Wednesday, January 26, 2022

Digital Mortgage Battle to Emerge as Fintech Eye Home Loans

Afterpay plans to launch mortgages in 2022 through its recently launched banking app, targeted at Gen Y women (born between 1981 and 1996) and Gen Z (born in 1997) .

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Afterpay’s pledge will be funded by Westpac, but nonetheless, it shows the potential of fintech apps to move into a core area of ​​banks.

Up, a youth-focused Neobank that was bought by Bendigo and Adelaide Bank in 2021, also plans to begin selling home loans through its app in early 2022. Up was launched in 2018 to provide digital accounts – and in November it said it had 40,000 customers saving. a home loan.

UP’s chief executive, Xavier Shay, says its mortgage product will aim to win over customers by giving them financial tips — like giving them a nudge to pay off their loans faster if it notices they’re doing more than they thought. are saving. “Right now, the cutting edge is that you type some numbers into a calculator or maybe make a spreadsheet, and most people don’t want to make a spreadsheet,” Shay says.

Bendigo-backed Tic: Toc, which will provide Up with the technology to approve digital loans, is another example of a rapidly growing digital mortgage business – it also relies on Bendigo for funding.

Up and Away, Up’s chief executive Xavier Shay (second from left) says young people want their mortgage where their money is.Credit:,

Non-bank lenders like Nano Digital Home Loans and Athena Home Loans are also eyeing the action, along with older businesses like FirstMac-owned Loans.com.au.

Athena’s co-founder and chief operating officer, Michael Starkey, says that about 45 percent of Athena’s customers are Gen Y, and its commissioned surveys showed that 74 percent of millennials are either “somewhat” or “very much.” “Non-friendly to use. bank lender.

With other digital businesses like REA Group’s realestate.com.au also targeting home loans, Starkey argues there is an opportunity to make finance more “embedded” in the broader home buying process for businesses.

Andrew Walker, co-founder and CEO of Nano, argues that COVID-19 has accelerated the shift to digital applications, arguing that digital home loans are “increasingly becoming the norm”.

“If you look at the global data, you will see that Australia lags far behind the rest of the world, where currently less than 3 to 5 percent of mortgages are generated digitally, compared to 30 percent in the US,” Walker says. Huh.

“We originally anticipated this to be a 3-5 year market turnaround, but now we believe it will happen in the next 12-18 months.”

Not everyone agrees that digital home loans are ready to be taken.

Given the complexity and high stakes of taking home loans, mortgage brokers arrange a large proportion of new loans, and some survey data shows that young digital-savvy customers still want to deal with a human when taking out a loan. Huh.

A 2020 survey by Finder.com suggested that more than half of Gen Y and Gen Z still wanted to visit a branch for a mortgage. The boom in home prices in recent years has made it even more difficult for many young clients to enter the property market.

But in any case, there is no doubt that digital home lending is emerging as a major battlefield in banking – just as the approval process was a key issue for lenders in 2021.

On their full-year results, each of the four big banks spoke on their steps to make mortgage lending more digital and faster, with Commonwealth Bank and ANZ Bank both talking on the prospect of 10-minute mortgages in 2022. A spokesperson for the country’s largest bank, CBA, says the lender will launch its digital loan in the first half of the year.

In the long term, experts predict even more sweeping changes to mortgage lending from “open banking,” a system that allows consumers to securely share their financial data when applying for loans.

Taking out a loan in 10 years’ time could be as simple as answering a few questions on a smartphone: your name, some proof of identity, the information you provide, says James Cameron, a partner at Airtree Ventures (which has invested in Athena). The amount you want to borrow, and the address of the property.

“I think it will happen slowly, and then it will happen rapidly,” Cameron says of the disruption in hostage. “Good banks will be able to keep up with these trends,” he says.

Technology giants like Apple and Google are also lurking in the background, as they foray into the payments market through their digital wallet apps.

There is a question mark over how these global giants can use their vast customer reach and vast amounts of customer data to target other parts of the banking business – including lending – in the long term. US fintech giant Block, the future owner of Afterpay, is another example of an overseas tech-based giant that could play a bigger role in the Australian market.

‘I think it will happen slowly, and then it will happen rapidly.’

James Cameron, Airtree Ventures

The intentions in banking of giants like Apple are unclear, but they will be formidable competitors if they seek to capture a larger share of the banking market beyond payments.

The government has indicated it wants tech players in banking to be appropriately regulated, with Treasurer Josh Frydenberg calling a late 2021 shake-up in payments regulation as an issue of national sovereignty. “If we don’t improve the existing infrastructure it will be Silicon Valley that determines the future of our payment system,” Frydenberg said in December.

Nevertheless, it is clear that as digital finance advances, banks will face increasing competition from technology-only players. And while that could be challenging for bank shareholders, it could be better news for customers.

Ashurst partner Nicolas Mavrakis says that as long as there is a “flat playing field” on the regulatory front, the broader trend of technology-based competitors moving to finance is welcome, and will help make the market more competitive. .

“You can’t stop big tech and fintech from getting into the Australian market. It’s exciting, it’s good to compete,” he says.

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