During the past years, the mortgage broker market business has become more and more important in supporting EU lenders in their mortgage distribution. For example in Switzerland, the large broker platforms command 60% of the market and smaller regional entities comprise the remaining 40%. However, there is a pressing issue at hand – the current processes employed by lenders are ad-hoc, time-consuming, and lack structure, resulting in subpar conversion rates and substantial operational costs.
In this post, we will explore the challenges of the current collaboration models and how the implementation of digital tools can help with solving those while increasing conversion rates to an even 80% and reducing lead times by up to 70%. Although the study was conducted for the Swiss market (you can find out more about it here), the insights we share here can be applied to mortgage collaboration on a wider scale.
Understanding Collaboration Dynamics
Collaboration between lenders and brokers varies based on the type of broker involved. Let's categorize these collaborations into three groups:
1. Big Brokers: These are primarily digital platforms that constitute a significant portion of the market. Notable examples include MoneyPark and Key4.
2. Small Brokers: Smaller regional structures that collaborate with a select group of lenders, including smaller banks that broker loans on behalf of larger financial institutions.
3. Lead Generators: This category includes architects, building promoters, accountants, and financial advisors who bring mortgage leads to the bank.
Understanding these categories is essential for tailoring mortgage solutions to meet the unique needs of each group.
Business Processes Supporting Distribution
To understand how lenders and brokers collaborate effectively, we need to explore the underlying business processes. Two fundamental processes drive this collaboration: point-of-sale procedures and partner management.
There are two distinct models for managing mortgage distribution through brokers:
Model A: Decentralized through the branch network: In this model, brokers provide necessary information to a local branch. The branch employees handle a detailed assessment of the dossier and manage all communication between the broker and the lender. Once the mortgage dossier is complete, all information is transferred to the bank's mid-office/credit decisions department.
Model B: Centralized through a dedicated mid-office: In this approach, a dedicated central team (Mid-Office) collaborates with brokers to handle information exchange. The mid-office often performs credit analysis and makes credit decisions.
The choice between these models depends on various factors, including the lender's experience in working with brokers, their relationship with brokers, and the availability of a regional branch network.
Partner management involves activities crucial for maintaining positive relationships with brokers and lead generators. These activities encompass managing contracts, products, pricing, commissions, reports, and optimizing partnerships and channels. While contract relationships and product management tend to be centralized and aligned with the bank's policies, performance management is often handled on a case-by-case basis.
Current Technology Stack for Indirect Sales
Leveraging technology effectively is key to addressing challenges in the lender-broker collaboration process. The technology landscape varies for big brokers, small brokers, and lead generators.
- Big Brokers: They usually have their own proprietary portals that allow lenders to access loan cases and update products and pricing. This portal is typically used by the bank advisor or a mid-office employee. However, compared to other European countries, it's uncommon for brokers to provide technology to lenders, resulting in a patchwork of systems for finding loan cases.
- Small Brokers and Lead Generators: Communication primarily occurs through branches, relying on traditional means like telephone, email, and sometimes physical visits. Their processes align more closely with those of regular clients.
Partner Management Challenges: Lenders often manage partnerships and channels using unstructured methods like Excel sheets.
Technology can help take advantage of big and regionally embedded small brokers and lead generators. Providing process standardization can increase conversion rates and create a more cost-efficient back-end channel. This approach offers a scalable alternative as the distribution mix grows over the next 5 years.
We have identified the following synergies for communication between brokers and lenders:
Opening up a core banking system through Broker APIs can significantly reduce origination costs by enabling automated and standardized exchange between the broker system and the lender. In fact, compared to email, this can lead to a time gain of up to 70%. APIs also allow for pre-validation checks to improve the first-time-right. Before transferring the case to the loan advisory or core banking system, the system checks if all data is complete and provides automated validations.
Furthermore, Broker APIs (or Distribution APIs) can also serve lead generators and other FinTech solutions that want to broker mortgages. This could also be applied to internal solutions. Note that smaller brokers without a proprietary CRM system may have limited benefits from this structure. In such cases, Broker Portals are more suitable.
Smaller brokers don’t have the CRM systems or platforms to connect to APIs. However, it is in this influential group that a lot of productivity gains can be booked.
Typically a Broker Portal can be used, which provides a Web-Based portal for smaller brokers and lead generators to submit cases in a structured way.
In the Broker Portal, they can:
- Introduce Loan Request details.
- Check if the data entered matches the criteria of the Lender.
- Upload and exchange documents.
- Receive documents.
- Get a first indicative and/or binding offer.
We have seen such a portal directly contribute to a higher quality of dossiers that ultimately end up with the loan advisor or mid-office. This further adds to increased conversion rates (as further elaborated in the business case).
Lastly, it provides a more secure and compliant way of communication between the broker/lead generator and the bank.
As lenders work with various partners, deploying a channel management function and supporting technology becomes essential. Channel managers control mortgage product access, ensuring accurate product management, pricing, reporting, and commission. They serve as gatekeepers to the core banking system, optimizing acquisition and origination costs when collaborating with third parties.
How Oper Can Empower Lenders for Success
By adhering to standards such as the Common API (which is being adopted by core banking providers) and implementing broker-focused digital tools, we estimate that lenders can reduce costs by up to 40%. With the right technology stack in place, the broker channel can become a cost-efficient acquisition channel that complements other online and advisory channels.
In fact, Oper's solution offers a great way to accelerate your lender business. Our secure broker portal enhances data quality and navigation, while our API solutions ensure seamless digital communication with bigger brokers. With Oper, you can manage your channels, maintain pricing, and access detailed reporting on broker performance. Our seamless integration with your core banking systems positions you ahead of the competition while delivering the best value to your customers.
As a European leader in Digital Mortgage software, Oper provides these modules to leading lenders, enabling them to stay ahead of the competition while delivering the best value to their customers. Don't let the current process hold you back. Talk to our expert today and see how Oper can help you transform your collaboration with brokers.
Do you want to find out more about streamlining collaboration between brokers and lenders in Switzerland? Download our study here.