These reverse auctions work by forcing the lenders to bid for business. So far in the UK only two sites run such a service - and one of these, Moneysupermarket, only applies it to business loans. Several hundred people a week use the system to ask for mortgage quotes from 24 participating lenders. However, it is still very basic, and lenders have yet to offer different deals to different customers. The lenders also bid blind and cannot improve on offers made by other lenders.
Differential deals based on customer risk are likely soon.
A competitive bidding system could also be introduced for other products. When this happens power could move to the borrower, with lenders being played off against each other automatically. More risky borrowers could find themselves rejected entirely by the system and forced back into the real world where their applications will be reviewed by a human underwriter.