Digital transformation of mortgages: 6 lessons from consumer finance in Sweden

September 24, 2020 - 6 min read

Digital transformation of mortgages: 6 lessons from consumer finance in Sweden

Digitisation has transformed the way we interact with the world. The tech giants such as Amazon and Google have created instant expectations from consumers. These expectations and attitudes to customer service are mirrored in the banking services sphere. Some fintechs and challenger banks have successfully been able to meet these expectations by providing responsible, yet quick and easy access to banking services. From consumer financial services such as buy-now-and-pay-later to investing and even business financial services such as remittance and credit scoring. 

The consumer lending market in Sweden is an intriguing example of the value of meeting customer expectations. The retail banks established the consumer lending sector. However, in the early 2000s, when specialised players with digitised onboarding processes and proactive marketing began entering the market things began to change. The retail bank’s response was slow and ineffective. So much so that after 2010 when brokers began emerging, retail banks were already too far behind to catch-up. By 2016, retail banks held just 42 per cent of the consumer finance market. 

What can we learn about the importance of digitisation from the consumer lending sector? We take a look at the ways digitisation gives banks a competitive edge in responsible mortgage lending:

1. Quick and straightforward onboarding is vital

Consumers expect simplicity, transparency and mobile-friendly applications. In consumer lending, one of the most critical factors determining the choice of lender is linked to the speed of approval. At the same time, speed alone is not enough; consumers will abandon an application if they become frustrated with time-consuming processes. So then, it is crucial to simplify onboarding as much as possible by digitising. The digitised transformation of lending flows removes complexities and increase transparency by eliminating manual processes and simplifying complicated tasks.

Digital transformation of mortgages: 6 lessons from consumer finance in Sweden

2. Review and curate the entire lending flow

A great example of the value of carefully curating and reviewing the entire lending flow in consumer lending is “time to cash”, which is the time from application submission until the funds are credited in a customers account. The thorough evaluation and curation of the lending flow, often through digitising lending processes, have meant time to cash has been reduced from weeks to just seconds. As such, establishing efficient end-to-end processes across platforms and channels rather than optimising single touchpoints in the mortgage flow is crucial. This will identify redundant processes as well as transform the mortgage experience. 

3. Circumvent cognitive bias and human error

There is potential for human error and bias in any decision or activity we carry-out. Biases can emerge in virtually any aspects of day-to-day life and can exist in many different forms. From selecting a place to eat lunch to choosing where to invest our money, we often make unconscious decisions. At the same time, there is an opportunity for human error in any process that involves a manual task. Consequently, whilst it is difficult to completely eliminate human error and bias, digitising processes in the lending flow has reduced the instances of human error and bias in consumer lending. 

4. Stay on your toes

The digital transformation of mortgages is about more than just tech. Banks and financial institutions are often organised into silos, separating tech, risk, business development, and marketing. Silos tend to slow innovation and speed to market. Meaning, although marketing and sales have very similar goals, marketing is often run entirely separately to sales. Each silo operates differently and has its own priorities and objectives. This can make it complicated if marketing needs to adjust to changes from another department and vice versa. Agile ways of working with clear leadership and accountability structures organised around cross-functional teams have helped some more nimble players stay ahead of the game and break down silos.

Source: IMF

5. The value of responsible lending

Although there are positive lessons and best practices that can be taken from consumer lending through to the digital transformation of mortgage lending, some lessons are not as positive. The Riksbank has for several years in a row highlighted the high level of indebtedness of Swedish households as the most significant risk to the economy. Household debt in Sweden has been steadily increasing for many years, to the point that households are now highly indebted. Regardless of the causes and factors that exacerbate household indebtedness, it is essential to both adopt measures to make sure customers understand the terms of the loan and carry out rigorous checks on customers. These measures empower consumers to make informed borrowing decisions and ensure transparency of the impact it will have on their life in terms of cost.

6. Take a customer-centric approach

Mortgages today are a pretty standard product, from bank to bank there isn’t a great deal of variation or flexibility. In Sweden, it’s very much a one-size-fits-all scenario. The majority of the choice is limited to choosing between variable and fixed-rate mortgages. In comparison, successful players in the consumer lending sphere take a customer-focused strategy across the entire customer journey. Successful consumer lending players take a customer-centric approach, with a well-defined product and distinct target niche. Customers have the flexibility to determine the order of actions, the pace and the channel to apply through. So, whether it comes to marketing campaigns or building new features, the customer is taken into consideration.

TL;DR - Customer-focused digital transformation is key

The example of consumer lending in Sweden contains several lessons that are becoming increasingly relevant for mortgage lending. Although today in Sweden, incumbent banks dominate the mortgage market, with the right formula, new entrants can win significant market share. The banks maintain advantages through consumer trust and vast quantities of data, but to defend the share they need to build on this foundation. A digital transformation of mortgages that puts the customer in focus will be the key to winning customer’s over.


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