The role of technology in second charge market recovery

Matthew Elliott is co-founder of Nivo

During the first half of 2020, Nivo carried out research into the second charge market to understand where the primary business case opportunities were for investment in new technology.

We did this through telephone interviews, on-site systems analysis, and reviewing customer journeys with leading brokers and lenders, and then followed this up with a survey completed by 12 of the top 15 lenders.

COVID-19 hit part way through the research influencing the outputs and highlighting a theme of discussion around how technology can play an important role in the market’s recovery.

Everyone raised how social distancing was forcing organisations to be more creative in order to get deals done, with examples including increased use of AVMs, video conferencing, digital security checks and the use of e-signatures.

There is also is a mindset that this accelerated adoption of innovation is here to stay. We’re seeing people who had previously been more conservative starting to advocate innovation, and an increase in client appetite to get tech projects moving despite having to furlough staff and pull back lending.

This was underlined with interview comments such as: ‘We need to come out of this as a sharper lender’ and ‘It’s imperative to use this quieter period to land key tech improvements’.

Increasing customer awareness and appetite to take a second charge loan was raised as the key opportunity to drive growth. Almost every lender raised a sense of urgency to make things easier for customers in order to achieve this.

Lenders talked about how fintech entrants such as Revolut, with easy, customer friendly and mobile first solutions are reshaping consumer expectations, and compared this to the more clunky experiences in the seconds world where there is still a heavy reliance on phone, email and post.

In the context of customers being able to choose from a range of alternative ways to get funds more quickly (albeit often at a higher rate), there were several comments along the line of: “If we’re not seen to be innovating, we’ll get left behind.”

Our research identified an opportunity for lenders to collaborate and drive more consistent use of industry approved technologies on the basis that this will help attract new customers, complete more deals, faster, and head off competitive threats , which in turn would grow the overall size of the pie and increase returns for all parties.

Through our survey, lenders voted for increasing the speed of loan deals as the factor which would have the highest impact on attracting more customers to the sector and ensuring they stick with the process through to completion. The length of time it takes to complete a loan was raised as the top customer complaint, and some brands see dropout rates over 80%, on a typical 25-day deal, with every passing day increasing the risk of the customer going elsewhere.

This need for speed was noted as being more pressing than ever on the back of COVID-19 in order to help accelerate deal flow and ease cashflow pressures for organisations which have fixed overheads to cover while facing reduced volumes of business and increasing costs of capital.

When we looked into efficiency and productivity, we explored where efforts takes place across parties in a typical loan cycle and drew out that 55% of the hours of effort is with the broker, 25% with the customer, and 20% with the lender.

While lenders are successfully improving their productivity, through things such as using Nivo messaging to replace the need for Security calls, based on these ratios, the major opportunity here rests with improving broker efficiency. There was a strong view across lenders that it is in everyone’s interests to help brokers provide a simpler, smoother, more consistent service. This is particularly pertinent given the high amount of effort spent on cases that don’t ever get funded.

In an environment where there are a lot of manual processes and a heavy reliance on legacy channels such as paper, fax, couriers, phone and unsecure email, the positive news is that conversion rates are highly responsive to incrementable reductions in customer effort and deal time. If applied on the correct points of the customer journey, digitisation can have a meaningful impact in reducing drop-off.

Broker comments note that a majority of their skilled advisers’ time is spent on administration and want to be able to focus more of their time on adding value with customers.

There is an immense amount of back and forth through the course of a loan with lenders, and confusion across different lenders and systems over what’s required when and why. It leads to mistakes and delays in an environment where when a new case arrives, there’s a flurry of activity to gather as much information as possible before entering into a back and forth with the lender to try and progress the case, often with several different people involved and fragmented information across different emails, and agents logging in and out of various different portals through the day.

On a positive note, Nivo can report direct feedback from brokers using our services in cutting loan cycles from 21 days to 14, reducing phone time by over 50%, and improving conversion rates. This shows that clear, tangible benefits are available to be realised.

Shifting on to the lenders’ ability to deliver change through technology, the surveys drew out the standard industry challenge that new tech takes longer, costs more and rarely delivers as promised. One challenge to benefits realisation raised was the challenge of designing in flexibility for wrinkly, niche customer journeys where traditional faceless web-based portals make it hard to deliver a service that works for all cases and often give an underwhelming experience.

Our discussions drew out the potential for emerging natural language and flexible automation solutions, combined with the ability for an agent to intervene manually to help here by allowing for any niche customer needs to be catered for digitally.

Staying up to date with rapidly changing fintech solutions was another challenge raised, alongside a need to have compliance and security built-in as a standard, and a high focus on ensuring any new tech introduced is designed to be make life easier for brokers in order to ensure they will use it.

The benefits of consuming software as a service rather than developing tech in-house was a talking point. Interviewees had differing views on the level of which funding development of their own portals brings a competitive advantage, while most acknowledge the potential value of proven plug-in services and a reduction in spend.

We discussed these findings with lenders through our Second Charge Lender SteerCo. and used them to agree which tech features would most help in future. Three areas were prioritised.

Firstly, improving communication between lenders and brokers, shifting away from email and reducing the fragmented nature of multiple documents that need to be pieced together. This also provides an increased level of transparency to brokers about what’s required, why and when. To this end, we’ve worked with all parties to shape a new service for broker <> lender communication, incorporating technologies such as encryption, ID&V, document sharing, e-signing – all of which have been deemed as acceptable by the majority of lenders. The platform delivers two-way conversation and has been launched as a broker-to-lender beta service this month with an initial set of lenders.

Secondly, the SteerCo. raised E-signing of land registry documents, with a view that a solution which was formally approved by Land Reg. would publicise a message of speed and ease, attract more customers to the sector and reduce time and cos. Nivo’s secure e-signing systems has already been thriving for the past two years, so the technology is there, and we plan to progress this agenda with the support of the Lender SteerCo..

The third priority raised was income verification, where we see work to establish services underpinned by technology such as open banking and the automatic analysis of payslips to be applied in a way which fits with the working practices of this industry to highlight key areas of interest in order to enable better decision making and faster responses.

We are continuing to make progress against these priorities, and review them, with our Second Charge Lender SteerCo., and the next meeting is running on 15 July.