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How European banks can digitize the mortgage experience to help customers during and beyond COVID-19

Banks have already been digitizing processes for years, but COVID-19 makes digital experiences essential to customers. Retail banks that focus on some key implementation principles will have an advantage in the mortgage market.

Supports banks in broad digital transformations with a focus on agility, product change and delivery, digital marketing and remote sales growth

Rui Neves

Advises insurance companies on digital and analytics strategy, bancassurance and direct distribution.

Advises European financial institutions, focusing on strategy, retail distribution, consumer finance growth, and omnichannel solutions

Senior advisor to financial services companies on technical strategy and delivery with 25 years of experience

Yolanda Zonno

Creates new opportunities for impact in both digital strategy and transformation programs in financial services and leads our knowledge in digital ecosystems in banking globally

Mortgages are retail banks’ core product. In western European countries, they can represent nearly 80 percent of retail credit and nearly 40 percent of the total credit portfolio. Mortgages have grown robustly in recent years, thanks to a strong real estate sector that has been buoyed by economic growth and falling unemployment—effects magnified by the backdrop of low interest rates.

All of this is changing now, as the efforts to contain COVID-19 have dramatic economic effects, at least in the short to medium term. Consumers are experiencing painful declines in income. And the way customers engage with banks is changing profoundly, with lockdowns minimizing the flow of customers to branches while significantly increasing online penetration. To thrive in this environment, banks should follow some principles for addressing customers’ anxieties and execute a set of golden rules for an effective digitization process.

Slow progress, but some players are ahead

Digitization of mortgages was already progressing in Europe before the COVID-19 outbreak. By 2018, nearly 50 percent of European consumers responding to the McKinsey Retail Banking Consumer Survey said they were willing to consider purchasing mortgages through digital channels (Exhibit 1). But barely 25 percent indicated that they had actually done so within the previous two years. However, we believe that the current crisis will transform customers’ demand for digital credit.

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Viewed historically, the slow pace of progress is not surprising, considering the significant challenges that established banks face in this area. Because they either deprioritized mortgages or perceived too much complexity in achieving a step change in that area, initiatives have been compromised by years of makeshift solutions and made overly complex by the number of stakeholders and process layers. The consequent lengthy approval process and suboptimal customer satisfaction have even led some banks to cut margins to compensate. Yet surely it is vital that established banks tackle this major product area, at the very least as a defensive move, so as not to lose the market share they currently have.

Not surprisingly, some European banks have taken up this challenge and have had great success transforming the mortgage experience. These banks are thus better prepared to help customers during the current crisis.

They have done this by curating the entire customer experience, rather than optimizing single touchpoints, by establishing efficient end-to-end processing across platforms and all channels. An example is the “time to cash” in a lending situation, defined as the total elapsed time (in working days) from submission of an initial application form and the receipt of all required documents to the time that the funds are credited to the customer’s account. While the average is 40 days, top performers can complete the process in just 18 (Exhibit 2). Such efforts deliver benefits for the customer and also for many other stakeholders, such as appraisers, lawyers, and insurers.

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The rewards can be significant. We call it the 150 rule: you can see a 50 percent improvement in the length of time to get a mortgage signed, a 50 percent reduction in bank costs (which can be used to increase commercial targets or can be a core lever to reduce the number of branches without affecting commercial activity), and most importantly, a 50 percent increase in customer-satisfaction levels. With the correct pricing and good communications, banks can even see an increase in the number of mortgages sold. In one situation, achieving such results also allowed the bank to boost its production by nearly 30 percent compared with the previous mortgage experience. This is achievable by increasing the demand pipeline, decreasing the dropouts in the commercial funnel, or both.

So what are the underlying success factors in creating a best-in-class mortgage experience? One is to apply the principle that, for most customers, obtaining a mortgage is a stressful process, so a bank can gain advantage by easing anxiety appropriately. Second, banks can get the most from digitization by applying what we call the golden rules of execution.

Addressing anxiety

Lowering the client’s anxiety level involves moving quickly to reduce uncertainty through a set of steps that must occur in the right order. This applies a pyramid principle, which emphasizes asking clients for information only when they are ready to give it (Exhibit 3). To begin, the bank is transparent on affordability and gives real-time (nonbinding) preapproval, based on the answers to a small set of predefined questions. Next, the bank swiftly moves with minimal documentation to a binding letter of approval. It finishes by delivering funds on time, ensuring completion as scheduled, which in turn makes the client happy. A happy client will make a positive referral. As a bank reassures applicants, lowering their anxiety levels, the applicants become more willing to provide information, and the process ultimately reinforces their loyalty.

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The bank can take this approach further with digitization by offering a streamlined digital interface that is customer-centric and a “source of all truth,” with dashboards tailored for all stakeholders involved in the process. It must include clear action prompts and freedom for users—customers especially—to input data and take actions. The customer must have freedom to dictate the pace and order of actions, with streams running in parallel, not sequentially. A linear approach is fatal.

Golden rules of execution

Successful execution of a digital strategy requires an agile approach with proactive feedback and coaching. The bank should assemble a top-notch team in one location, with others pitching in as needed and with all functions represented. The team should be motivated, empowered to make decisions, and incentivized to meet key objectives focused on three key performance indicators: client satisfaction, reduced time for client deliverables, and more efficient internal processes. This agile team must include the legal and compliance functions, and it must be changeable. Poor performance must be rigorously addressed and, if necessary, external hires can brought in to challenge internal policies and outdated decisions. The team should strive for minimum-viable-product thinking across three axes—satisfying stakeholders, satisfying clients, and designing appropriate features—and gradually make self-funding developments.

The quality of digital output depends on accurate modeling. Risk models are key, pushing “automatic” decisions in the gray areas of loan approval. Pricing models should consider both client risk and loan to value, allowing special offers to high-value clients.

All time spent eliminating manual processes and (often duplicative documentation) is time well spent. This is true also in ensuring back-office and branch excellence.

Too often reporting (and incentives) are back to front. The back office, however, is not where customer demand is generated; production targets should be replaced with metrics that are centered on the customer, that seek to measure service levels and minimize delays. A bank does not want to encourage employees to game the system—for example, moving mortgages to the following month simply to achieve targets.

Efficient back-office teams must match developments in the branches. Management should identify bottlenecks and solve (or escalate) the problem immediately, using agile principles to deliver a new way of working and securing a no-handover policy. Nevertheless, in some areas, legacy is not always a bad thing. Digitization of bank processes necessarily involves some trade-offs between cutting-edge technology and legacy systems. IT stability and a clear pipeline of developments are necessary to avoid delays in timing and product testing. So while it is important not to accept suboptimal solutions (not paying now may mean you end up paying more later), legacy has a core place in new solutions, especially when deployed by incumbents that are not launching new digital attackers.


These actions are many, but banks should be clear that in the post COVID-19 world, it is crucial to respond to customers’ needs and to ensure the bank provides the kind of mortgage products customers want: faster, simpler mortgages delivered digitally. For banks developing a new product, meeting these demands must be the priority from day one.


The authors wish to thank Ignacio Abengoechea, Said Abouali, Duarte Begonha, Tomas Calleja, and Henrique Guerreiro for their contributions to this article.