BBVA API Market
The PSD2 regulation, which opened the banking infrastructure to third parties to develop new products through APIs, marked a turning point in many sectors related to the financial industry. Foremost among these is the mortgage market, the main business of many financial institutions.
Experts predict that open banking in general, and APIs in particular, are the drivers that will transform the mortgage market even more in the near future.
The mortgage market has undergone an unprecedented transformation in the last 10 years, after the 2008 financial crisis, which had a huge impact worldwide. Since then, and in order to avoid a situation like the one resulting from the subprime lending crisis, the various governments have enacted specific laws with much more stringent criteria for granting mortgages.
These laws have made it more difficult for millions of people to get financing, and have proven to be quite the challenge for financial institutions in terms of allocating resources. Because of this, banks are continuing to look for ways to make mortgage lending more efficient, and they are often resorting to all the possibilities offered by new technologies.
The opening up of the banking infrastructure to third parties, driven by the approval of the PSD2 regulation in Europe and by similar regulations worldwide, has improved the efficiency of the mortgage lending processes.
This new paradigm is beneficial both for both banks and customers. For banks because they can leverage the potential of APIs to lower their operating costs and improve the quality of their services, and for customers because they can get access to financing that is much better suited to their needs and shorten the mortgage application process.
APIs will open up a new range of possibilities in the mortgage market. According to the latest IRESS Intermediary Mortgage Survey 2019, 96% of respondents say that open banking in general, and the widespread use of APIs in particular, is beneficial to the mortgage application process. Users believe that this technology will facilitate access for banking customers, with much faster decisions and lower documentation requirements.
The buyer’s path to a home is long, and often uncomfortable. It means going to a bank to request financing and having the bank evaluate the buyer’s financial capacity to determine if the buyer can make the mortgage payments on time. This process can last several weeks, especially if the bank doesn’t have all the information it needs to make a decision.
Despite this, thanks to APIs, any company can directly integrate the financing process into its own applications in order to request financing during the purchasing process. The financing can be granted without the buyer having to do anything other than give their basic personal data and agree with the calculation that Mortgage generates, including details such as initial expenses, the period or the monthly payments.
A customer’s solvency can also be verified much faster, since the company has access to the customer’s entire financial information at the time of the request.
New identification methods have made it possible to do away with certain security elements that, until now, seemed permanent. The use of biometric elements to identify users and the enhanced security regulated by the PSD2 Directivecould do away with all the documentation involved in the mortgage application process.
This new identification method affects the whole process, from the signing of the mortgage to its cancellation, including every transaction involving a potential change to the mortgage during the repayment period, such as a subrogation, amendment, early repayment and more.
The current situation involving interest rates, with a negative Euribor, has significantly lowered the cost of mortgages. According to INE data, the interest rate for new mortgages taken out in Spain in 2019 stood at 2.56%, the lowest figure on record.
This circumstance has also driven the marketing and contracting of other products, such as fixed-rate mortgages, which already account for more than 40% of all mortgages, when just five years ago they barely made up 10%, and before the 2008 crisis they were virtually non-existent.
APIs can make mortgages even cheaper. Open banking has the potential to let borrowers save significant amounts of money, reducing operating costs in the risk validation process, while ensuring they always receive the best interest rate, based on their needs and profile. That being said, everything depends on the Euribor, which is very sensitive to the ECB’s monetary policy decisions.
If we also consider how a mortgage is often the biggest debt a family will have over its life, this situation will have a positive impact on household finances, which will in turn increase savings and consumption and, ultimately, have a positive impact on a country’s economy.
Regulatory compliance remains one of the main challenges facing the mortgage industry, especially following the approval of various laws at the European and national level, which have changed the financial landscape significantly. Fortunately, APIs allow applications to adapt to constantly changing regulatory requirements.
APIs can be used to efficiently execute certain processes and to transmit or retrieve additional information, in accordance with the new legal requirements. These applications can execute different tasks to ensure that the procedures satisfy the specified criteria.
This circumstance could lead the various legislative bodies to more strictly enforce laws related to mortgages. In fact, last year the mortgage law was passed in Spain, the goal of which is to better protect consumers and enhance the transparency of mortgage contracts. The law affects the entire process, from the signature to repayments, and offers greater protection to consumers in this market.
Open banking simplifies the request for information about loans and mortgages and facilitates the buying process for the user, which can be carried out in the actual search process.
The automotive industry is possibly one of the least digitized. This situation is particularly significant in car dealerships, where the purchase and financing process continues to be done in the traditional way. However, APIs can give a new impetus to this service by offering an innovative product and a new experience to their customers.