Brokers will be one of the many beneficiaries of the comprehensive credit reporting and open banking regimes, according to mortgage industry executives.
Stephen Moore, CEO of Choice, believes brokers will significantly benefit from the mandatory comprehensive credit reporting (CCR) regime — which is yet to be legislated despite the government imposing a deadline on the major banks to submit 50 per cent of their CCR data by 30 September 2018 — and open banking more broadly.
“We have a fundamental belief that the future of broking for many brokers is a combination of digital interaction with customers married with high-quality face-to-face advice,” Mr Moore told The Adviser.
“The reason we say that is because what [Open Banking] will then enable, with the client’s permission, of course, is the [ability] to have all of the hard data that other institutions would have on that client.”
He continued: “But because brokers know clients better than anyone else across the chain, we think that [they] are in the box seat to be the beneficiaries of comprehensive credit reporting and open banking.
“They’re in the box seat to provide customers with not only better advice [in line with] their circumstances, but in many cases where there’s more work that a customer needs to do to correct any deficiencies on credit record, it’s a real value-add to work with customers right up front in the process, rather than wait until after loan submission.”
The Choice CEO went on to say that “customer data is king” and that spending time on managing customer data on an ongoing basis will help brokers future-proof their business.
Tony Carn, director of sales at NextGen.Net, is similarly optimistic about the impact of open banking on the industry, saying that it will enable a more efficient means to validate data in applications — even in real time — with the validation process expected to be more accurate and cheaper for brokers and lenders alike.
But the director also thinks that it will take some time before the benefits of Open Banking make their way through to the mortgage process, noting that what’s more important than having open banking is “how you actually get the most efficient design and process to actually leverage it”.
Brett Spencer, the chair of Opica Group, which launched its AI-powered income and expenses verification engine for brokers in March, suggested that Open Banking may not necessarily make the broker’s ability to get a loan approved any easier, but it will enable them to prepare a loan application more accurately, efficiently and effectively.
He added that the sharing of data between financial services entities will “flow down to provide efficiencies to the broker market” in ways yet to be realised.
Communicating a similar sentiment, Peter Beaumont, head of growth at Wisr, said that CCR will “give brokers and lenders a more complete picture of a potential borrower’s financial history”, which would allow for improved assessments of credit risk and tailored products.
“New data will also mean that brokers can expect a more responsive approach from lenders and less back-and-forth with clients. New CCR data enables lenders to more efficiently validate things such as credit limits and repayment histories, reducing the need for additional documentation from the borrower,” Mr Beaumont said.
He also referred to a government review of the introduction of CCR in New Zealand; lenders told the NZ privacy commissioner that CCR data had allowed them to make better risk assessments, which led to an increased capacity to offer more credit.
While the deadline for submitting mortgage data under the CCR regime is currently February 2021, the chair of the Australian Retail Credit Association (ARCA), Mike Laing, believes the banks will be ahead of schedule, and once they do hand over CCR data, brokers will benefit from it.
“Getting access to a credit report helps them understand the likelihood that a customer could get a loan from different lenders. They will better understand over time what types of lenders, as they already do now, would [approve applications from] a customer of [a certain] profile, who is the best potential lender or panel of lenders to recommend,” Mr Laing told The Adviser sister title Mortgage Business.
“It makes their job easier because they would have access to independent verifiable resource.”
On the other hand, the chair of the Australian Prudential Regulation Authority (APRA), Wayne Byres, urged the banks to upgrade their anachronistic IT systems, suggesting that they are under-prepared for the CCR regime.
“The complexity of systems and process environments and reliance on manual processes has made the mapping of data lineages, managing data quality and the aggregation of data difficult. Larger ADIs have begun to tackle this through the appointment of chief data officers and the development of enterprise data management frameworks,” Mr Byres said.
“A ‘fit for the future’ bank, however, would have long ago built the systems and have high-quality data readily to hand for its own purposes.”
Given the current status of banking infrastructure, significant investments will need to be made by the banks to meet new prudential requirements, according to Mr Byres.
Before the benefits of CCR can be fully realised, Mr Beaumont said that there are three steps that brokers need to take in preparation for CCR: understand lenders’ implementation road map because different lenders have different time frames to update their credit decision processes; ask lenders, aggregator platforms, credit bureaus and other third parties for access to positive credit scoring information services to make the most out of the newly available insights; and keep clients informed of changes to credit reporting.
Source: The Advisor
- FCA agree to SCA delay due to a lack of market readiness
- Insight: The future of the working relationships between banks and fintechs
- Blog: Financial inclusion, Open Banking and PSD2
- Accenture predicts widespread Open Banking adoption in Canada
- White Paper: PSD2 – How the new directive changes the rules of authentication