Housing Finance – Keeping pace with changing customer face
40 years ago, the average first-time home buyer in India was in his late 50’s. This is because, as part of retirement planning, the person was using his savings and provident fund money to buy a house. It was considered to be an integral part of ‘after retirement’ planning. More recently, things have changed and today, the average home buyer is in his 30’s, with a significant proportion in mid-to-late 20’s. What are the reasons and the implications of this dramatic demographic shift?
This shift can be largely attributed to higher disposable incomes, easy access to finance, higher returns from real estate investments and indeed a change in the consumer mind-set. With rapid globalization and a boom in the services sector, salaries in cities have risen, resulting in higher disposable incomes. The cultural shift from joint families to nuclear families in cities has also contributed to the demand for more houses. Working couples today, place a much higher aspirational value on owning a well built, safe and comfortable house. Sensing an opportunity, the banks and financial service companies stepped in, offering home finance at more affordable rates. As the returns from investment in a residential property started yielding good returns, it made a lot of sense to invest early in buying a home. Moreover, by financing a house at an early age, the consumer was able to have longer repayment tenure – leading to a lower monthly repayments or the ability to borrow more.
What does the change mean for the housing finance industry? With the average age of home buyer coming down, there has also been a natural shift in the way people buy homes and more importantly, the way people approach housing finance. The total housing credit outstanding in India crossed INR 11.9 trillion, clocking an annualized 18% growth in the first 9 months of FY2016. There has been a renewed emphasis on housing loans by the banks, which control 63% of the overall housing finance market as a number of new (Non Banking Finance Companies) NBFCs and (Housing Finance Companies) HFCs have entered the market. In a more competitive environment, the service providers are trying to impress the young, tech-savvy consumer.
As per Ericsson mobility report, India had 1 billion mobile subscriptions in 2015, set to reach 1.4 billion by 2021. Mobile traffic is expected to grow annually at 55% and in 2021, 99% of the region’s mobile traffic will be from data. Interestingly, 77% of smartphone users, aged 15-24 years, access internet on mobile everyday and 30% of the smartphone users access their banking websites via their smartphones. As per a KPMG report, India has the youngest population of mobile banking users across the globe at a median age of 30 and Indian customers demonstrate the highest likelihood of changing banks driven by the availability of better mobile banking services. This generation is clearly used to accessing information at their finger tips, anytime, anywhere; in the most convenient way. Clearly this has profound implications for home finance, and it is evident that the traditional way of physically visiting a bank or an NBFC is fast changing.
Today’s digital natives expect banks and financial institutions to offer personalized products, fast and user friendly loan services, delivered in an experience similar to that offered in industries such as travel, hotel, retail and entertainment. And they expect them to be digital, they don’t expect to fill in lots of complex paper-based forms. Housing finance companies need to change their strategy, enhance their product offerings, streamline processes and deliver an end-to-end customer experience. The trend now is to move away from lengthy, paper based application forms to web/mobile based forms and digitized Know Your Customer (KYC) documents. With speed and trust on top of customers’ agendas, financial institutions need to use capabilities such as workflow-based automated processing, comprehensive credit scorecards (incorporating non traditional data sources), analytics based decision making and self servicing for effective partnership. There is a need to leverage the vast data available for digital customers to serve them better. As per a report by Accenture, by 2020, today’s traditional lenders, who are not agile enough, who do not embrace online technologies sufficiently and are unable or unwilling to become more customer-centric, could lose up to 35 percent market share to new and current institution and non-institution lenders.
The potential of housing finance now extends well beyond the tier 1 cities in India, which means that scalability, agility and digital connectivity are key business needs. As competition rises and margins decline, it is crucial that infrastructure and operational costs are kept to an absolute minimum. Adopting a cloud approach may well be the best way to cater for these requirements. Shubham Housing Finance, an innovative NBFC engaged in providing housing finance to families with informal incomes, decided to implement its new lending platform in the cloud to speed up its time to market and reduce capital investments. This infographic shows how cloud adoption in financial services is on a fast track with a growing realization of the benefits associated with it. It has now become critical for banks and NBFCs in housing finance to adapt to changing customer behaviors and expectations. There are many examples globally where organizations have transformed successfully to be future ready. Rocket Mortgage by Quicken Loans transformed its processes to offer mortgage loan approvals in 10 min. The list of innovative FinTech players in mortgage offering digitized services includes Interhyp, Sindeo, Lenda, Loan Depot and SoFi amongst others.
Technology can be an enabler but a successful transformation requires a change in end to end business processes and more importantly a forward looking customer centric mindset. Housing finance is rapidly changing and it is imperative that service providers keep pace if they do not want to be left out.