When eBay was launched in California in 1995 by computer programmer Pierre Omidyar, he had no idea that his side-hobby (then known as AuctionWeb) would end up being one the world’s most famous companies.
Twenty-one years later, the auction site has millions of users and has been recognised as pioneering the concept of bidding for goods online.
Today, a new breed of fintech companies is using this now familiar concept to help more Australians get efficient and transparent access to home loans.
And there is no doubt that the need for this is greater than ever.
According to Australian Bureau of Statistics data, over the past 20 years, the percentage of Australians who own or are in the process of paying off their home has dropped from 71 per cent to 67 per cent.
In August, the proportion of home loans to first home buyers sat at 13.4 per cent, the lowest since February 2004. When compared to the long-term average of 19.4 per cent, there appears to be a problem of access.
How can marketplace technology help?
A fairer go
For many prospective home owners, finding their dream home loan in their dream location for a price they can afford is the first hurdle.
But once this has been achieved, getting the right interest rate becomes the next challenge.
As it stands, our lending industry is not necessarily set up for transparency. There is little consumer knowledge about how interest rates are calculated (after all, financial institutions have wildly differing credit policies) and luck plays a big part when looking for a good deal.
The upshot of this market inefficiency is that many Australians are paying a lot more for their mortgage than they could otherwise be.
But now, online bidding technology that uses increasingly sophisticated algorithms can circumvent this problem, giving consumers much more control over how they get their mortgage.
We launched LoanDolphin in February this year to give customers a fairer go. Our bidding platform builds algorithms that capture a customer’s risk profile, which then allows mortgage brokers and lenders to start placing bids based on this profile.
It is a transparent process and consumers can watch the bidding process in action. Because it gets quite fierce, the consumer has a very real chance of getting a better deal than if they had gone it alone.
Our latest figures show that LoanDolphin customers have saved on average around 87 basis points which translates to more than $130,000 on a $500,000, 30-year loan.
From a technology perspective, once lenders open their vaults (APIs), there will be the capacity for loan bidding platforms to tap into these directly and offer consumers even more choice and better deals.
Speeds up the process
When trying to buy a home in a hot property market, having the funds ready to go is essential.
Traditionally getting the right rate would involve a lot of hours shopping around and even then, due to transparency issues, consumers can never be sure that they have gotten the best one.
Using online bidding technology can speed up the process by bringing the market to the consumer.
Rather than having only one or two options, a consumer could feasibly have any number of offers to pick from within a day.
From an internal survey, we found that using an online bidding platform like LoanDolphin could cut 90 per cent off the time it usually takes to find a better mortgage from a bank or broker.
To compare the consumer situation when using a more traditional method, I spent a day on the phone contacting mortgage brokers as part of a mystery shopping exercise.
The brokers I did manage to speak to wanted lots of personal details, and ultimately I got very little information about rates.
Marketplace technology can also assist consumers who are trying to buy a home in blacklisted suburbs.
There is little clarity around which lenders will and won’t lend to people looking to buy in certain postcodes, and consumers may also have to stump up a bigger deposit when wanting to purchase in a suburb deemed riskier.
Using an online bidding platform, consumers don’t need to deal with this as the lenders and brokers are offering them mortgages based on risk profile information, which includes the postcode.
Privacy is paramount
As a former banker, I have spoken to many clients concerned about whether the information they shared when submitting a home loan application would remain private, and wondered if there was the potential for cross-selling as a result of the personal information they had shared in the process.
In an online marketplace scenario, only information relating to a customer’s risk profile is collected (no personal details, no information on superannuation balances).
It is only once the consumer indicates that they want to proceed that personal details are sent through to the broker or bank lender.
In tandem with consumer privacy, home loan marketplace technology has taken another leaf from eBay’s playbook and often incorporates a rating system for mortgage brokers.
Naturally, those brokers that get higher ratings will have the capacity to win more business and a strong community is built as more people get access to better home loans.
As far as I know, this is one of the only ways consumers can see ratings of bank lenders. Internally banks have ‘net promoter scores’, but consumers are not privy to those – so this is a great place to check their track record.
This works well for brokers too, because once they begin to get good ratings, they have a greater capacity to win more business.
From my perspective, the more participants in an online marketplace, the greater the competition, meaning better home loan offers and more homes moved into.
There is no doubt that the rise of marketplace technology will bring about better, fairer and more efficient ways for customer to reach their intended goals.
In some instances, fintech will be able to help people access certain products or services which could be out of reach due to the lack of awareness in a traditional environment.
While consumers battle transparency, affordability and red tape, marketplace technology is cutting through the noise and, much like eBay before it, providing a different, fairer way for needs to be met.
Ranin Mendis is the co-founder and chief executive of LoanDolphin