- You can’t get a mortgage without talking to someone.
- Online mortgages are an invitation for fraud.
- You can’t assess mortgage suitability online.
- Digital signatures aren’t safe.
- You can’t cross-sell an online mortgage customer.
These are the modern-day urban myths of Canada’s mortgage market. And each quarter that goes by, more smart people develop technology to disprove them.
Alterna Bank is the latest lender to show the industry how it’s done. A few weeks ago the bank launched Canada’s first fully digital “end-to-end” mortgage application.
It lets borrowers apply for approval, upload their documents and close the mortgage, all online, with zero face-to-face or telephone contact with the lender.
While a few other mortgage providers allow homebuyers to submit mortgage applications online and upload documents, a mortgage specialist must speak to the borrower and walk him or her through the remaining steps. Alterna Bank says its mortgage specialists are still available to help, but live support is purely optional.
That seems diametrically opposed to what some banking executives preach, regarding the importance of cultivating borrower “relationships.” Common wisdom is that one-on-one rapport leads to more referrals and cross-selling (and in most cases it does).
But Alterna believes that relationships are built mainly on a pleasing customer experience, not “selling” the customer. “We’re trying to put people before profit,” says Alterna CEO Rob Paterson. “There is no campaign to try and sell you something [non-mortgage-related at Alterna]. We’re focused on the specific need you have and time you have.”
And one of those needs is the need for speed, speed of approval. Here’s how Alterna’s app works:
- Application submission takes 8-15 minutes, says the bank.
- “We’ve decreased the amount of screens to get you a pre-approval,” says Paterson. “A lot of apps are in the 14-screen area.. We’re around 8-9.”
- Borrowers receive an instant pre-approval with a 90-day rate hold, conditional on the normal documentation.
- Alterna keeps the customer informed of every step of the process, via email updates and its online portal.
Alterna’s app was developed by Lendful, a fintech company in which it’s invested millions. In truth, the application seems plain and uninspired compared to the benchmark of e-mortgage interfaces, Quicken’s Rocket Mortgage. But it’s simple and easy to understand, and the process is well automated.
Alterna’s model has some notable facets:
- Less initial commitment
- “Most of the big banks force you to give personal details upfront before they’re willing to talk to you about rates and what-if scenarios,” says Paterson. “We reversed it….Come kick the tires with us and use the tools….educate yourself, and then when you’re comfortable with that, then give us personal information and get a pre-approval.”
- The bank uses OCR (optical character recognition) to speed up data extraction from client-uploaded documents.
- Human fulfillment officers are still employed to review documentation as necessary.
- Credit bureaus are pulled automatically when the borrower applies.
- A “significant percentage” of Alterna’s underwriting is automated based on its approval formulas.
- Alterna uses all digital signatures.
- Big props for that. Digital signatures dramatically improve borrower convenience and satisfaction. This is one area where paper-dependent lenders need to wake up and realize what millennium they’re in.
- The bank uses an “everyday low pricing” policy with its online application to take the haggling out of the rate process.
- Alterna’s rates are currently quite beatable at 2.68% for a 5-year fixed. This might be a weak link in its model. Its target market—DIY borrowers—are online rate shoppers. Alterna doesn’t yet have the brand or marketing clout of a major bank to convince people that speed and ease is worth a rate premium. That said, Paterson notes that automation “allows us to provide better rates…,” which suggests Alterna could compete more aggressively over time.
The bank’s niche is the DIY mortgage shopper, which Paterson estimates comprises “about 15-20%” of borrowers, a number he says is “definitely going to grow.”
The bank developed this app because “do-it-yourselfers are educating themselves” about mortgages, he says. “They’ve been looking for a digital solution to support their choice of buying online. As people start to use digital applications like Apple pay and Uber, financial services is a natural extension of that.”
DIY borrowers are “time starved” and “very trusting of the digital space,” adds Paterson. Many of them are Millennials, who have a “strong comfort level” making big-ticket purchases online.
He maintains that DIY apps are “not going to eliminate physical branches completely or eliminate the broker channel. Everyone has interaction preferences,” he says. But, “Over the next 5 years, a digital component could be upward of 50% of the mortgage market.”
That will kill jobs in our business, Paterson admits. But it will essentially be a “repurposing [of] the types of jobs in the industry.” Mortgage providers will “still be leveraging people to come up with more technology…”