The paperless application is closer than ever

Thanks to e-docs, the industry is experiencing its biggest shift since e-processing was introduced a decade ago.

The paperless application is closer than ever
The truly paperless application is the mortgage industry’s desert mirage, a glimmering goal that always appears just over the next hill.

Unlike a mirage, however, the paperless application is reachable, and rapidly evolving technology is making paperless applications a realistic prospect for hard-pressed brokers.

In this feature, MPA explores the breakthroughs of the past 12 months, the changing face of regulation, and prospects for the coming year. We also question how brokers can survive and indeed be empowered by the confluence of regulation and technology.

The future is here
Typically, e-processing has moved forward through a drip-drip-drip of minor technical updates. But developments over the past two years would be better described as ‘breakthroughs’, and there are a few options to choose from.

The first shift concerns the introduction of cloud-based systems. For brokers, the cloud may be an even more important development than apps: while apps need to be adapted for different devices, cloudbased software can be accessed on most platforms via a web browser (ie Internet Explorer). That’s why PLAN’s Podium software is cloud-based, explains CEO Phil Quin-Conroy. “What we’re trying to do is make sure [apps] integrate back into the core platform we deliver to brokers. So when they stand alone they achieve a small efficiency; you might achieve two steps forward, one step back, if they’re not integrated into the other components of the lending application process.”

In late 2013, NextGen.Net rolled out its Apply Online Supporting Documents Service, a function within the Apply Online platform to upload supporting documents into a single package to go to lenders. The software identifies the documents required by each lender and then provides a checklist for brokers to work through, at the point of sale, thus vastly reducing the amount of rework required, NextGen.Net sales director Tony Carn claims. Other functions, such as identifying and giving brokers the option to remove tax file numbers, and Apply Online’s ABN/ACN checks for loan applications, help make the Supporting Documents Service a very different proposition than the current practice of emailing supporting documents to lenders.

Meet the innovators
Tony Carn Phil Quin-Conroy

Dan HugginsSean Simpsons

Wider-reaching still, if not specific to the broker space, has been the rollout of the PEXA (Property Exchange Australia) system, presently in NSW and Victoria and expanding to Queensland and WA in May. PEXA is about entirely digitising the process of e-conveyancing, currently a messy exchange of documents between lawyers, agents and lenders. Like Supporting Docs, the system combines online document hosting and exchange with smart software; the PEXA system itself interacts with states’ land registries and even allocates funds at the agreed times. Documents are electronically signed, and the entire process is recorded and visible to all parties, including brokers.

PEXA is relevant to brokers for a number of reasons. The first is the precedent it sets; this is a system in which the only physical exchange required is the one that customers care about: handing over the keys. The result of several years of development and negotiation with state authorities, it shows the obstacles that stand in the way of the paperless mortgage applications – but also the possibility that these can be overcome.
Paperless exchange in practice: The PEXA system

E-conveyancing provides some hints as to how the truly paperless mortgage application could work. Under PEXA:

1. Buyer’s solicitor/conveyancer sets up an online ‘workspace’ and invites all parties to join.

2. The PEXA system manages the process, prompting parties to respond where appropriate.

3. All forms are created and digitally signed by all parties online.

4. At settlement time PEXA executes the transactions and lodges forms with Land Registry.

5. PEXA triggers RBA to release funds, which arrive in accounts in seconds.

Don’t be left behind
Not only have the last two years seen a rush of technological developments, but brokers and lenders are implementing them more quickly than ever. Indeed it seems the first generation of e-processing changes, when faxes were dropped in favour of emails, has made it easier to adapt to future change.

NextGen.Net’s Tony Carn recalls the challenges surrounding Apply Online’s of over a decade ago. “I don’t want to call out the negatives, but you had the odd broker that said, ‘Oh, I’ll never do a loan electronically’. So those guys are almost all retired now, or they changed. And we now see 99% of loans processed electronically … with Supporting Documents, that same challenge is there; it’s not a bigger challenge because people have seen the benefits that electronic applications have delivered. So moving into having documents online is a natural evolution.”

The numbers bear out Carn’s claim: e-lodgement took three years to get to a 30% usage rate, whereas the Supporting Documents Service has reached that level in just a year. PEXA is mid-rollout, and so numbers are more difficult to ascertain, although PEXA CEO Marcus Price told MPA that it already had more than 800 subscribers.

Undoubtedly, one reason for the fast take-up of new e-processing options is improvements in training, helped by a change in mentality by technology providers themselves. “I have a pretty firm view on this,” argues PLAN’s Quin-Conroy. “It’s not an issue with brokers; it’s an issue for those supporting brokers to support them with change management. When we rolled out Podium we looked to provide extensive support to help brokers utilise the new technology in Podium … we looked to provide classroom training, online manuals, and we do this right across the board … we regularly run webinars on small topics.”

NextGen.Net’s Carn pointed out that learning to use the Supporting Docs service took “less than an hour”, through webinars and online training, and added that NextGen. Net saw larger broking groups as natural early adopters. “Working with them, that’s where we’re seeing recognition of the value of Supporting Docs straight away. They’re like light bulbs; they look at Supporting Docs and go, ‘Why aren’t we using it? We now need to embed this into our processes’.”

The regulation roadblock
If technology isn’t the problem, and brokers aren’t the problem, then the natural step is to blame regulation for the inefficiencies in Australian mortgage transactions. It’d be wrong, however, to claim regulation hasn’t moved with the times – ING Direct previously lobbied to make identification requirements to help online and branchless banks, and the recent Financial System Inquiry contains a specific recommendation to make regulation more ‘technology neutral’.

Dan Huggins, general manager of home loans at Commonwealth Bank, explains the limits imposed by regulation: “If the customer prefers, most key loan documentation can now be delivered and accepted electronically, apart from the mortgage document. Current legislation states that the mortgage document is required to be executed with a ‘wet [pen] signature’ method and witnessed by another party. We are working with government authorities on how we can digitise the mortgage document.”

Moreover, regulations – specifically concerning identification – seem to have taken a major step back in one sense, introducing a requirement for face-to-face identity checks. As part of the Council of Australian Governments’ reform of conveyancing, so-called ‘safe harbour’ mortgages require face-to-face verification of a customer’s identifying documents (VOI), and current methods of electronic verification don’t count.

That’s where ZipID steps in. ZipID was started in March 2013, and aims to provide solutions to the new VOI requirements. Director Sean Simmons claims the company is “responding to a regulatory change which is sweeping through the finance and property law industries [but] as we’ve developed we’ve seen there’s a lot of pre-existing activity for verification services – the best evidence of that is Australia Post did 4.7 million verifications over the counter last year”.

ZipID currently provides a VOI service, carried out by delivery service Toll, but is also in the process of launching an app that could allow brokers to perform the identity verification themselves. “Brokers are the natural fit to perform mobilised identity verification,” Simmons argues. “This [app] utilises not only the fact that brokers are with the customer, but brokers have the tablet technology available to them to perform a paperless verification.”

Brokers and lenders should buy into the new service because face-to-face VOI requirements are here to stay, explains Simmons. “The problem is, as we try and create more trust online, we need to find safer, more streamlined offline methods of identifying people. There is a paradox, that to create efficiency and safety on the internet we need to use an offline handshake as the first step to establishing trust.”
How the FSI addressed technology

The Financial System Inquiry made a number of recommendations involving technology, which could remove barriers in the way of paperless applications:

Recommendation 39
Identify, in consultation with the financial sector, and amend priority areas of regulation to be technology neutral.

This could lead to changes in requirements for ‘wet signatures’ and in-person identity checks, allowing applications to become more digitised.

Recommendation 15
Develop a national strategy for a federated-style model of trusted digital identities.

Having a mutually accepted method of online identification could reduce the reliance on traditional paper-based IDs (ie passports) for internet transactions.

When e-docs meet big data
Evidently, while applications may still be approaching a paperless stage, regulation will insist on face-to-face interaction with the customer – an obvious advantage for brokers. Yet the involvement required from customers in their applications may soon see major reductions, as lenders combine the ease of electronic documentation with increased opportunities for sharing data.

Comprehensive credit reporting (CCR) encourages the sharing of data between lenders. ME Bank’s Stewart Saunders recently told MPA’s non-major bank roundtable that with CCR “we’ll be able to price more appropriately for risk [and] will look at different ways to be able to gear offers for consumers”. While not all lenders have yet adopted CCR, the FSI Final Report recommended CCR be made mandatory if these lenders continued to resist it.

For existing banks’ existing customers, e-documentation is making applications simpler than ever. “For simple mortgages,” explains CBA chief Huggins, “existing or new-to-bank customers can apply online, get an automated conditional credit decision, receive their contract digitally, and digitally sign it if the customer wants to. The settlement could also be completed digitally if it meets the existing rules for PEXA current eligibility (eg single standalone mortgages).”

While the take-up of ‘apply online’ mortgages is modest, those customers do seem even more willing than brokers to embrace electronic documentation, Huggins claims. “Approximately 75% of customers applying online have opted to receive their home loan documents electronically … we’ve found many customers are opening electronic documents within a day of receiving them in their NetBank account, and feedback we’ve received so far indicates they enjoy the convenience and functionality that allows them to review the documents at any time.”

Time to get busy
If electronic documents and data exchange make loan applications easier than ever, what does that mean for brokers? When lenders can offer a broker a personalised rate based on credit history, and have them fill out all documents online, today’s broker proposition seems increasingly redundant. However, the experts MPA talked to argued that technology can empower brokers, providing they can keep pace with it.

Firstly, building in e-documentation to brokers’ processes and lender and aggregator software has an obvious time-saving benefit, claims NextGen’s Carn. “The return on that investment [on time] is enormous … if we asked brokers how much time they spend on reworks, I’d be amazed if they spent less than 25%, if not 50% of their time.” He compares e-processing to going from the horse and cart to the car: you won’t look back.

While turnaround times benefit brokers and lenders, CBA’s Huggins notes that saving time on processing will allow brokers to spend more time on value-add activities. “For brokers, digitising mortgage documents will reduce the administrative burden, which will allow them to spend more time providing valuable advice. This technology will streamline the mortgage application process, reduce errors and improve transparency, which is ultimately good for the industry.”

One advantage of having everything online is transparency. On the PEXA system, for example, brokers will be able to see where documents are and who exactly is responsible
for any delays. That’s why PLAN chief Quin-Conroy argues that technology “absolutely empowers the broker; they want to control interaction with the client, the majority of brokers, and that’s the value they bring to the table. It’s not just the initial introduction to the lender; it’s actually helping project manage the whole process on behalf of the client. And I think the majority of brokers are looking for that empowerment”.

Having the ability to ‘project manage’ applications will only benefit brokers if they actually take advantage of new technology, however. Indeed, electronic documentation, which Quin-Conroy expects to become mandatory, may involve a renegotiation of responsibilities between lender and broker. Brokers may find themselves with more responsibilities at the front end – identifying clients using ZipID, for instance – and more at the end of the process, including management of the conveyancing process.

The truly paperless application is getting “closer and closer all the time”, concludes Quin-Conroy. Its arrival puts brokers in a paradoxical situation, with more time to spare but more work needed to prove their value to customers. Brokers need to recognise and exploit their enviable position at the confluence of regulatory requirements and transparent processing and, ironically, use technology to remind customers of the value of the human element.