1
The importance of considering consumers bounded
rational behavior when obtaining a mortgage
“Clearly, the decision-making that we rely on in society is fallible. It’s highly fallible, and we should know that. “ Daniel Kahneman
Name: Leonieke van der Peet Student number: 10317309
Name University: University of Amsterdam
Master program: Executive Program in Management Studies - Marketing Thesis Coach: Vincent de Graaff
Co-reader: Karin Venetis
2
Preface
Writing this thesis has been a great learning experience for me. Combining my 9 years of work experience with the knowledge I got from my marketing track, made it a valuable and exiting closure of my study.
Ever since I started working in the financial industry I developed an interest for consumer behavior in relation to financial products. Especially, when it comes to the more complex financial products which needs financial advice, for example investments and mortgage loans. During my work at ING Private Banking I experienced the bounded rational behavior of my clients while they were making choices about their financial situation. To me, questions arose like, why do consumers want to borrow the maximum amount to buy a house, although it is not in their best interest? How can I influence consumers to act on financial advice that is best for them in the long run? How come consumers perceive sustainable advice, which is best for them in the long run, not always as the best advice? I experienced that these questions became even more relevant after the financial crisis in 2008.
In the last few years I developed myself within ING towards the marketing department responsible for Mortgage loans. I followed the developments on the Dutch housing market closely and saw the Dutch mortgage landscape changing. Developments like falling housing prices, negative Loan to Value(LTV) and increasing unemployment rate, which led to more consumers in debt for paying their mortgage where drawn to my attention. The changing mortgage landscape in combination with the theories on bounded rationality, made the topic for my thesis easy.
When I started my thesis I was convinced to do a quantitative research considering my knowledge of statistics. But I ended up doing qualitative research after all, as I was really interested in this specific topic which was better suited for qualitative research. Considering my way of thinking, I knew qualitative research would be more of a challenge for me. From the beginning on it was clear that organizing the information and structure of my thesis, were my biggest challenges. Looking at the result, I think I have succeeded.
I want to thank my supervisor Vincent. Thank you for challenging me during this thesis period. By asking the right questions at the right time, I’ve experienced your help as very helpful.
3 Second, I want to thank the experts who participated in this research. Without their knowledge, willingness to cooperate and their passion on the matter I’ve never could have written this thesis. Having the interviews with like-minded on this topic was a great experience which I really enjoyed. And lastly, I want to thank my family and friends for supporting me during this six months thesis period. Their encouragements helped me to keep focus. It was a challenge to have a full-time job and writing a master thesis at the same time. Having loved ones who supported me really motivated me. As I had to skip a lot of social events during the two years of my master study, it is now time to catch up!
Leonieke van der Peet Amsterdam, July 2014
4
Abstract
An explorative research on how mortgage advice should be repositioned considering consumers bounded rational behavior. Since 2008 the Dutch mortgage environment changed. The combination of stricter mortgage rules and an introduction of paying for mortgage advice asks for a repositioning of mortgage advice. At the same time these changes provoke a possible development towards the execution only channel. This channel is a way for consumers to obtain a mortgage online. The costs are less and no mortgage advice is given which means consumers themselves are responsible for the possible consequences of obtaining a mortgage.
10 semi-structured interviews were held, with experts from the three biggest mortgage banks in the Netherlands. The chosen experts also cover three perspectives (theoretical consumer behavior, marketing mortgage and practical mortgage) to look at the phenomenon.
Experts confirm consumers bounded rational behavior during the mortgage process and point out the difficulty of showing rational behavior during the mortgage process. The changed landscape is confirmed and three main triggers are mentioned that influence consumers’ perception of mortgage advice. It seems an execution only development is just a matter of time and waiting for who will take the lead. Consumers bounded rational behavior in combination with an execution only channel is described as dangerous. The chance for consumers of not having a mortgage that fits their needs increases. Experts suggest that providing more information and creating awareness on possible risks in a more visual way could help to create an environment wherein consumers can make their own conscious decisions when obtaining a mortgage through an execution only channel. Also the use of psychology theories can help to influence consumers. At the same time, it is important to show what the added value is of getting mortgage advice from a mortgage advisor. By making explicit what the added value is, it indirectly is more obvious for consumers have they have to do for themselves when they choose the execution only channel.
These findings contribute to existing literature on consumer behavior and give managerial insights. This research indicates it is important to consider consumers bounded rational behavior when they obtain a mortgage.
5
Content
Preface ... 2 Abstract ... 4 1. Introduction ... 8 2. Literature review ... 10 2.1. Positioning ... 102.2. Development towards execution only ... 11
2.3. Consumer Behavior ... 14
2.4. Necessity of taking bounded rational behavior into account ... 16
2.5. Research question ... 16
2.6. Research model ... 16
3. Research method and data ... 19
3.1. Defining research topic ... 19
3.2. Set research objectives and planning ... 19
3.3. Research approach ... 19
3.4. Design and collect interviews ... 21
3.5. Coding and data analyses ... 22
3.6. Data interpretation... 23
3.7. Report on findings and recommendations ... 24
4. Findings ... 25
4.1. Consumer behavior ... 25
4.1.1. Consumers behavior while getting a mortgage ... 25
4.1.2. The importance of rational consumer behavior when obtaining a mortgage ... 26
4.1.3. Difficulty of showing rational behavior in the mortgage process ... 27
4.2. Triggers in mortgage environment ... 28
4.3. Development towards Execution only channel ... 28
4.4. Execution only ... 30
4.4.1. Consequences of bounded rational behavior with existing execution only channel ... 30
4.4.2. Mortgage-fit ... 31
4.4.3. Insights and experience with consumers using execution only ... 32
4.4.4. Which consumers are suitable for execution only? ... 32
4.5. Repositioning considering consumers bounded rational behavior ... 34
4.5.1. Positioning of traditional mortgage advice with mortgage advisor ... 34
6
4.5.3. Hybrid forms of obtaining a mortgage ... 39
5. Conclusion ... 41
5.1. Theoretical model tested ... 41
5.2. Theoretical model refined ... 42
5.3. Suggestions on new positioning ... 42
6. Discussion en recommendations... 45
6.1. Recommendations for further research ... 45
6.2. Management recommendations ... 46
References ... 47
Appendix 1: Positioning overview ... 50
Appendix 2: Interview design ... 52
Appendix 3: Open codes... 53
Appendix 4: Overview all sub-codes ... 54
7
Overview of figures and tables
Figures Page
Figure 1: Conceptual Framework 9
Figure 2: Line of ways to obtain a mortgage 11
Figure 3: Consumer behavior line 15
Figure 4: Example of irrational decision-making 15
Figure 5: Theoretic Model 17
Figure 6: Research Process 19
Figure 7: Coding structure 23
Figure 8: Tested and refined model 39
Tables Page
Table 1. Expert overview 20
Table 2: Overview of reasons why rational behavior difficult 27 Table 3: Overview of answers about execution only development 28
Table 4: Overview of types suitable for execution only 33
Table 5: Overview experts opinion on added value mortgage advise 35 Table 6: Overview of suggestions for better positioning execution only 37
8
1. Introduction
With 665 billion, the Netherlands has the highest total mortgage debt of the 27 countries of the European Union (De Argumentenfabriek, 2012). With fiscally driven mortgage rules, the Dutch government has a history of stimulating home ownership. This stimulation was done by giving tax deduction on paid mortgage interest. With the increasing housing prices till 2008(Centraal
Planbureau [CPB], 2013) it seemed logic for banks and consumers to keep a mortgage loan as high as possible.
The financial crisis changed the Dutch mortgage environment. The Dutch mortgage production decreased from 134 billion in 2007 to 36 billion in 2013(http://www.kadaster.nl). The Dutch Community of Banks came with stricter legislation of mortgage rules(Nederlandse Vereniging van Banken [NVB], 2011) and paying for mortgage advice was introduced(Jager, 2011). These changes ask for a repositioning of mortgage advice. But, these changes also a trigger further development of the existing execution only channel.
Consumers play an important role in designing such a new positioning, because the aim of a new positioning is to fit consumers’ needs and behavior. As secured in Legislation of Financial Supervision rules (“WFT”, 2006), banks are tied to rules when giving mortgage advice in order to protect
consumers(AFM, 2014). Theory has proven that consumers are bounded rational when it comes to decision-making(Evans, 2003; Kahneman, 2003). Before the changed mortgage environment, this bounded rational behavior was not that relevant. After all, a mortgage advisor was involved and responsible for creating a fit between the mortgage product and consumers need(“WFT”, 2006 ). If something goes wrong, the bank is responsible. However, when consumers use the execution only channel, there is no advisor present and consumers themselves are responsible for possible consequences. With increasing chance of people getting in debt(BKR, 2013), consumers bounded rational behavior when obtaining a mortgage becomes more relevant (Engelmann et al., 2009).
“Clearly, the decision-making that we rely on in society is fallible. It’s highly fallible, and we should know that.“ (Kahneman, 2003)
The aim of this research is to explore better options for positioning mortgage advice considering consumers bounded rationality. Existing literature shows extended theories on consumers bounded rational behavior (Ariely, 2008; Evans, 2003; Kahneman, 2003). However research of this behavior in combination with obtaining a mortgage is missing.
For research purposes a conceptual framework is developed(figure 1). It shows that in order to come to a possible new positioning of mortgage advice, two moderators are relevant. The first moderator
9 is the influence of the ‘execution only development’ on a new positioning. This development can trigger consumers to choose the execution only channel above mortgage advice. Considering the possible risks for consumers, researcher states that the second moderator ‘consumer behavior’ needs to be taken into consideration.
Figure 1: Conceptual Framework
This explorative research, which is an idea that will be tested, will contribute to existing literature by exploring the impact of the changed mortgage landscape on the current positioning of mortgage advice. Second, a theoretical model will be provided which is tested and refined by experts in the field to find out if researchers’ line of reasoning is correct and if the phenomenon is material for further research. Third, this research contributes to the consumer behavior theory by exploring how banks need to reposition their mortgage advice considering consumers bounded rational behavior. A single case study approach is chosen(Eisenhardt, 1989; Gephart, 2004; Sigglekow, 2007; Thomas, 2011) and involves 10 semi-structured interviews with experts in the field. The experts are chosen from the three banks that together represent 84% of the mortgage market(Dijsselbloem, 2013) and the experts represent three perspectives (theoretical consumer behavior, marketing mortgages and practical mortgage experience). The outcome can help marketers to determine how mortgage advice and execution only channel should be positioned, in order to secure consumers getting a mortgage that fits their needs.
The next chapter starts with a literature review on positioning, development towards execution only and consumers’ behavior to set the context wherein this phenomenon takes place. Thereafter a description is given of the exact method used, which is followed by the research findings. To end with the conclusion, recommendations for further research and recommendations for managerial
purposes. Mortgage Environment 2.1. Current positioning Mortgage advice New positioning Mortgage advice 2.2. Execution only development 2.3. Consumer behavior
10
2. Literature review
The literature review is divided in five chapters to build up to the research question and research model. First a literature review is given on positioning and how current positioning of mortgage advice looks like. Second, the development towards execution only channel is described, together with a description of how execution only currently is positioned and the role of the Dutch Authority of Financial Markets(AFM) in this mortgage context. Third, a literature review is given on consumer behavior and its bounded rationality. The fourth chapter explains why it is necessary to take bounded rational behavior into consideration.
2.1. Positioning
As positioning is about consumers’ perception of a product or service and not so much about the real measurable attributes of the product or service (www.AMA.org), influencing this consumers
perception is important. This research focusses specifically on the perception of the positioning of mortgage advice and not on positioning the product itself, as the mortgage product is just a necessity in order to buy a house.
The positioning of current mortgage advice is described by using the traditional Marketing mix(McCarthy, 1968). Although this marketing mix is criticized (Lauterborn, 1990), it is chosen because this research is exploring a better positioning of mortgage advice from banks point of view and not specifically from a consumers point of view.
Current positioning Mortgage advice
Place, this instrument looks at the possible ways consumers can obtain a mortgage product. Traditionally, when consumers need a mortgage they stop by a bank branch, call or search online, and a mortgage appointment is offered. This appointment takes place in a branch closest to consumers’ house. As secured in Legislation of Financial Supervision rules (WFT), banks are tied to rules on giving mortgage advice. Since June 2014, Abn Amro goes further and offers consumers a webcam appointment just for the first appointment of orientation (http://www.Abnamro.nl). Price. Asking a fee for mortgage advice is ruled by the government (Jager, 2011). Banks distinguish this fee by administration costs and costs for the actual advice. A mortgage appointment just for orientation is free of charge. Whereas the second appointment, when consumers actually get advice, an agreement has to be signed and a mortgage fee between Euro 1.000 and 2.100 is charged. This mortgage fee differs per bank (see Appendix 1), depending on if consumers already have a mortgage or not. Rabobank goes beyond this differentiation and offers (1) different fees for example for consumers divorcing or entrepreneurs. And offers (2) a discount of Euro 450 if consumers upload their document upfront of the mortgage appointment (http://www.Rabobank.nl).
11 The instrument Product is not relevant in this context as this research focusses solely on the channel and not the product. The instrument Promotions, which is about the communication-tools banks choose to promote their product or service, is also not relevant in the context of this research and therefore not described.
As positioning mortgage advice is partially tied to regulations, developing a new positioning specifically asks for a perspective with experience and knowledge of marketing mortgages. This perspective will balance the possible theories that can be introduced from a theoretical consumer behavior perspective.
There used to be only one way for consumers to obtain a mortgage product, which was through a mortgage advisor. However, since 2006 view suppliers have developed an execution only
channel(http://www.executiononlyhypotheek.net). The following chapter describes a development towards execution only, which indicate movement on the line of ways to obtain a mortgage ( figure 2).
2.2. Development towards execution only
This chapter describes four subsections. First, a short introduction is given of the environmental developments. Second, governmental measurements that trigger an execution only development is described. Third, a description is given on how the execution only channel currently looks like. And fourth, the role of the AFM is described who is supervising the financial industry.
Introduction
Execution only means consumers obtain the mortgage product without actually getting mortgage advice. Since the existence of this channel only 2% of the consumers who bought a mortgage, have chosen this channel(GFK, 2013). However, since the financial crises the context of the obtaining a mortgage has changed. Dutch housing prices dropped on average with 20% (CPB, 2013) and the unemployment rate increased from van 3,8% in 2008 to 8,3% in 2013 (CBS, 2014). Also the amount of consumers in mortgage debt increased from 31.500 in 2008 to 91.812 in 2013 (BKR, 2013). In the context of The Netherlands having the highest total mortgage debt of the 27 countries of the
Advice
Execution Only
12 European Union (De Argumentenfabriek, 2012), the Dutch Government was highly motivated for consumers to downsize the risks of these mortgage debts and took several measurements. Governmental measurements
The Dutch Ministry of Finance wrote a proposal on improving transparency of banking sector(Jager, 2011) and the NVB introduced new mortgage regulation (NVB, 2011). For this research three measurements (1) introduction of mortgage fee, (2) Loan-to-Value ratio and (3)standardized products are extracted.
(1) Introduction of mortgage fee. Since 01-01-2013 consumers have to pay a fee for receiving mortgage advice. The reason for introducing a mortgage fee is that it creates transparency as well as stimulates mortgage advisors to sell mortgage products that actually fit consumers’ needs. Although consumers think that before 01-01-2013 they didn’t have to pay for
obtaining a mortgage, the truth is quite contrary. This shows consumers don’t act rational in the mortgage process. Before the introduction, consumers were paying provision which was a percentage of the total mortgage and was covered in the total mortgage. The percentage of the provision could differ per product and per bank. This resulted in that advisors could sell a certain product to consumers that brought in the highest provision but was not necessarily the best product for the consumer. Introducing a mortgage fee for mortgage advice, consumers directly pay advisors for the advice they are receiving and advisors have no other interest that giving mortgage advice that is best for consumers (Jager, 2011). This measurement improved transparency of the costs.
(2) Loan-to-Value(LTV) ratio. The maximum LTV for consumers is yearly decreasing (NVB, 2011). This means, based on the value of the house, consumers can lent a maximum of 100% in 2018 instead of the currently 104%. This means that in the near future consumers have to save money to pay the extra costs like notary, broker and mortgage fee. For example, when buying a house of euro 200.000 these costs can increase till euro 10.000. Ministry of Finance even proposed decreasing this percentage to 80% in the future (Dijsselbloem, 2013), which means consumers even need more savings in order to buy a house.
(3) Standardized products. There are only two mortgage options left in order to apply for tax deduction. Instead of the several fiscally driven products in the past, consumers who buy their first house, only have two mortgage products left to choose from. These two mortgage products are both products where consumers directly pay of their mortgage loan(NVB, 2011).
In the context of the changed mortgage environment, these governmental measurements could be a trigger for consumers to choose the execution only channel above mortgage advice. For this research
13 a theoretical perspective of how consumers will respond to these measurements, as well as a
perspective from experience and knowledge of marketing mortgages are needed to indicate if this development can be expected.
To get a good view on this execution only channel, a description is given of how execution only is currently positioned by using the same Marketing instruments(McCarthy, 1968).
Current execution only channel
Place. This channel is fully online-based and without advice from a mortgage advisor. Consumers thereby are fully responsible for possible future consequences of buying the product. Considering de poor financial knowledge of consumers (ING, 2012) and to prohibit a misfit between the product and the consumer, the Authority of Financial Markets (AFM) has obligated the execution only suppliers to use a specific test. This test gives consumers and suppliers insight in if consumers have enough knowledge of the complex mortgage product.
Price. The costs for using execution only are between Euro 500 and 700 (http://www.execution-onlyhypotheek.net/). It can save consumers approximately around Euro 1.500 opposed to getting mortgage advice. In an environment where everything gets more expensive for consumers this sounds as an easy money saver.
The instrument Product is not relevant in this context as this research focusses solely on the channel and not the product. The instrument Promotions, which is about the communications-tools banks choose to actually promote their product or service is also not relevant in the context of this research and therefore not described.
Since the crises and changed mortgage regulations the role of the AFM has grown (Dijsselbloem, 2013). A possible execution only development hereby has their attention.
Role of the AFM
“The Dutch Authority of Financial Markets”(AFM) is supervising the Dutch financial market on savings, investments, insurance and loans. The AFM stimulates a fair and transparent financial market”. Their contribution is to create an environment for consumers where they can make financial decisions based on understandable information on order to buy products that fit their personal needs (AFM, 2014). For this research both a marketing mortgage perspective and practical mortgage perspective are needed to say something about if such a mortgage-fit can be reached. AFM states that 60 % till 80% of the consumers who try the execution only channel, are not suited to use this channel because of the lack of knowledge about the product(AFM, 2012). A theoretical
14 consumer behavior perspective, as well as a perspective from practical mortgage experience is needed for this research to indicate who is suitable for this channel.
As 78% of the Dutch consumers have basic or poor financial knowledge (ING, 2012), the role of the AFM and creating such an environment is therefore important. Hereby, the AFM is slowly realizing that consumers don’t always make these decisions rationally. That is why AFM finds its supervision so important for consumers, in order to protect them(AFM, 2014). This consumer’s protection is
secured in the Legislation of Financial Supervision (WFT) developed by the Ministry of Finance. So, since the existence of an execution only channel in 2006 only 2% of the consumers use this channel. The new governmental measurements can trigger consumers to choose the execution only channel in the future above mortgage advice. The AFM is following this development closely, as it is their responsibility to create an environment where consumers can make their own decisions. And as consumers don’t make rational decisions, it is AFM’s responsibility to protect consumers.
But what does it mean when consumers behavior is not rational? And why is it important to take this behavior in to consideration?
2.3. Consumer Behavior
Consumer behavior is defined as “the dynamic interaction of affect and cognition, behavior and the environment by which human beings conduct the exchange aspects of their lives”(The American Marketing Association). In other words “consumer behavior involves the thoughts and feelings people experience and the actions they perform in consumption processes. But it also includes all the things in the environment that influences these thoughts, feelings and actions. It is therefore
important to recognize that consumer behavior is dynamic, involves interaction and involves exchanges” (Peter&Olsen, 2001). This last definition is used for this research, because it emphasizes the complexity of consumers and their thoughts and feelings.
When we take a closer look on consumer behavior, it is divided into rational and irrational behavior. Not behaving fully rational is also called bounded rational(Evans, 2003; Kahneman, 2003). The following chapter gives a in-depth look on what bounded rationality really is.
Bounded Rational behavior
Consumers’ behavior is bounded rational when it comes to decision-making(Evans, 2003; Kahneman, 2003). The cognitive processing of consumers is distinguished in two types(Evans, 2003), which are labelled as System 1 and System 2 (Stanovich & West, 2000). As psychologist Kahneman describes: “the operations of System 1 is fast, automatic, effortless, associative and often emotionally charged; it is also driven by habit and is therefore difficult to control or modify. The operations of System 2 is
15 slower, serial, effortful and deliberately controlled”. Consumers often think that the make rational decisions, but the truth proofs otherwise (Kahneman, 2003). The problem is that System 2 is lazy, so most of the times consumers make decisions using their irrational system 1. And besides the fact that System 1 is an emotional and irrational System, it easily makes mistakes without knowing and
without a learning curve (Kahneman, 2003). It is proven that consumers lean towards System 1 when an expert is opposed to them(Engelmann et al., 2009). This indicates that during the mortgage process consumers also lean towards System 1. A perspective from a practical mortgage point of view is needed to confirm this.
As consumers behavior always is somewhere between System 1 and 2, a horizontal line is drawn (figure 3) pure for research purposes, to show this relation.
To understand how System 1 works, figure 4 shows an example. It appears that the top line is shorter, but if you measure it, they are both the same. Now you know they are the same, but does your mind accept this fact? The answer, is no. It wants to believe the top line is shorter. This is Kahneman’s point with the mind that has two ways of operating: System 1 is fast and intuitive and System 2 is slow and analytical. And as this example shows, they operate independently, so that “you cannot decide to see the lines as equal, even though you know they are. To resist the illusion, you must learn to distrust your impressions of the length of lines when fins are attached to them” (Kahneman, 2003).
Figure 4. Example of irrational decision-making
Existing literature shows that consumer behavior is not only irrational, but also predictably irrational when it comes to decision-making (Ariely, 2009). Proven theories like framing, anchoring, availability, effect of expectations, relativity and decoy-effect show that because of the predictability, consumers can easily be influenced in their buying process (Ariely 2008; Kahneman 2003).
System 1 System 2
16 This knowledge of consumers’ behavior makes it interesting in combination with a complex financial product, such as obtaining a mortgage. Why is it necessary to take this behavior into account? 2.4. Necessity of taking bounded rational behavior into account
Before the changed mortgage environment, it was less relevant to take this bounded rational behavior into account. A mortgage advisor was involved and it is his responsibility to create a fit between the mortgage product and consumers need (WFT). However, there is no advisor present when consumers choose to obtain a mortgage via the execution only channel and consumers will be responsible for possible consequences when it goes wrong. Considering the increasing number of consumers getting in mortgage debt (BKR, 2013), suddenly consumers bounded rational behavior when obtaining a mortgage, becomes very relevant (Engelmann et al., 2009). For this research a theoretical consumer behavior perspective is needed to confirm this phenomenon.
2.5. Research question
The intensively changed mortgage landscape, the triggers towards an execution only development and the need for an environment where consumers can make conscious financial decisions asks for a repositioning of mortgage advice. If in the future, consumers tend to choose more often for buying a mortgage through an execution only channel, with the knowledge of consumers bounded rational behavior, the question rises how banks need to take this bounded rationality into consideration while developing such a new positioning. Therefor this research will explore the following question: ‘In the context of current development towards execution only, how should mortgage advice be positioned considering consumers bounded rational behavior?’
2.6. Research model
For this research a theoretic model is developed (figure 5), which results from combining figure 2 and 3. The two moderators are represented by a vertical line (ways to obtain a mortgage) and a
horizontal line (consumer behavior). In essence the quadrants on the right side have preference over the quadrants on the left. Because on the right side consumers would make more conscious and rational decisions by using System 2. The developments in the quadrant bottom left needs to be avoided, because then there is the risky combination for consumers of not receiving advice and make irrational decisions at the same time.
17 Figure 5: Theoretic Model
As described earlier in literature review, we can assume that consumers use system 1 during the mortgage process (Engelmann et al., 2009). For that reason current consumer behavior when obtaining mortgage advice is drawn upper left (C1).
Without taking consumers bounded rationality into consideration the movement towards the
execution only channel will develop and more consumers will choose this channel while using System 1(C2). The bad financial knowledge of consumers(ING, 2012) and the growing need for financial products that fit consumers long-term need (“WFT”, 2006) (Dijsselbloem, 2013) (AFM, 2014), this development needs a different direction. Otherwise the consequences are that consumers buy mortgages while not understanding and overseeing the risks and consequences. It is therefore not a desirable situation for both consumers and banks (“WFT”, 2006).
By taking consumers bounded rational behavior into consideration in the positioning of mortgage advice, consumers behavior can be influenced and move towards using System 2 during the execution only process (C3).
To test and to refine the model, the following sub-questions need to be answered:
1) How can consumers behavior be described while using the mortgage advice channel?(C1) 2) What are main triggers in the mortgage environment that influence consumers’ perception of
mortgage advice? (to confirm a possible movement towards execution only) Ex.only Advice Syst 1 Syst 2 C2 C1 C3
18 3) What are the risks of consumers using execution only channel while showing the same
(ir)rational behavior when receiving mortgage advice? (C2) (to get confirmation on the necessity of taking consumer behavior into consideration)
4) How can consumers be facilitated or influenced that they tend lean more toward the use of System 2 while choosing the execution only channel? (C3)
5) How should mortgage advice be positioned considering consumers bounded rational behavior?
19
3. Research method and data
This chapter gives a detailed description of the steps that are taken during this research ( figure 6), to eventually come up with the research findings. 3.1. Defining research topic
This research started with a first idea on the topic, based on researchers experience and talking to other experts in the field. The topic was defines after reflection with the supervisor and reading first literature
(Kahneman, 2003; Ariely, 2008; Engelmann et al., 2009). 3.2. Set research objectives and planning
After defining the topic, the objectives and planning
were set and discussed with supervisor. Relevant literature was collected and the research approach was decided. Being a new and complex phenomenon on consumer behavior in a mortgage
environment, this research asked for an explorative research. It thereby was appropriate for case study approach. During this research a journal was kept, in order for the researcher to reflect on own research methods and activities during the research (O’dwyer, 2004; Tracy, 2010; Pratt, 2009). 3.3. Research approach
The research approach started with desk research on the relevant literature as described in the literature review. As mentioned in the literature review, to get a good view on the phenomenon three different perspectives where adopted to look at this topic(Gibbert&Ruigrok, 2010). The three perspectives are described below.
Scientists: Perspective of theoretical knowledge on consumer behavior. As the aim of this research is to test and refine the theoretical model, experts with a theoretical background on consumer
behavior are needed. This perspective is needed to indicate to what extend an execution only development can be expected, who would be suitable to use this channel and to eventually come up with a new positioning of mortgage advice.
Marketers: Perspective of experience with and knowledge of mortgage positioning. Because of the regulation around the mortgage product and the changing mortgage environment, re-positioning asks for experts with specific marketing knowledge and experience with mortgages. This perspective is needed to indicate to what extend an execution only development can be expected, how a mortgage-fit can be reached and eventually to come to a new positioning of mortgage advice.
Figure 6: Research process
Defining research topic
Set research objectives and planning
Research approach
Design and collect interviews
Coding and data analyses
Data interpretation
20 Advisors: Perspective of practical experience with mortgage advice and consumer behavior. Experts who actually give mortgage advise in the current mortgage environment have practical insights on consumer behavior and their needs concerning mortgage advice. This perspective is needed to confirm theory on consumers being bounded rational during the mortgage process, get insight on how mortgage-fit can be reached and to find out who is suitable for the execution only channel. Expert overview
Table 1 shows an overview of the experts who cooperated in this research. The people within ING where chosen by the researcher herself, because of her own network within ING. The experts within Abn Amro and Rabobank were chosen via connections of colleagues. The three perspectives take place within the same macroeconomic context of the current mortgage environment and thereby makes this research a single-case study (Sigglekow, 2007; Thomas, 2011; Eisenhardt, 1989). Considering the market share of Dutch banks, the three biggest banks are incorporated and cover 84% of the market(Dijsselbloem, 2013). The Marketers and Advisors where chosen from within these three banks.
Table 1: Expert overview
Name Function Expertise Company
Scientists Jorna Leenheer Manager Consumer Research Master in Science in Economics.
And PHD in Marking & Consumer Behavior University of Tilburg (UvT) Sanne de Laat-Koevoets
Manager Branches Master in Science in Economical Psychology
ING Melchior de Ridder Manager Unsecured Lending Master in Science Business
Administration. And applied psychology expert within ING Marketing Mortgages
ING
Marketers Xander van Heeringen Manager Responsible
Mortgages & Consumers Lending
Mortgage expert from strategic and policy point of view
Abn Amro
Antoinette Leopold Manager Product management Mortgages
Mortgage expert from strategic and policy point of view
ING Theo Harms Manager Product management
Mortgages
Mortgage expert from strategic and policy point of view
Rabobank Dick Pors Manager Financial Advice Mortgage expert from strategic
and policy point of view
Rabobank
Practice Helga van Loos Mortgage Advisor Mortgage expert in practice Abn Amro
Peter van Leeuwen Mortgage Advisor Mortgage expert in practice ING Cees Heemskerk Mortgage Advisor Mortgage expert in practice Rabobank
21 Intermediaries, who also sell mortgages, are excluded from this research. They work independent from retail banks and thereby have a different interest than the banks itself and consumers. Including their point of view would complex the research.
3.4. Design and collect interviews
Semi-structured interviews were chosen as primary data. The reason for this is, on one hand, because specific questions were developed to test the model. On the other hand it is also good to keep an open mind for possible outcomes and really explore the phenomenon (Leech, 2002). Interview design
The interviews where designed in three sections with a different purpose (see Appendix 2).
First, it was researchers aim to test the framework and the model to confirm researchers line of reasoning and thoughts.
Second, purpose was to collect opinions on the phenomenon of current positioning and consequences of not taking bounded rationality into consideration.
Third, it was the purpose to explore experts’ ideas and vision on how to come to a better positioning of mortgage advice.
Because of the deliberate choice of having three expert groups, the interviews started with the Scientists. Their theoretical perspective on consumer behavior could help in the following interviews with the Marketers and the Advisors. The ten interviews took place face-to-face, whereby one bank was represented by two people. As Dutch is the native language of both the experts and the researcher , the interviews were held in Dutch. After coding and analyzing, the results would be translated into English. On average an interview took 67 minutes, generated 12,6 pages of data and contained 8.962 words. In total 126 pages of data and 89.623 words were generated.
Collecting interviews
To create a good mood during the interviews, a combination of two approaches was needed. First, to prevent that interviewees were feeling that they were wasting their time with the interview,
researcher showed her own proper knowledge of the topic. And second, it was needed to prevent interviewees to feel threatened and having the fear of losing face in the interview. That is why a combined journalistic and ethnographic interview approach was chosen(Leech, 2002). To find a balance between the two approaches, five interview techniques were used.
(1) A short briefing on the topic was send on for hand. If wanted, interviewees could prepare themselves and thereby feel secure on the topic.
22 (2) The interviewees could choose their own location of choice, in order to make sure they would be comfortable during the interview.
(3) The option of anonymity was offered at the beginning of the interview (Eisengardt&Greabner, 2007).
(4) The interviews started with grand tour questions, in order to introduce the more specific and sensitive questions half-way (Leech, 2002).
(5) Planned prompts where prepared based on expected moments where interviewees could be vague or answers turn to mush (as cited in Leech, 2002). Besides these techniques, the interviews were recorded for analyses purposes.
At the end of the interviews, a view Marketers asked researcher to give a presentation about the final paper and results. The other interviewees were offered a copy of the final paper. Therefore, the transcripts were not send and checked in the meantime. After the interviews, the coding and data analyses phase started.
3.5. Coding and data analyses
Data-analyses started from the moment the first interviews took place. To organize researchers thinking during the interviews, drawing were made of the theoretic model and the interviewees’ vision and opinion (Pratt, 2009). As the interviews were transcribed on the same day they took place, it helped, together with the recordings, to created good verbatim transcripts. Considering the
amount of data, qualitative data analysis software (QSR Nvivo Project 10) was used for the coding process and data analyses. As soon as all interviews where transcribed, the coding process started in Nvivo. Hereby a combination was made of a deductive and inductive coding approach. Based on literature review and conceptual framework, the coding process started with five open codes (see Appendix 3) (O’Dwyer, 2004; Yin, 2009). This way it was secured, sub-codes were meaningful and at the same time open to new emerging codes from data. During systematically reading the first interview, the first sub-codes within these open codes arose. Every data was used without limitations, sub-categories were created limitedly and all data was excepted (Gibbert&Ruigrok, 2010). During transcribing the next two interviews a few more sub-codes where added. After transcript three and four no categories were added (see Appendix 4). It became clear which sub-codes where most meaningful and were most filled. After the sixth interview no new insight came in hand.
23 3.6. Data interpretation
Data interpretation started after transcribing all interviews(Yin, 2009). Data reduction (O’Dwyer, 2004)was done in the following five ways:
(a) Listening to all the interviews again, to see if anything other than the pure transcripts was valuable for the context of the findings.
(b) Checking all created sub-codes in order to see if they were all relevant, meaningful or could be emerged with other sub-codes. Four sub-codes were merged with existing sub-codes, because the content was the same. One sub-code was left out(behavior mortgage advisor), as it was not relevant in this context. This process of data reduction eventually created the final sub-codes and core-codes (figure 7).
(c) Reading own journal for notes of the interviews.
(d) Pattern matching of the three groups which gave insight in the similarities and differences between the three groups (Miles&Huberman, 1984; Yin, 2009; Gibbert&Ruigrok, 2010). And, (e) ‘rival’ and contradict data was examined, relying on theoretical positioning (Yin, 2009). These activities of data reduction and triangulation resulted in getting insight in higher themes and patterns.
24 3.7. Report on findings and recommendations
After data analyses, the data was manageable and a thick description was formulated(Tracy, 2010). Writing this description forced researcher to reflect on the evidence and data (O’dwyer, 2004) and helped to write final findings, conclusion a discussion. The findings were cross-checked with the research question and sub-questions as described in chapter 2, to come to final conclusions and a refined model ( figure 8). Derived from the conclusions, researcher took a critical look at the findings and described limitations of the research. At the end, researcher took a closer look on how to write an interesting and convincing qualitative research(Pratt, 2009; Tracy, 2010).
25
4. Findings
The findings are described by five chapters that were developed during data interpretation and writing thick description. The chapters contain the following: (4.1) Consumer behavior, (4.2)Triggers in the mortgage environment, (4.3) Development towards execution only channel, (4.4) Execution only and (5.5) Repositioning considering consumers bounded rational behavior.
To place final findings and answer of the research question in context, description of the findings of the first four chapters are necessary. Within the text “power quotes” are used to illustrate findings and “proof quotes” (see Appendix 5) are used to support findings (Pratt, 2009).
4.1. Consumer behavior
The semi-structured interviews started with one consumer behavior theme, which was describing consumers’ current behavior during the mortgage process. With the aim of getting confirmation from the Advisors that consumers behave bounded rational during the mortgage process, during the interviews two other subthemes arose. These other themes are the importance of rational behavior during the mortgage process and the difficulty of it rational behavior. All three themes are described in the following three chapters.
4.1.1. Consumers behavior while getting a mortgage
All three groups describe consumers are looking for short-term satisfaction and irrational during the mortgage process. The statements from the Advisors hereby are most important, because of they experience consumers’ behaviors on a daily basis.
“He hasn’t researched all the possible options at all.“ (Helga de Loos)
“He has a blinkered view, has one thing in mind, short term, he wants that house.” (Peter van Leeuwen) “Customer is only busy with one thing, still, I want that house.” (Cees Heemskerk)
The difference between the three perspectives is that the Advisors mention they experience a difference between consumers’ behavior in the beginning of the orientation process and after receiving mortgage advice. This difference is described as really irrational in the beginning and a little less rational after receiving mortgage advice.
“ …..Consumers are on the left-side in the model,
most of them come for orientation, which means they are not yet actively searching for a house……. Well, after their meeting with me, they really go a bit more towards the right side of the model
with their behavior.”(Helga de Loos)
This behavioral movement is debatably, as such a change is not mentioned literature when consumers have an expert in front of them (Engelmann et al., 2009). Also, it is the responsibility of mortgage advisors to make consumers more conscious and guide them through the mortgage process. So, it seems only logic that the Advisors experience and mention their own added value in
26 this process. Further research on this topic could be interesting. However, for now it makes no difference in concluding that the consumer act bounded rational and thereby theory is confirmed.
All experts mention three resources consumers use during the mortgage process:
(1) Price. Consumers compare prices and shop to eventually pay the lowest prices possible (2) References. Consumers check with parents, family and friends to ask for advice about what
they would do or what is best.
(3) Trust advisor. Consumers want a good match and feeling with their advisors, because then they can put their trust in their hands
These resources are resources consumers use to avoid not having to dive into the difficult complex mortgage matter himself, use mental shortcuts and use System 1 (Kahneman, 2003). The statements from the Advisors and the description of resources therefor confirm theory on bounded rationality and consumers being bounded rational during the mortgage process when receiving mortgage advice(Kahneman, 2003; Engelmann et al., 2009)
4.1.2. The importance of rational consumer behavior when obtaining a mortgage
Besides the question of the describing consumers current behavior, in all interviews automatically the importance of a more rational and conscious consumer was mentioned. All experts state that it is important for consumers to show rational and conscious behavior, because it is the biggest decision they make in their live and it’s a big amount.
“Biggest thing in life that happens” (Cees Heemskerk)
“It is a big decision and a big amount of money” (Sanne de Laat-Koevoets)
“It is your mortgage and it is a lot of money, that a lot of people will never have on their bank account” (Melchior de Ridder) The Scientists and Theo from the Marketers add the remark that rational and conscious behavior is also important because consumers than also will be a better fit between consumers’ needs and their mortgage.
“When consumers buy a mortgage more consciously you automatically have
a mortgage that fits you better” (Jorna Leenheer)
“Quality of the mortgage advice increases when rationality increases as well’ (Theo Harms) “Because customer is better capable to obtain something that fits his needs” (Melchior de Ridder)
Considering theory on consumer behavior it is logic that the Scientists state this. For the Marketers this is different. Since the new mortgage rules, changed mortgage environment and supervision from the AFM this is a dilemma for Marketers. This dilemma could be described as finding a balance between taking responsibility as a bank and create a transparent environment where the banks can be trusted to provide fair and simple products(Dijsselbloem, 2013). And, on the other hand creating an environment for consumers where they have the possibility to make their own financial decisions and responsibilities that come with these decisions(AFM, 2014). This context makes the remark from
27 Marketer Theo debatable. But considering theory and statements the Scientists, it is convincing that a more rational and conscious consumer creates a better fit between a mortgage and consumers need.
The fact that the importance of a more rational and conscious consumer is pointed out by all experts from all three perspectives makes it convincing. But if it is so convincing and maybe logic, why is it so difficult for consumers to show this rational behavior?
4.1.3. Difficulty of showing rational behavior in the mortgage process
Despite the importance for consumers to show more rational behavior when obtaining a mortgage, experts argue that showing this rational behavior is very difficult. In all interviews the difficulty of actually showing more rational and conscious behavior is mentioned. There is a difference between the three perspectives in the reasons of why this is difficult. Table 2 gives an overview per
perspective derived from sub-code ‘difficulty of rational behavior with mortgage’. Table 2. Overview of reasons why rational behavior difficult
Scientists (1)taking too much time, (2)complex matter, (3) a lot of information and (4)too abstract
Marketers (1)consumers being short-term focused while the risks are laying in the future, (2)complex (3) too much information and (4) buying mortgage is an emotional process, which makes a mortgage an emotional product
Advisors (1)too much information and (2)being too complex
The reasons of the Scientists are considered as leading as they are experts on consumer behavior. Their reasons match with theory on working of System 1 and 2 (Kahneman, 2003). The reasons from the Advisors can be argued, because it indirectly debates their own added value in the process. But, as their reasons are also mentioned by the Scientists, it can be concluded that the reasons are plausible. The Marketers add the reasons of short-term focus and emotion of the product. Both arguments can be found in theory, but as they are not mentioned by the Scientists, these reasons are considered as less important.
These findings conform theory on how system 1 and 2 work and thereby the difficulty of showing rational behavior during the mortgage process.
The following two chapters give insight in why this consumer’s bounded rationality is now relevant and an important matter.
28 4.2. Triggers in mortgage environment
As described in literature review the changed mortgage landscape and governmental measurements could be a trigger for consumer to choose the execution only channel above mortgage advice. During the interviews the changed mortgage environment is discussed.
All experts mention three main triggers that influence the way consumers perceive positioning of mortgage advice. There were no differences between the groups, which seems logic as the triggers are based on actual fact. Three triggers are described below in a random order.
First, the changed policy for obtaining a mortgage. For consumers who are buying their first house, starters, basically have two mortgage options left. This simplification in the product and policy makes a mortgage more uniform for consumers and therefor more a commodity good.
“….for starters of course the product has become super homogenous.“(.Jorna Leenheer)
The second trigger is the introduction of paying for mortgage advice. Paying for mortgage advice makes the mortgage market more transparent. Consumers were paying for their mortgage in the past via provision, but it was not connected to advice.
And third mentioned is the changed consumers’ behavior towards bank. The increasing lack of trust towards the financial industry in general makes consumers compare prices more than before. For example they crosscheck with family and friends.
“A mortgage advisor is a banker and bankers are not fully trusted.” (Sanne de Laat-Koevoets)
These findings confirm researcher line of reasoning that the changing mortgage environment is a trigger to come up with a new positioning for mortgage advice and could trigger a movement towards execution only channel.
The next logical question during the interviews was if the expert thought a possible development towards execution only channel would happen in the near future.
4.3. Development towards Execution only channel
Asking experts opinion on their expectation of a possible development towards execution only, appeared to be a very sensitive topic. This is where the combined interview approaches(Leech, 2002) and interview techniques became useful, as expert got very excited and got more firms in their statements. As shown below in table 3, the answers differ per group and within groups.
Table 3. Overview of answers about execution only development Scientists Jorna: “Yes, you can’t
stop that movement.”
Sanne: “Yes, it’s a
trend.”
Melchior: “Yes, it
29 Marketers Xander: “No, I don’t
believe it will happen.”
Antoinette: “Yes,
except old regime customer.”
Theo: “No, not at
this moment.”
Dick: “No, not at
this moment.”
Advisors Helga: “No, I don’t see
how that could happen.”
Peter: “No, that is
not going to happen.”
Cees: “Yes, I believe
that will happen.”
The Scientists can be considered as leading on this topic as they have proper knowledge of how consumers will respond and behave on such an environmental development. All three experts think an execution only development can be expected. Whereas Jorna is very firm on this matter a says it just a matter of time and you can’t stop it. Sanne and Melchior think it will develop, but they are less firm in their statement. The fact that they work within ING and Jorna is not working in the financial sector could play a role in this.
“So this is just a movement you cannot stop”(Jorna Leenheer)
Sanne and Jorna also draw parallels with other products like investments and insurances. These products made a change the last few years form needing advise, to consumers obtaining and closing the product execution only, online and by themselves. Therefor it could be expected that obtaining a mortgage product via an execution only channel also might develop in the near future.
Two Advisors answered ‘no’ which seems logic, because it would mean that they would no longer be needed as a mortgage advisor. So it could be stated that they are biased on this matter. That is why Cees his answer sticks out and looks more plausible compared to the other two.
“I believe that execution only can get big. Because I’m not very naive”(Cees Heemskerk) The statements of the Marketers were less firm. They say it won’t happen at all or not at this moment. Antoinette her answer sticks out as she is the only expert who thinks execution only will develop further. She only mentions a limitation that the channel will not be suitable for existing mortgage lenders with a mortgage before 2013, as they have certain fiscal rights and it would become too difficult to this through execution only channel. As Abn Amro currently has an execution only channel, Xander his answer is also interesting, because he has experience with such a channel. As we will see in chapter 4.4.3. consumers are not satisfied with current execution only channel. So Xander his answer is not surprising.
“I don’t believe it will get big. Money-you is not a success. Eventually I think, especially this kind of decisions that people want to look somebody in the eye.” (Xander van Heeringen)
Besides this question if such an execution only development is expected, Cees, Melchior and Xander mention what could influence the pace of such development. It seems that each bank has his own internal or external political reasons and challenges when it comes to this matter. From not wanting
30 to shortfall the existing mortgage advisors, having a strong intermediary market as important
stakeholder, to exploring a way to have more control over local branches. Melchior and Cees say “consumers need to wait until a big trustworthy competitor enters the Dutch mortgage market and takes the lead in this.”
Although these findings show great differences, the statements from the Scientists together with the statement from Mortgage Advisor Cees it quite convincing that an execution only development can be expected in the near future. The only question seems when it is going to develop and who will take the lead. This confirms theory and researchers reasoning.
Considering these findings and a possible development, next chapter takes a closer look on the execution only channel.
4.4. Execution only
This execution only chapter has four sub chapter which describe findings of experts opinion on (1)the consequences of current execution only knowing consumers behave bounded rational during the mortgage process, (2)if such a thing as a mortgage-fit exists, (3) the insights from Abn with their current execution only channel and (4)who would be suitable in the future for the execution only channel. The last three topics arose naturally during the interviews.
4.4.1. Consequences of bounded rational behavior with existing execution only channel As confirmed by experts, consumers are bounded rational during the mortgage process. Then the question raised, what would the consequences be if more consumers choose the execution only channel? All experts confirm this would mean great risks for consumers. Each expert describes it differently but the words disaster, dangerous and great risk are used.
” Without a doubt, it would be a disaster.” (Theo Pors) “Of course that would be very dangerous.” (Jorna Leenheer)
“That would mean great risks”(Peter van Leeuwen)
All experts point that it would be a risk, because there is nobody that assures an extra reflection and challenge taking place towards consumers. This means consumers might not take long-term risks into consideration. This is mentioned from all three perspectives.
“There is nobody who can challenge their thinking and make them change their minds.” (Peter van Leeuwen) “There is nobody who can point out the risks.”(Jorna Leenheer)
“There is not somebody who triggers them.”(Theo Pors)
Experts describe the actual consequences as the increases risk of consumers not having a mortgage that fits their personal situation and needs. This raises the question if a mortgage-fit really exists. This topic will be discussed in the next chapter.
“… the chance of having a payable mortgage in the future is at risk” (Theo Harms) “Chance of a mortgage-fit decreases.” (Peter van Leeuwen)
31 These findings are in line with proposed theoretic model. The Marketers and Advisors emphasize the theoretical debate of this topic and the limited chances of this happening in real-life. This is further discussed in chapter 6.1. recommendations for further research.
The opinions from the Advisors on this matter could be debatable, because of their perspective. But, as all quotes of experts show that they all agree on this matter and it would increase future risks for consumers, it can be stated that experts confirm researchers’ line of reasoning and research model. So, the experts confirm big theoretical consequences of bounded rational behavior in combination with execution only. It could lead to an increasing risk for consumers not having a mortgage that fits their personal situation and needs. Which can make you wonder what a mortgage-fit means and if such a fit generally exists?
4.4.2. Mortgage-fit
Asking experts opinion on if such a thing as a mortgage-fit exists, gave different and contradicted outcomes that needed extra analyses during the data interpretation process.
Both the Scientists and the Markers state that a mortgage-fit is possible. The Marketers add that a mortgage-fit is only possible on short term. If something changes in consumers’ personal situation somewhere in the next thirty years, there may not be a mortgage-fit anymore. And this is something consumers and advisors cannot fully act on when obtaining a mortgage.
“I seriously don’t think so. It is possible on short-term, but not on long-term.“ (Antoinette Leopold) Considering the changed mortgage environment and the mortgage experience of the Marketers it seems logic that these experts say this.
The Advisors are convinced that it possible to create mortgage-fit, but state that obtaining a
mortgage via the execution only channel such a fit will not be reached. Because a fit depends on the degree of reflection of consumers. The more reflection, the bigger the chance of a mortgage-fit.
“… reflecting consumers via execution only. I don’t believe in that.“ (Helga Loos) “You won’t pull it off with execution only.”(Cees Heemskerk)
This outcome was expected considering the perspective of the Advisors as they are mortgage advisors themselves. The statements of the Marketers are therefore most convincing.
A other nice insight is that experts point out that an actual possible mortgage-fit does not really lay in the mortgage product itself. Creating a mortgage which is also affordable for consumers in the future, it is needed to look at the degree of risk protection. For example, what do consumers want when their income decreases because of disability, unemployment or (partner) dying. Adding
32 insurance products can protect consumers for these possible future risks. This means, to create a possible mortgage-fit, insurance products seem to be a must.
“ Consumers are made more aware of the future. Insecure pension, death, disability, these are all things where we can have our added value. Giving insights in future situations. “ (Dick Pors)
So, with the statements of the Marketers as most valuable, if there might not be such a thing as a long-term mortgage fit, what does that say about the arguments as mentioned earlier about the consequences of bounded rational behavior in combination with execution only?
4.4.3. Insights and experience with consumers using execution only
With an existing execution only channel under the label money-you, made researcher wonder how it currently is going with consumers using this channel. Xander from Abn Amro share his experience. First, he points out that consumers who choose the execution only channel are mostly the more older and experienced ones. The arguments for this insight seem logic as these consumers are more familiar with the product and they are not used to paying for mortgage advice in the past.
“Yes, what we see is that with starters it is not that relevant, that market is rather used to
the fact of paying for mortgage advice. So, we see that execution only, actually the most of the people who use that channel, are people with experience, elderly customers.“ (Xander van Heeringen)
Second, a lot of complaints are received from consumers using the execution only channel. Argument lays in the fact that advice is needed after all and current execution only channel does not only leaves out the advice part, but also does not provide guidance during the mortgage process. This guidance is a service consumers normally get from their mortgage advisor. This service contains of extra help or information to deal with the broker and gathering all the documents that are needed to make sure the actual transfer at the notary can take place.
These experiences of Abn Amro indicate two things:
(1)it could mean that paying for mortgage advice plays a role in the decision of consumers in which channel to choose to obtain a mortgage.
(2) because of the amount of complains repositioning of execution only channel might be necessary.
These insights on execution only channel indicate that maybe there is a difference in which consumer is suitable for an execution only channel. This question arose during the interviews and is answered in the fallowing chapter.
4.4.4. Which consumers are suitable for execution only?
While talking about the execution only channel all experts mentioned that not every consumer might be suited to use this channel. Different criteria were provided for being suitable or not, depending on how to at the phenomenon. Table 4 shows the different starting-points, who would be suitable or
33 not and which expert mentioned this during the interviews. This table is generated by the data from sub-code ‘who is suitable’ as shown in the coding structure (figure 7).
Table 4: Overview of types suitable for execution only
Starting-point Suitable Not suitable Experts opinion
(1)Product complexity Starters Existing mortgage lenders
Scientists: Jorna, Melchior Marketers: Dick, Antoinette Advisors: Helga, Cees (2)Mortgage
knowledge of consumer
Existing mortgage lenders
Starters Scientists: Sanne
Marketers: Xander, Theo Advisors: Peter
(3)Behavior Those who prepare Those who not prepare Scientists: Jorna, Sanne Advisors: Helga, Peter (4)Education High educated Medium/low educated Scientists: Jorna
Advisors: Peter (5)Confirmation
needed
No need for confirmation
Insecure and need confirmation
Scientists: Jorna Advisors: Peter
(1)Product-complexity: from a pure product point of view, six experts find the execution only channel suitable for starters instead of for existing mortgage lenders. The argument lays in the changed mortgage rules. Because of these changed rules the product has become a more commodity good for starters. This means the product is very lean and mean which makes it suitable to close the mortgage execution only. For the existing mortgage lenders on the other hand the product is still heavily fiscal driven and thereby too complex.
“For example a starter on the housing market it is a very standard mortgage advice is, but for an existing mortgage lender or somebody who is divorced. I think a mortgage advisor
is just needed in order to protect them.” (Helga Loos)
(2)Mortgage knowledge of consumers: from a knowledge point of view experts find the channel suitable for existing mortgage lenders, because of their prior experience with the mortgage product. Starters who buy their first house don’t have such knowledge and need a lot of help to obtain a mortgage. Therefor an execution only channel would not suit them.
As starting-point 1 and 2 exclude each other, the opinions of experts are divided by these two. All perspectives are represented in these first two starting-point, which indicate that they both make sense. The insights from Abn Amro shown in prior chapter, show that existing mortgage lenders with knowledge of the mortgage product choose the channel. Considering the amount of complains received, exact these type of consumers seem not suitable for the execution only channel. Therefore expert Xander brings a nuance to the table and state that the channel is not suitable for starters but only suitable for existing mortgage lenders with small enlargement of their mortgage.
(3) Behavior: Experts explain there are different types of people. Some of them just are a bit more aware, want to read and found out everything by themselves. Mortgage advisors experience that the
