Paperless processing

Ticketek is a perfect example of seamless straight through processing (STP) – surely the principles should also apply to paperless processing for the lending industry? But mortgages are slightly more complex than ticketing and the adoption of electronic applications or STP is proving to be a tough challenge.

Enthusiasm for STP in some quarters is undeniable. Brokers, lenders and suppliers all claim STP will revolutionise mortgage lending, yet the adoption process never seems to get off the runway.

STP is not an impossible concept however. Overseas lenders like HBOS already use paperless processing to glide through significant loan volumes. So why does STP in Australia look more like a leaky hose than an impermeable pipeline?

Alive and kicking

Not all see STP as a distant dream. “STP will create scalability, strip costs and make the lending process safer. All lenders are moving down the path towards it,” says Jo Siriani of Smartline.

And as lenders such as Challenger have discovered, there has been a reasonable level of adoption of STP at the point of origin.

“Initially we thought the main obstacle would be broker take-up and employee adoption,” says Steve Weston, general manager for mortgages at Challenger. “That changed relatively quickly once brokers and mortgage managers saw the benefits.”

According to Weston, these benefits include increased productivity, cost savings, faster loan decisions and a tracking system for files.

STP was a central focus throughout 2007 for Challenger’s front-end processing, with the lender introducing two platforms; LiteWork and JetStream.

“LiteWork provides answers to our mortgage managers within seconds of submitting the deal. Jetstream though is an integrated workflow management system,” says Weston.

Weston says Challenger currently uses LiteWork for up to 70 per cent of its new transactions, with transactions entered through the LiteWork platform prioritised ahead of those that are manually submitted. And the benefits have been immediate.

“It took our employees two weeks to get used to using the systems – it is amazing to see the underwriters’ desks free of files,” says Weston.

STP is a serious business for Challenger, which sees it as the key to maintaining – and gaining – future market share.

“Lenders who do not have the capability for STP will be ignored by brokers,” is Weston’s assessment. “Profit margins are also under extreme pressure and cost

savings are needed for many lenders to remain competitive.”

Join the dots

Challenger may be embracing STP, but many lenders still insist on a manual handover at critical junctions in the loan process.

According to Smartline’s Siriani, the challenge with STP will be to ensure the lending process remains smooth and seamless for the borrower. “At the moment it’s about linking the chains together to provide a service that doesn’t have any stops or breaks in it,” he says. “It’s all about getting your ducks lined up.”

Real estate agents, valuers, insurers and conveyancers have all been preparing their own electronic processes. But when it comes to integrating them, success has varied significantly.

“There has been a lot of positive work to date but as we move into the more complex end of the spectrum we’re seeing a reluctance to commit,” says LIXI CEO Socrates Vasiliadis.

According to Vasiliadis, STP loses traction at the furthest points along the loan process. But once the bumps are ironed out, he believes STP will become integral to the way the industry does business in the future, rather than be seen as a competitive advantage.

Andrew Macpherson from Sandstone Technologies agrees, saying lenders should be pushing harder for straight through adoption with their business partners.

“The cost of processing loans in Australia is very high and the industry just has to get better at interfacing technology,” says Macpherson.

Macpherson says brokers, credit agencies, valuers and insurers all need to review or replace their current systems so they can connect with one another.

“There is no reason why the lending industry shouldn’t be able to just key a business into a system,” says Macpherson.

“The real money savers have all been looked into – now they have to be connected so that the system works.”

Lenders lead

In terms of development, the lenders’ mortgage industry is setting a very good example in how to integrate STP.

Mortgage insurer PMI will be ready to launch PMIconnect in February, a system that will provide a complete end-to-end web-based solution. But a PMI spokeperson admits the company has been working on the technology for some time, taking a very organic approach to building a flexible system.

“We have been implementing new features since 2005,” the spokesperson says. “Our approach wasn’t to simply put a part of PMI online; it was about re-engineering our core processes to be customer interfacing, more efficient and tightly controlled.”

But it hasn’t been easy. “Our approach necessitated a big investment from our business community in terms of time and commitment to a new way of doing business,” the spokesperson says.

PMI has also considered the customer’s needs in the process. “We no longer require our customers to fit us into their processes; we allow technical solutions to be incorporated into theirs.”

As one of the first steps in the loan process, valuations are essential – especially when it comes to conditional approvals. But while the sector has been working hard to develop and implement new valuation technology, many still refer to it as the ‘black hole’ in the loan process.

While electronic valuations are increasingly being used, lenders have shown a lack of commitment to adopting decisioning systems that determine the valuation needed for a loan.

Explains RP Data’s Carl Hampel: “Everything needs to be automated and on the same page. At the moment it’s like travelling down the freeway and suddenly hitting dirt road.”

Hampel says lenders need cascading decisioning systems that indicate which valuation model is the most logical. But he says antiquated systems and an aversion to risk is hampering the industry’s approach to tackling the valuation challenge.

“Middle management tends to resist change – they worry about the risk involved and at this point seem happy to wait longer and to pay more for valuations,” says Hampel.

It’s an attitude Andrew Macpherson is very familiar with. “The market in Australia is quite risk averse,” he says.

But as Macpherson points out, STP will actually make the whole loan process safer, making risks or anomalies far more visible.

“Data can be gathered at all stages of the cycle to improve successive actions or to reveal where changes need to be made,” he says.

Oh ye of little faith

While STP is gaining traction in some sectors of the industry, not all have been quick to jump on board.

“STP hasn’t had a great impact on the conveyancing world as yet,” says Alan West, NSW CEO of the Australian Institute of Conveyancers. “The transaction between conveyancers and lenders at this point is still completely paper based.”

But West believes the industry is looking forward to greater automation in settlements, despite the hurdles it faces – including a lack of a national approach.

According to Simon Libbis, executive director of the National Electronic Conveyancing System (NECS), the national business model for electronic applications has undergone rigorous analysis over the last 12 months but still faces the challenge of competing state-based systems.

“Our main concern at this point when it comes to e-conveyancing is jurisdiction. If there isn’t a national system then we’ll be working with eight paper-based systems and eight electronic ones. It’s completely illogical,” he says.

Victoria, for example, is currently heading down its own path with e-conveyancing. But Libbis says it will eventually come to the party and the NECS system will prevail.

“You can’t have a national system without Victoria. They’ve pushed ahead for one reason or other when everyone agrees that a national system is best. At times it’s a bit like Alice staring in the looking glass – it just gets curiouser and curiouser”.

The industry is undoubtedly struggling to put all the pieces of the puzzle together. But those closest to realising STP remain upbeat – and excitement is building as more and more processes start to come online.

“Paper will go very quickly,” says Macpherson, while RP Data’s Carl Hampel sums it up best: “The logic is impeccable. It really is something of a no brainer”.

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STP STANDPOINT

Name: Jo Siriani

Organisation: Smartline

STP Standpoint: “STP will strip costs, create scalability and make the process safer for everyone involved in the lending process”

Name: Socrates Vasiliadis

Organisation: LIXI

STP Standpoint: “STP is suffering at the moment. Organisations need to think about what their value proposition actually is and stop worrying about the nuts and bolts”

Name: Steve Weston

Organisation: Challenger

STP Standpoint: “STP is going to change the industry – the only tools a broker will need will be a vehicle, mobile and a laptop”

Name: Andrew Macpherson

Organisation: Sandstone Technologies

STP Standpoint: “Everyone has started on the journey to STP – it’s an evolutionary process”

Name: Carl Hampel

Organisation: RP Data

STP Standpoint: “True STP is still rare. Lenders need to realise though that unless they sort out their STP decisioning systems to choose the right valuation they’re driving up costs, time and risk”

Name: Alan West

Organisation: Australian Institute of Conveyancers

STP Standpoint: “It’s difficult to integrate. Whilst many see the advantages – the uptake is likely to be slow”

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COST COUNTING

While industry pundits passionately advocate wide scale STP integration, behind the rhetoric what is the real impact on mortgage businesses’ bottom line?

According to Steve Weston, general manager, distribution for Challenger’s Mortgage Management division, through engaging STP productivity per employee in his business has gone up – enabling them to increase capacity without the need of adding additional resources.

PMI’s spokesperson highlights similar benefits, telling Mortgage Business: “Going paperless creates a whole world of new opportunities for process efficiencies and lowering costs.”

Smartline’s Jo Sirianni says likewise: “If the whole process can be done electronically it would be cheaper, more efficient and safer”.

Andrew McPherson, sales director at Sandstone Technologies highlights a more tangible benefit: “STP will save institutions by allowing them to reduce their need for call centres who often have to go back to consumers when errors are made with manual processing.”