really waiting for in fact. What problem is this kind of innovation solving?

Ultimate laziness

Instant certainty is definitely one aspect this could solve vis-à-vis a consumer.

There is more, remember Karin Van Hoecke quote on the ultimate laziness? It can also be translated in this context. The fact that getting a loan integrated with the process of looking for a house on the real-estate platform takes away quite a lot of hassle:

- No need to fill in all kind of redundant information

- No need to visit all kind of banks to get the best rate (with the need to filling in all the redundant information all over again and again and again)

- Everything can be done on one platform, or one app, no need to switch screens etc…

Suddenly looking for a house creates more hassle than looking for a mortgage.

Mortgage innovation — moving away from the commodity

In this scenario, banks should avoid the race to the bottom by simply playing on price. This could end up in a new wave of innovation. Around mortgages a lot of different propositions can be made, going from tailored investments, fiscal optimizations, flexibility in repayments...

This is not new. Jasper Nienhuijs, head of Market Management at de Volksbank shared in his Open Banking Interview that:

“More than 10 years ago we started not only selling SNS mortgages but from our competitors as well. Already for quite some time, we have the philosophy that good advice is not only product-related. At SNS, we start with good advice and based on that we choose the right mortgage for the customer. As a result, this can be also a mortgage of a competitor.

Well before PSD2, we already got a bit familiar with the concept of collaborating with third parties for core banking products.”

In the Open Banking Interviews, Karel Van Eetvelt talked about the sharing economy.

In relation to mortgage loans, that brings us to shared ownership as well.

That is for example where today challenger bank Tandem is looking at. Nick Bennett, chief operating officer at Tandem Bank says: “Tandem is building a mortgage proposition that reflects the changes that are happening in the sector whilst challenging some of the established ways of doing things.

I am very curious how Open Banking will be able to break also these strategic product lines of a bank for the better of the customer. Given today’s developments in the market, it seems just a matter of time before we will start seeing concrete results.

Exciting times in the Open Banking Space!

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