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Consumer needs set to drive future innovation


Published: 25 September 2013 | Author: Bernard Clarke

Innovation in the mortgage industry is most likely to prove successful if it addresses the needs of consumers. That was one of the key messages from the CML's annual innovation conference, at which key figures from all areas of the industry came together to focus on the latest developments. The conference saw speeches from representatives in the communication, banking and regulatory fields, alongside break-out sessions focusing on more specialised areas such as credit servicing, conveyancing and data analysis.

Innovation and the back book

Opening proceedings, the CML's Sue Anderson lamented the loss of public confidence in financial services, as shown last month in the findings of the British Social Attitudes survey, which found that only 19% of the public trusted banks. "Re-building trust, once it's been lost, can be a slow and difficult process," she concluded.

Citing the CML's 'Where do we go from here?' report released in December 2012, she looked at how innovation had formerly been based on rapid processing, with a focus on creating predictable and sizeable flows of business to lenders. But, in the current climate, this would no longer be the case. 

Such objectives were not necessarily bad aspirations, she argued, but in the future there would need to be a greater focus on customer-driven innovation, rather than business-to-business servicing. Future innovation should not concentrate solely on new products but "bring that same creativity and problem-solving to the back book as well." That would help restore trust and confidence, as customers perceived lenders to be looking to their best interests and seeking to provide innovative products but not just to get new business.

Engage to find what the customer wants

Sally O’Rourke, of Promise Communispace, echoed the need to create innovative products for existing customers, using the example of her experience working with mobile phone companies. She found that engagement seeking to address consumer needs and develop appropriate products delivered customer satisfaction – and profits. She dismissed the idea of creating brand loyalty, arguing that "brand relevance" was more important, with customers willing to buy products if they met their needs.

She illustrated the point by explaining how a customer viewed a phone as more than just technology. Instead, it was seen as something containing photographs, memories, contacts – in fact, all aspects of a person’s life. Working on this understanding, her firm had developed a replacement service giving customers a replica phone within 24 hours if it was stolen – much faster than the 28-day industry standard. By giving consumers what they wanted, they were able to sign up a third of the company’s customers to the scheme within a year.

Bring regulation into your product thinking

Stephen Williams, of Deloitte, argued that in future the Financial Conduct Authority (FCA) would be more active in reaching out to lenders about individual mortgage products, potentially even before they went to market. He explained that the FCA had started investigating products earlier in their life cycle and would be more inclined to do so in the future. A key objective would be to make sure that there would be greater clarity on costs and payment schedules. The FCA would also urge lenders to instigate post-sale consumer research to see if such transparency had proved successful.

Both Jaedon Green, of Leeds Building Society, and Barclays' Andy Gray echoed this approach. Both lenders had engaged proactively with the FCA early in the creation of their Welcome and Family Springboard products, to ensure they were aligned with regulatory constraints before launch.

Mortgage products for the times we live in

Andy Gray cited the Family Springboard mortgage offered by Barclays as an example of engagement resulting in products that consumers wanted and that were tailored to their needs.

The Bank of Mum and Dad has become a crucial part of the mortgage market, given the challenges for would-be first-time buyers, and so Barclays had decided to build this into the design of its product. Through research with parents, Barclays found that the dilemma of eroding their own savings was fundamental to parents in deciding whether to help their offspring buy a property. Those in the ‘squeezed middle’ said they preferred retaining control of their savings, rather than giving them away. So Barclays had created a product permitting parents to put a 10% deposit into an account linked to the mortgage, but which would be returned to the depositor, with interest, three years later if mortgage repayments were made by the home-buyer.

The product allowed parents the possibility to support their offspring, while addressing their concerns about the uncertainty of their savings. Research proved crucial in developing a product that gave customers what they wanted.

Jaedon Green also agreed that mortgage innovation was now driven by the needs of the consumer. Research with customers found that they frequently underestimated the cost of moving, so Leeds Building Society had created its Welcome mortgage, with a 0% interest rate for the first three to six months.

The product allowed customers to reduce their initial costs with no deterioration in their financial position, with the lender maintaining their engagement with the customer by explaining the costs to the borrower at every point to ensure there was transparency.

Is the government the biggest innovator?

The conference chairman, Charles Haresnape, of Aldermore, reflected on how the government had in many ways been the biggest innovator of all in the shared equity arena. But he also suggested that too much intervention could hinder innovation by the private sector. Overall, however, government innovation had been a strong driver in the market, he argued, even if the large number of schemes had the potential to confuse the public.  

Peter Williams, of the Cambridge Centre for Housing and Planning Research, pointed to the potential for collaboration between the government and the private sector in invigorating the equity finance sector as a complementary approach to debt funding.

Communication through new formats

Jo Strong, of RBS/Natwest, reflected on the use of new technology to communicate and engage with customers and build trust in the industry. She described a survey which showed that 77% of people now watch television while using devices like smartphones at the same time. Social media should therefore be used to promote engagement with customers, while also showing a different approach by the industry not seen through more traditional media channels.

Natwest had also been quick to use emerging social media with a high degree of student interaction for its 'Be Uniproof' university campaign. The initiative had made use of Instagram and Vine – the Twitter version of YouTube that allows only videos of six seconds in length.

Being open to new methods of communication helped target audiences, and RBS had also used events as diverse as the Ashes cricket tournament and the birth of the royal baby to keep in the social conversation.

A modern mortgage industry in the age of protection

The shift in innovation so that it was now driven by consumers was a theme echoed throughout the conference. Matthew Wyles, of Castle Trust, concluded that innovation was a challenge in the age of regulation – but not an impossible one. The industry would need to think creatively to meet new types of demand, while serving sectors such as the self-employed and interest-only applicants, who, he believed, had lost out since 2009.

Regulatory constraints and economic conditions would present challenges but, as the speakers showed, embracing market conditions and new technologies could help deliver innovative ideas to the benefit of customers.  

We would like to thank Infosys for kindly sponsoring our drinks reception after the event. The CML hosts a range of events open to the media and for members only throughout the year. Our next event open to the press will be our Mortgage Industry Conference & Exhibition (MICE), on 6 November. Full details can be seen here.