Banks are helped by artificial intelligence to retain borrowers

Artificial Intelligence has already made its way into the mortgage broking industry rather than being a future development. Elula, a banking technology company based in Sydney, has forged partnerships with prominent Australian lenders to provide a range of intelligent systems aimed at assisting banks in handling their most complex customers. These smart systems leverage AI technology to streamline and enhance various aspects of mortgage broking processes, signaling a significant advancement in the industry.

The "Sticky" AI-based system, which seeks to foretell when a bank's customer is likely to refinance, is the centerpiece of Elula's range of products.

The Sticky system employed by Elula adopts a comprehensive approach by examining various aspects of a customer, including their transactions and data, with the objective of predicting if a borrower is likely to refinance their loan. Elula's co-chief executive, Josh Shipman, highlights the clear advantage of AI-powered systems in the banking sector, emphasizing the potential cost savings achieved through customer retention. By accurately identifying customers who are considering refinancing, banks can take proactive measures to retain them, such as offering personalized solutions or incentives, ultimately leading to enhanced customer satisfaction and improved financial outcomes for the banks.

The current landscape presents banks with a unique opportunity to leverage "smart machine learning" techniques to analyze their extensive datasets and address lending churn effectively. Elula's co-chief executive, Josh Shipman, acknowledges that this is a challenging task, likening it to finding a needle in a haystack. The Australian banking industry is currently navigating the process of refinancing approximately $478 million worth of mortgages set to expire by the end of the calendar year. By employing advanced machine learning algorithms, banks can gain valuable insights from their data, enabling them to proactively manage refinancing processes and ensure customer satisfaction throughout this critical period.

As the Reserve Bank raised the cash rate 12 times, the growth of home loans has significantly slowed down. Consequently, the competition in the market for attracting borrowers has intensified. Additionally, many borrowers are now experiencing a substantial increase of approximately 4 percent in their monthly repayment amounts.

According to Mr. Shipman, the current expiration of fixed interest rates underscores the importance of adopting a smart and strategic approach. He highlighted that the banks currently lack sufficient knowledge about which customers are likely to switch providers, making the situation quite rudimentary.

Mr. Shipman emphasized that lenders often discover that customers are switching providers only when they receive loan discharge forms. On average, lenders are losing 5-10 percent of their customers each year due to churn. However, the expiration of fixed interest rates, which causes borrowers to transition from pandemic-low rates to higher variable rate mortgages, is contributing to an increase in these numbers.

Lender turnover was currently 7–10%, with some lenders reportedly suffering as high as 21%.

However, Mr. Shipman cautioned against lenders panicking too quickly about the fixed rate roll-off. He noted that a common mistake is adopting a reactive approach in such situations. Furthermore, he highlighted that some customers, who had no intention of changing lenders, were being alerted to alternative options by banks with a counterproductive approach.

Elula, on the other hand, employs a different approach by ranking customers based on specific criteria. These criteria encompass factors such as loan expiry dates, the types of products borrowers are currently using, any significant changes in disposable income, and the overall experiences (positive or negative) they have had with their lender.

Mr. Shipman claims that in the past, bank branches may have used strategies to interact with their clients that were somewhat comparable. However, the relationship between consumers and their bankers has been broken due to the reduction of transaction banking in neighborhood branches.

He emphasized that having conversations focused on better customer care and improved service are crucial for retaining borrowers. By prioritizing these aspects, lenders can enhance their relationships with customers and increase the likelihood of customer retention.

Mr. Shipman expressed his admiration for the exceptional quality of feedback they receive. In light of the success of Elula's Sticky product, which has garnered subscriptions from over 20 banks and lenders, they have now introduced a new product called "Nudge." This product is designed to assist banks in identifying clients who may be receptive to additional products, enabling them to provide targeted recommendations to those customers.

Elula's user base includes notable institutions such as AMP, Suncorp Bank, various mutuals, a tier one bank, and its subsidiary. The company has gained support from prominent financial backers, including Ian Narev, the former chief executive of CBA, and Paul Rubenstein, the managing partner of Arnold Bloch Leibler.

In a recent funding round, property settlement platform PEXA acquired a 25 percent shareholding in Elula, further solidifying their partnership.

Elula is currently contemplating the launch of a third product that would enable its users to calculate the potential discounts that banks could offer to customers as a means of retaining them, utilizing the insights gained from the Sticky-driven process.

Mr. Shipman emphasized the significance of pricing for banks, but acknowledged that for many, it was a somewhat rudimentary exercise. He highlighted that Elula's objective is to leverage AI to enhance lending experiences, focusing on delivering better outcomes in this regard.

According to Mr. Shipman, AI presents an incredible opportunity to achieve significantly improved customer outcomes. He emphasized that the success of Elula has demonstrated the potential applications of AI-powered models in the insurance industry. While Elula has primarily concentrated on the home lending sector thus far, Mr. Shipman highlighted the immense potential to expand Elula's capabilities across multiple sectors.

In addition to exploring opportunities for growth in other sectors, Elula is actively considering international expansion plans, with a focus on New Zealand, the UK, and Canada. The company aims to leverage its expertise and technology in these markets to provide valuable solutions and drive positive outcomes.