In this case study, we explore how Smartr365 is taking advantage of the FinTech revolution to disrupt the mortgage market, and how the new banking landscape favours those who adapt quickly to change. We look at how endjin are helping Smartr to enhance their end-end-to end mortgage solution, and product delivery capability, to align with future demand, and the novel commercial model that makes endjin's involvement affordable for a scale-up.
To understand the overall landscape, we spoke to Conor Murphy, CEO of Smartr365, about what's driving change in the mortgage industry. To start, he discusses the opportunities and threats for the different players. He reflects on how the banking landscape is evolving. And he explains how SmartR has been seizing the initiative.
"Consumers expect more from their digital services," he explains, "and that is a major driver for change."
The increasing demand for value-added services has forced the widespread adoption of disruptive technologies.
"Consumers just want more. And they want it now. And they want it all to be joined up."
The key enabler for change is a switch towards vendors providing APIs for their services, rather than just applications. APIs enable digital services, such as those embedded in websites and apps, to talk to each other.
Murphy has a stark warning: "The monetization of APIs is big business and those who fail to embrace the API economy risk being left behind."
In consumer finance, it was the implementation of Open Banking initiatives, which started in 2018, which required banks to open up their APIs. Murphy explains "As the banks realized this was going to be imposed on them regardless, they started looking for the opportunities they could derive – and we hit the sweet spot."
Smartr is uniquely positioned, Murphy believes. "We've been focused [on APIs] for a long time, looking principally at the lenders. The ability to connect our system directly within the lenders' backend systems allows us to submit mortgage applications from our platform without having to rekey that data."
And there are distinct advantages to lender API integrations. "The benefit to the lender is that it allows them to transact business very quickly." From a consumer perspective this is obviously a strength, and one that challenger banks and other entities in the banking space are already able to meet. "Like many plays in the API economy, Smartr is a business-to-business-to-consumer proposition," explains Murphy. "Mortgage Brokers like Capricorn [an early adopter of the Smartr platform] are the ones really seeing the benefits of our approach. Yes, consumer expectations have risen, but it is brokers who pre-empted this change that are surging ahead."
Murphy explains the challenges in the space. "The mortgage application process is complex, highly regulated, and data-heavy. The smartr product allows us to verify someone's identity, address, income, then verify the value of their property, source the relevant mortgage options, and submit to the lender in an automated fashion. And that allows the process to be almost instantaneous."
And it's this speed - previously the domain of the challenger banks – which is deeply attractive to established players.
"If it's just a lender integration API it has limited benefit," Murphy says. "If it's a fully automated, fully digital mortgage solution, that has greater possibilities. We can automate all the upfront verification steps, and the application submission itself – integrating a variety of 3rd party services for that. We can then monitor the ongoing updates that progress with the application, and the compliance elements that must be in place. With that, it is impossible to have a faster lending process. Smartr does all of this. You can literally go from filling in the form on the customer side, to having the full mortgage issued within a couple of minutes."
SmartR went live in 2018. After years of pushing on a closed door, there is now pull from lenders towards API integration. "As you move forward, and it becomes apparent that you can make better lending decisions, it creates pressure on the lenders who haven't adopted API automation. Their competitors can get business in the door faster, and of better quality."
The impact on the sector is likely to be huge. "Every lender you speak to will say they want to lend more money. Slashing margin to do that is unattractive. Taking on more risk isn't that attractive either, especially post credit crunch. So, quality of service becomes the main driver. Which is why API submissions become an even bigger thing. Improved speed-of-delivery can increase their volumes, without damaging their business in terms of margin or risk."
While Murphy sees the brokers as playing an important part, technology will lead to consolidation in the sector. "A traditional mortgage application going through a manual intermediary process takes a broker about 10-12 hours of work. A full end-to-end application going through the Smartr platform to one of the lenders we're integrating with takes no more than 20 minutes. If you compare a broker who can transact business in 20 minutes with one that takes 10 hours, clearly one has an enormous advantage over the other. Over time that advantage gets multiplied again and again. Today brokers are very separate but going forward what will connect them is the economies of scale. Those economies are delivered using technology. It will be the brokerage networks that adopt the technology and drive its usage down through the broker firms."
Whether banks will build these systems internally or acquire from outside is yet to be determined. Either way, Murphy believes that money will be spent on adoption. "Banks are very focused on this and keen to retain their dominant position. Whether it requires a lot of investment to build something or a lot of money to buy something, I think there will be players who take both paths."
Building appropriately skilled teams will also be critical, both to manage the new systems and to maintain legacy technology. Transformation doesn't happen overnight and its important to retain company know-how. Communication and collaboration will be essential to maintain a cohesive culture during this transformative process.
It has been suggested that incumbent banks run the risk of becoming "the electricity company" – facilitating the transfer of money but being outcompeted in the value-added services. This could undermine their direct relationship with the customer, fragment the market, and curb future growth.
Murphy feels that, to some extent, regulation protects the banking industry, providing a high barrier to entry. "I don't see the wholesale disruption of the industry that has happened elsewhere, because the regulation is so stringent, and that favors the incumbents."
Long timelines and horizons protect the banks too. "In the credit crunch many smaller lenders disappeared entirely. Whereas the traditional lenders kept lending because they had deeper pockets and a bigger back book that enabled them to do so. Regardless of how good the technology is, there's a whole question how you get people in the door in the first place. How much business are you able to accrue before the next crash occurs? This all plays into the hands of the incumbents."
Murphy has his eye on the bigger picture but with the landscape continually evolving, he is aware of the possible need to change direction if the market demands. Flexibility and agility are key. As is having the good sense to ask for help if required, and that's where endjin come in.
"We have a great relationship with endjin, and they have a unique proposition for us. Yes, they can help accelerate our product delivery by taking on our critical development work. They aren't the cheapest, but they are the best value for money because what they build is right, first time. But more than that, we've had an ongoing "brains trust" relationship with them, to help us develop our strategy, test our ideas, and improve our internal processes and capabilities. They've always been available to sound out those ideas and offer solid business and technology advice. That was particularly useful when L&G – the largest player in the industry – invested in us, and we had to work out how to capitalize on this to scale the business more rapidly."
Endjin have engaged with Smartr365 many times over the lifecycle of the company – from initial help with developing the proposition as an early-stage start-up, and mentoring for their senior team, to a full re-architecting of their existing intellectual property into a new industry disrupting multi-tenant SaaS platform using some of endjin's core Open Source Software – Corvus, Menes and Marain.
Most recently, endjin have engaged in a "Virtual CTO" role, helping bring together the product delivery and customer success teams, strengthening the leadership team, and working with the board to position the business for its next stage of growth. This has involved endjin taking an equity stake in the business, as part payment for services, so both parties have "skin in the game". This also improves overall alignment when compared to a regular "time and materials" consulting engagement.
The banking sector is going through a period of rapid transformation but companies like Smartr have been quick to react. Lenders must embrace the move towards a service-based approach and learn to view products from a consumer perspective. Complacency is costly. Agility is essential. Business models must change in the face of disruptive technologies and the banks must stay relevant and ready to act.
By changing mindsets and challenging thinking, endjin are working closely with Smartr to enhance their solution and develop their product strategy. Smartr is becoming a major player in the API economy with a product at the forefront of the mortgage industry.