The housing party is over, with the record number of mortgage applications seen by lenders over the past two years coming to a halt. Rising interest rates are slowing economic growth, and lenders are bracing for the downturn.
If you’re a lender, you may be wondering how to successfully navigate this uncertain economic climate and how best to support your clients during these challenging times.
In our webinar in February - The Next Era in Lending: Lenders Will Take the Path of Pragmatic Innovation – I had the pleasure of hosting Tim Poskitt, Director APAC at Envestnet | Yodlee; Steve Brown, Head of Scoring Solutions and Strategic Accounts at FICO; and guest speaker, Zhi-Ying Barry, Senior Analyst at Forrester to address this issue.
If you haven’t already seen the webinar, it’s worth watching for the lively panel discussion and presentation featuring Forrester analysis. You can view it on demand here. While the webinar is focused on the Australian market, the takeaways apply to lenders around the globe.
Zhi-Ying Barry from Forrester kicked off the webinar with research around the four main factors driving lending changes in 2023. These are:
(1) Regulators
Interest rates are severely impacting mortgage loan growth, and the value of mortgage origination, excluding refinancing activities, declining by nearly 30% in December 2022 as compared to 2021, according to the Australian Bureau of Statistics (ABS). With around 800,000 fixed rate mortgages coming to an end in 2023, many lenders are thinking about how to move customers from fixed rate to variable rate loans and how to compete for these customers as they come into the market.
(2) Consumers
More than three out of ten Australian consumers in Forrester’s Financial Services Survey used their computer, tablet, or mobile phone to find out more about loans, and a full 75% of Australian online consumers reported purchasing a loan or mortgage product from a digital-only lender. So if you aren’t already serving customers digitally during their purchase journey, it’s important to accelerate that transformation.
(3) Incumbent Banks
Incumbent banks are transforming their processes to become more agile and digitally focused. While digital lending budgets are increasing in 2023, the increase is not catching up with the inflation rate. That means there’ll be even more pressure on incumbent lenders to determine how to consistently finance ongoing and existing initiatives as well as future initiatives.
(4) Disruptors
There are a lot of disruptive lenders on the scene. Some are digital only, and others have digital and human touchpoints in their business models, like Judo Bank, Athena Home Loans, and Latitude Financial Services. Judo in particular has transformed how small business borrowers think about their whole borrowing experience, and many small business lenders are following in their footsteps.
Emerging technologies are the key factor that’s accelerating lending
Automation and other emerging technologies are improving the customer experience and driving operational efficiency and growth. Optical character recognition (OCR) is a technology that’s been around for a while, but the emergence of open banking APIs has enabled lenders to bypass the OCR process and integrate data digitally.
In the webinar, Zhi-Ying notes that many incumbent lenders haven't quite leveraged or tapped into the full potential of open banking, and a lot of that innovation and activity is being dominated by fintech startups. Sherlok in Australia is one example – they’ve integrated open banking APIs to gain access to data about borrowers’ loans to detect when borrowers are eligible for a lower rate, and identify which rates match their loan profile.
Forrester’s predictions for lenders in 2023
In her presentation, Zhi-Ying outlined the following predictions for 2023:
- 60% of innovation spend will be redirected to tangible, real-world innovation
- Lending criteria will become more stringent as the ability to accurately assess risk is critical
- Focus will be on customer retention, especially as fixed rate loans come to an end
- Investments into collections and debt management will increase
So given these predictions, what can lenders do to successfully position themselves and better serve their customers? Our webinar panelists answered these questions and many more, and we’ll be sharing their responses in our next blog article on lending. Meanwhile, if you’d like to hear how Envestnet | Yodlee’s digital solutions can help you create more efficient and personalised lending experiences, just reach out to us in Australia and New Zealand, Europe and Africa, or North America.
