The mortgage market is on the road to e-commerce but if collaboration is
lacking then it may lead to further consolidation.
The life and pension industry was the first to recognise the value of
agreeing and working to electronic data standards for moving information
smoothly and quickly between customers, advisers and product providers via
Customers can expect to receive confirmation that a policy is now in force
and even get updates on the performance of policies via email.
There is clearly an appetite in the life and pension industry for access
to the financial savings that e-commercialising brings. Many others can see
that the internet will make it easier to contact and service existing
That enthusiasm has led key life, pension and investment product providers
and IFA networks to collaborate to create electronic data standards for the
whole industry, under the auspices of standards body Origo.
These standards are now being applied to individual product groups and are
being rolled out across the industry. Some providers are already writing
electronic applications for investment bonds, term insurance and even
But early attempts to put a common trading platform in place in the
mortgage market have so far foundered. The dotcom boom in 2000 did nothing
to stimulate activity. But just when everyone in the industry was beginning
to doubt whether the mortgage industry would ever embrace the benefits of
the e-commerce revolution, suddenly two key announcements indicate the
impasse may be over.
In May, Mortgage Brain, the software platform provider, agreed to be
acquired by a consortium including Halifax, Alliance & Leicester and
Nationwide. These companies make up 40 per cent of the entire lending
market and this move put immediate momentum behind the preparation for
electronic processing of mortgages.
Within a week of this deal, IFonline bought Trigold Solu-tions, the
provider of the offline Prospector mortgage sourcing system. IFonline and
Trigold's systems combined will serve over 20,000 registered users.
IFonline recognised that it needed to offer a combined on and offline,
fully transactional solution to attract IFAs and the broker community to
use its systems.
The importance of offering both online and offline capability when
transacting mortgage business is clear when you look at the practicalities.
An IFA sitting with a customer, having chosen a lender and a specific
mortgage product, may well want to seek a decision in principle before
going through the lengthy process of completing a full application form.
This decision in principle should be issuable today in 30 seconds while
the IFA remains connected to the internet. However, once he has reached
this stage the IFA will, in all likelihood, want to disconnect to complete
the application form itself.
At Focus, we believe these two recent developments will greatly advance
the wider adoption of the electronic processing of mortgages. Our
independent research indicates that huge inefficiencies exist in the
paper-based world of mortgage application processing.
E-commerce could remove these barriers, creating massive cost savings for
mortgage companies. But there are still some obstacles to overcome. There
is the question of charging, for example.
Will the big-name lenders that now own the majority of Mortgage Brain take
money from IFAs and intermediaries for the privilege of passing the
business via the system?
IFAs and other intermediaries might quite justifiably object to this, as
it is they who will be creating the sale and passing it on to the lender in
a cost-effective manner through the system.
A further concern is that smaller building societies may not get the
benefit of elec-tronic processing simply because they feel they cannot
afford to build their own systems or pay the transaction charges that the
owners of these systems will inevitably impose.
We are keen to encourage smaller societies to work together to develop
their own electronic solutions, sharing costs evenly and making it more
The real mark of success is when the majority of lenders, mortgage brokers
and IFAs are processing mortgage applications electronically. If we are
going to achieve this anytime in the next five years, collaboration is the
key, just as it was in the life and pension market.
This is not just about having up-to-date entries on internet-based
comparison tables but being able to offer transactionability, end-to-end
processing and the reassurance of solid security systems.
Internet-based processing, if done right, can offer advisers the facility
not only to get decisions in principle in seconds but also to gain
validation at the point-of-entry of customer data before the application is
even submitted to the lender and then track the progress of the application
through the lend-er's approval systems.
This sort of electronic service will enable advisers and brokers to offer
their customers a better service, which they are happier to pay for. The
industry as a whole benefits because there is not such a pressure on
Customers are getting what they really value – a hassle-free service which
cuts the time it takes to get their mortgage approved, so they can buy a
house or extend their property and get on with their lives. Distribution
costs will be reduced simultaneously because it will be cheaper to process
There is no doubt that the moves made in recent weeks involving IFonline
and Mortgage Brain have set the mortgage industry on an inevitable path to
building common electronic trading platforms.
The challenge now is to use these initiatives positively to help build
electronic data standards so that the whole industry can benefit from the
Without this collaboration, the internet will serve as a catalyst for
further consolidation in the market.