Enhancing operational efficiency and transforming mortgage experience through a cloud platform

• Traditional mortgage lending process was complicated by paper-based systems, excessive manual operations, and lack of consistent communications
• China Merchants Bank launched “Cloud Mortgage” platform, which has resulted in a significant reduction in mortgage application turnaround and processing time
• In mortgage industry, many complex steps have been automated, digitised and managed via cloud-based software

In recent years, China’s financial technology (fintech) industry has boomed, which presents new challenges and opportunities for banks. Increasingly, fierce competition has sparked a stream of technological innovations in the Chinese banking industry. Many banks are taking advantage of new technologies to enhance product and business innovation and improve operating efficiency and customer experience.

As the pioneer in banking industry transformation, China Merchants Bank (CMB) has always actively explored advanced technologies and applied them in their business to improve customer satisfaction and keep the competitiveness. The bank is taking the lead in promoting the fintech-dominated reform of the Chinese banking industry. In the coming years, the bank will continue to increase investments in technologies such as cloud computing, mobile technology, big data platform and application, artificial intelligence (AI) and machine learning, financial network security and blockchain.

CMB has been adopting new technologies to improve its retail banking businesses. The bank introduced “Cloud Mortgage” in November 2014, which is a cloud-based pre-authorised debit (PAD) platform for mortgage businesses. After its launch, the operational efficiency of the platform has been further enhanced. 

Challenges

There were some issues with the traditional mortgage lending process, which needs to be tackled to transform the mortgage experience. Mortgage lending is the most complex product in retail banking. Traditional mortgage process, which evaluates mortgage loans via paperwork and traditional methods, can be exhausting and time consuming. The process was complicated by excessive manual operations, paper-based systems, limited process visibility, and lack of consistent and sustained communications.

There were huge amount of paperwork involved in the traditional mortgage process. Meanwhile, traditional mortgage process was highly manual, and the bank relied on humans to handle most parts of the mortgage process. Thus, it can be slow, error-prone, costly and inefficient. In addition, there exists a possibility that mortgage loan files can be lost or corrupted.

Under the traditional model, borrowers felt overwhelmed to obtain mortgage loans due to the number of steps required, prolonged process times, and the amount of paperwork they must complete. For the bank, the paper-centric, human-reliant mortgage process also costed a lot of money.

Key features

CMB’s Cloud Mortgage PAD platform was launched in 2014, as the bank wanted to make a significant change in the way mortgage loans were processed. CMB was the first Chinese bank to launch a PAD report for the mortgage business, the first to centralise mortgage approval, and the first to provide real estate developers with real-time access to mortgage loan status. CMB centralised the mortgage-related communication, processes and data. Many time-consuming manual paper handling and document processing steps have been automated or removed, thanks to the advancement of cloud-based platform and paperless solutions. The platform enables greater operational efficiency, greater visibility on mortgage application status, and greater control over the mortgage process.

Mortgage application processing time, costs of the overall mortgage process and error rates have been reduced. In addition, the platform provides not only environmental benefits and convenience to all participants, but also the ability to store, transfer, access and share information securely. The risks of documents being lost or corrupted have been eliminated, which protects customer information. Relationship managers can log in the platform from wherever they are at any time, in order to deliver faster, more responsive service to their customers. 

The platform incorporated objective data gathered  from both internal and external sources. In five  minutes, mortgage application with all the required information can be pre-approved and relationship managers are able to pinpoint the mortgage loan amount for which the borrowers qualify. Moreover, mortgage application can be submitted within 20 minutes, as relationship managers can take on-site photos to collect customer information and upload them. The photos have date and time stamp and location data embedded in them, which improves the integrity of the mortgage loan files and helps the bank to manage fraud issues more efficiently and effectively. The mortgage application with all the required information can be approved within 24 hours. Centralised loan approval system, along with automated credit-scoring system and decision-making system help enable mortgage loans to be approved quickly.

Meanwhile, the platform helps real estate developers shorten the payback period and more effectively manage their finance. Developers are able to know exactly where the mortgage loans are being processed and what information is lacking. They can collaborate with relationship managers to make sure borrowers submit those documents required, which speeds up the mortgage approval process.

Data analysis capabilities

CMB was the first Chinese bank to establish a platform to analyse customer data. In 2012, CMB put forth a clear strategic objective for the next five years to place high priority on data processing and analysis capability. In the same year, CMB started to construct its own big data platform based on cloud computing systems. At that time, big data was still a relatively new concept, so CMB collaborated with Huawei Technologies to speed up the progress. In 2014, CMB’s big data platform officially went online.  

After the pilot project was implemented successfully at its Shenzhen branch, CMB delivered a variety  of innovative financial services based on big data analysis nationwide in 2014. With the Huawei FusionInsight big data solution, CMB improved its service accuracy, real-time performance, and customer satisfaction. Meanwhile, CMB also utilised big data to improve risk management capabilities to control the quality of loans better.

The services 

CMB developed include online historical detail query, real-time credit investigations, real-time event marketing, potential customer forecasts for small and micro credit, contingent financial asset forecast, and precise recommendations of wealth management products.

Business impacts

The Cloud Mortgage platform has been widely promoted and used in 44 branches of CMB, and as a result, the bank’s mortgage market share went up from 2.9% in 2014 to 3.8% in 2016 (Figure 1). The amount of mortgage loans approved in 2016 went up by approximately 40% to $48 billion, 90% of which were through the platform. It also increased the effectiveness of risk controls.

The non-performing loan ratio for residential mortgage business remained low at 0.42% in 2016. As of November 2016, the profit of CMB’s residential mortgage business increased by 75% over the same period a year earlier and contributed to around 63% of the total profit of retail lending. Meanwhile, the cost-to-income ratio of CMB’s retail banking business went down to 38% in 2016, partially driven by improvement in operational efficiency of mortgage business (Figure 2).

With the Cloud Mortgage platform, CMB vastly improved the mortgage experience for both borrowers and real estate developers. Since its launch in November 2014 to August 2016, around 300,000 households have obtained the mortgage loans through the platform. On average, every relationship manager is able to acquire 22 new customers per month, compared to six new customers when the platform was just launched.

Through the platform, mortgage application turnaround and processing time was significantly reduced and mortgage processing efficiency was enhanced. Therefore, CMB was able to attract more local real estate developers to work with it. The launch of Cloud Mortgage platform also provides strong support for CMB’s asset-light strategy. Asset structure of the bank has been optimised, which will lead to less capital burden in the long term. The retail loans made up 47.2% of total loans in 2016, up from 36.4% in 2013. Meanwhile, the share of mortgages in total retail loans went up from 33.6% in 2013 to 47.3% in 2016 (Figure 3).

Global overview

The mortgage industry has made tremendous advances to meet ever-changing customer expectations, although it has been a bit slow in embracing the technology innovation. 

The banking sector, in the face of rising competition from non-banks, has been leveraging technology to revolutionise the mortgage business operations.

Banks that have managed to overhaul the mortgage lending process in an innovative way will encourage others to follow in order to stay competitive. Many complex steps have been automated, digitised and managed via cloud-based software at the moment, which has resulted in significant improvements in both operational efficiency and customer experience. 

The move towards mobile mortgages which enables banks to deliver mortgage products via mobile devices is gaining momentum. 

CIBC Hello Home mortgage application mobile app

Canadian Imperial Bank of Commerce, a leading Canadian-based global financial institution, launched one of the first stand-alone digital mortgage apps for iOS devices in May 2016. The app allows consumers to apply for, negotiate and receive approval for mortgages through their smartphones, although it won’t speed up the mortgage approval process. A dedicated mortgage specialist is available anytime through secure in-app messaging when customers need advice. Customers can securely upload photos of required documents and check mortgage loan status through the app and can review and agree to terms and conditions electronically. In addition, the application can be saved and resumed at any time. A maximum of two borrowers are allowed to apply for joint mortgage loans, and applicants can either use the same smartphone or use separate phones to complete their application.

Atom Bank mobile mortgages

Atom Bank, one of the UK’s digital challenger banks, launched mobile mortgages in December 2016, which allows customers to manage the entire mortgage application process via a smartphone app. Customers will still be referred to a traditional mortgage broker who will recommend the most suitable mortgage for them. After that, customers can log into the app with face and voice recognition to track the mortgage progress in real time. All updates and communication are done through the app and the formal mortgage offer can be accepted electronically.

To be successful in the challenging mortgage environment, banks should continue to adopt new technologies to provide a more efficient mortgage lending process and a better customer experience, and more innovative products and services will be available in the foreseeable future.