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AUSTRALIAN ECOMMERCE STANDARDS HALVE LOAN APPLICATION COSTS

February 2005

E-commerce in the mortgage sector has halved loan processing costs according to a research study commissioned by the Lending Industry XML Initiative (LIXI), a not-for-profit group introducing ecommerce standards.

LIXI developed Credit Application Language (CAL) to allow home loan information to be standardised and transferred electronically. Prior to CAL’s launch each lender had separate, non-compatible systems.

The research study examined the impact of LIXI’s ecommerce standards on the lending industry and the costs associated with loan processing.

It found the most time intensive stages of the lending chain were application to conditional approval and application to unconditional approval. Mortgage application processing took an average of 13.4 days. Brokers and lenders using CAL compliant systems reduced this time to seven days.

In doing so they reduced processing cost from an average of $734 per application to just $213.

“Approval times improved dramatically by reducing data entry time and paperwork while increasing accuracy,” says LIXI chairman, Socrates Vasiliadis.

“As we automate more of the lending chain, approval times continue to drop.”
Electronic transactions account for 21 percent of loan applications. The study estimates that it will reach 35 percent in 2005, 55 percent in 2006 and 70 percent in 2007.

“This puts Australia ahead of the United States and Canada. In fact survey respondents described the Australian system as valuable, visionary and enabling,” says Vasiliadis.

The survey found that only three percent of the mortgage industry did not think ecommerce would affect their ability to trade. In contrast, 65 percent indicated ecommerce was highly important to their business.

“Brokers who ignore e-commerce and the LIXI standard will lose business as customers simply won’t wait the extra time for their loan to be approved or processed,” says Vasiliadis.

LIXI aims to automate the residential lending industry from application through to settlement. CAL has already been updated to allow online data to be exchanged by solicitors, settlement agents, brokers, mortgage insurers and valuers.

“Applying for a mortgage is amazingly complex involving up to nine organisations. Much of the data required is still exchanged via fax and phone creating a high margin for error,” says Vasiliadis.

LIXI believes automation will reduce costs by more than an estimated $10 million per year.

While lenders are seen as obvious winners from LIXI, the research indicated that software developers and consumers are also set to reap the rewards.
With CAL available to all LIXI members, software developers have an opportunity to compete more closely with their larger competitors by developing new software for the lucrative banking sector.

And of course, consumers will win through faster approvals, less errors and better service.

CAL has already been adopted by more than 22 LIXI members and a further 30 associates, including Aussie Mortgage Market, Mortgage Choice, Commonwealth Bank of Australia, ING Bank, Westpac, ANZ, Adelaide Bank, Perpetual, Allette Systems, Lending Technology Services, Mortgage Choice, Pioneer Mortgage Services, PMI Mortgage Insurance, GE, Smartline, Loanmart, Gadens and the Australian Finance Group.