High Street versus fintech lenders

While "fintech" has become a trendy term that some companies use to appear more innovative, borrowers on the whole are primarily focused on pricing rather than whether a lender falls under the fintech umbrella. Nonetheless, customers do care about how technology can facilitate the mortgage advice process.

Fintech lenders in the B2B space have been desperate to hang on to their tech status to establish eye-watering valuations. Sadly, in the main, their accumulated losses are the eye-watering aspect along with falling valuations. Investors have lost a lot of money and continue to do so. Their determination to standardise processes in an attempt to scale creates a rigid process that can't deal with the nuances of many businesses. As a business owner, I would rather deal with a human I can speak with rather than an organisation where 'the computer says no'.

Fintech lenders bring a lot to the table and, as a result of their emergence, high street lenders are all now looking at their ageing legacy IT systems and pushing the envelope further. Our clients don't ask us for a fintech lender, they ask us for a reliable one that can process their cases faster. As far as the overall offering from the new fintech kids on the block, they need to understand that they not only have to be slick in their processes but also need to offer competitive rates and competitive follow-on rates, namely standard variable rates. To be high tech but not seriously compete with the old skool lenders on rate is often the fintech lenders' Achilles heel.

I will make a comparison to the car industry. Tesla was developed and tested under tightly controlled, limited distribution until it worked and then it was rolled out as a premium product, with all the trimmings that a premium car buyer would expect in terms of customer service and added value. Even though it was ground-breaking, its offer was well-developed and rounded. Now that it's proven, every car manufacturer is riding the EV train. It’s the same with lending. Challenger banks that offer tech solutions have to fight for space in the hugely competitive market and need to hang in long enough to gain some traction, meanwhile the “Old Skool” fill their boots and watch and learn from the early adopters. However, it’s the long game that matters to the borrower and speed or ease of process is secondary to securing the funding they need, so, in the end, it comes down to pricing and policy, not tech. Technology is not the solution, it is the enabler.

Fintech is a good word and sounds very catchy, but I'm not sure it's quite there yet. You still need to specifically fit their criteria and mostly, we need some human interaction. I like to think that most standard mortgages can go through fintech lenders quite well. It speeds up the process, keeps the client informed and essentially cuts your working time down. When it comes to the more complex stuff, well this is where the fintech lender falls down. We deal with some extremely complicated incomes and individuals and without an actual ear to hear our case, it will most likely flop. Our clients don't even know about the processes most of the time and fintech or not, they just want a mortgage. I have never been asked to use a specific lender unless I give choices, but even then, it's not due to tech. The tech is not for the client really, it's for us to get an easier process if we have a standard case and the lender to have a good SLA (service level agreement).

Traditional lenders aren't the dinosaurs that certain start-ups would have us believe. Many are innovative and have some cutting-edge tech behind those hundred years of history. You don't survive as long as they have by standing still. Halifax's underwriting system is one of the most automated and sophisticated in the market, capable of delivering a mortgage offer in a few hours for the right clients. Other lenders have been quick to adopt automated valuation modelling (AVM's) and many can now link directly to HMRC to validate income and HM Land Registry for property and title information. They may have been founded in 19th century, have boring names and a branch network, but don't for a second think that they are not modern, slick and innovative businesses that can and do leverage new tech to deliver better service when and where appropriate.

Fintech lenders do have an easy application process, and use open banking and ID verification apps during the application process minimising the amount of documents and information they need to request from borrowers. However, ‘fintech’ I think is overused to allow companies to add another feather to their hat. However, when used properly it is handy to be able to then shortlist the faster lenders. I have never had a client ask to go to a fintech lender, usually they just want the lender with the best rate or occasionally they will ask to see the rates for a bank they trust, which is usually their current account provider. I place far less business with fintech lenders on the basis that their rates are higher than high street lenders, and even on speed some high street lenders still beat them. Halifax, for example, can get an offer issued the same day as application.

Fintech was going to magically simplify lenders’ responses. This hasn’t happened. Instead, it’s become another hurdle for customers to jump over on the way to speaking to a human. Clients are looking for simplicity, speed, and accuracy. As it stands, fintech contributes more towards holding the process up than anything else. That’s not to say some hi-tech lenders can’t get offers out fast. Some can. Tech can ‘read’ bank statements and pay slips. But they can’t deal with someone self-employed. And fintech can’t give advice. It can’t sit down with a cup of tea, listen carefully, ask relevant questions, and help people to make the right decision. It won't explain the difference between a tracker and a 5-year fixed rate to an overwhelmed first-time buyer, or to someone in tied accommodation that there are a couple of lenders who'll offer residential, not buy-to-let options. Perhaps I’m wrong, but I think the real potential and possibilities of fintech are still at least five years away.