New Open Finance solutions for mortgages in Switzerland
With its standardisation recommendation for a mortgage API, Swiss Fintech Innovations (SFTI) has created the basis for efficient further development of the mortgage offerings at Swiss financial institutions. This is an important concrete step towards the innovative application of Open Finance.
Financing residential and commercial real estate is a key business pillar or even the core business for many Swiss financial institutions (FIs). According to current market data from the Swiss Bankers Association (SBA), domestic and foreign mortgage loans reached a new high of CHF 1,134.9 billion at the end of 2021. With a share of 31.6 percent, they represent the most significant asset item for banks in Switzerland. Most mortgage loans are granted for owner-occupied residential property of private households.
Despite the high financial volume and the associated relevance, the mortgage process is still insufficiently digitised. On the one hand, this is due to the rather complex process details. On the other hand, the large number of potential participants also makes coordination and standardisation efforts rather challenging. On the creditor side, these include not only banks but also insurance companies and pension funds. Moreover, other stakeholders include customers, brokers, second and third pillar pension institutions and possibly also authorities’ land registry offices.
The problem so far
Finding the right property is no longer a big deal these days thanks to a multitude of real estate platforms. Once a suitable property has been found, however, the desired property shall be financed at a reasonable price. Swiss comparison platforms already today provide a quick, but non-binding overview of possible lenders and their current standard conditions without much effort.
However, if a client wants to obtain a binding offer for a mortgage, this is still a time-consuming and lengthy process. This is because each FI conducts an individual advisory meeting for each specific offer. Various documents must be submitted by the client. Each FI clarifies the financial background of the client and the history, location and current standard of its furnishings and fittings and overall condition of the property.
For both the client and the FI involved, this process is very time-consuming and inefficient. This hardly fits in with today's expectations of a seamless, fast purchasing process, as we are used to from shopping on the internet. The various forms of financing that are common in Switzerland, such as the inclusion of pension funds from the 2nd or 3rd pillar, make today's process (without Open Banking) even more complicated. Without standardised, secure data exchange, cooperation with third-party providers (TPPs) such as mortgage brokers is also complicated, if not impossible, for FIs as well as comparison and broker platforms.
With its standardisation recommendation for a mortgage API, Swiss Fintech Innovations (SFTI) has created the basis for efficient further development of the mortgage offerings at Swiss FIs. Thanks to the exchange of data, it is now possible to make binding offers tailored to clients' needs in real time without – or at least minimised – time-consuming personal interaction with them. Reliably and without loss of time, the respective client profile including the financial situation can be used for inquiries at several FIs directly or via TPPs such as mortgage brokers.
For the end clients, this offers the following advantages: The more FIs participate, the more binding offers clients can request and obtain with just a few clicks and without significant delays. Clients will no longer have to disclose their documents and financial information for the affordability calculations and the information on the desired property several times, but only once. Furthermore, they can make use of additional, complementary services such as embedding in a holistic financial planning or access a network of different service providers working together in partnership around a house purchase instead of dealing directly with individual providers.
At the same time, data exchange also offers FIs new opportunities: They can automate and simplify their internal quotation processes across the board. Thanks to the standardised APIs, they can connect to comparison and broker platforms via plug & play, cooperate with a wide variety of TPPs and thus address new client segments. Finally, standardised APIs for the FIs lead to a lower technical operating effort and lower costs.
The result is a win-win-win situation for clients, FIs and TPPs, which can generate further added value with innovative solutions.
Concrete implementation steps
First, the mortgage API must be implemented by the FIs. FIs can then control to whom they expose the API. FIs can therefore decide themselves, based on their business strategy and the market opportunities they have identified, to launch new cooperation models with other financial institutions, TPPs and/or platform ecosystems.
First applications on the Swiss market
The first FIs in Switzerland have already implemented SFTI's mortgage API and the first comparison portals and other TPPs are already using the API for data exchange. In addition, various FIs and TTPs have expressed their interest.
SFTI's mortgage API is further proof of the market-oriented approach of the Swiss financial centre. This approach is mainly based on the fact that positive business cases targeting a client need offer a much better perspective for all involved stakeholder groups than use cases enforced by regulations.
Further information on Open Finance can be found here:
Swiss Fintech Innovations – Future of Financial Services
Swiss Banking – Open Banking and Open Finance