By Lucas Filinski and Kirk Leverington
The future of mortgage lending holds tremendous promise, but today’s industry vision for how to leverage emerging technology is far too fixated on cost reduction instead of creating new forms of customer value. Instead of figuring out how to automate old process, what if we focused on how to solve practical customer problems like being able to apply for and close a mortgage in a handful of days, rather than weeks or months? What if credit was an active relationship where the concept of applying was old news; where you are always approved? What if credit monitoring, and optimization was an ongoing relationship, and consumers weren’t left on their own to deal with that?
Financial technology or FinTech companies are all the rage; finally there’s a sense of hope for real innovation in financial services, despite the molasses-paced change we’ve seen when compared to other industries like retail. Without this external “giddy-up” that tech innovators provide, banks and financial institutions (FIs) have proven that they lack the innovative drive to create completely new forms of value, or even speed up processes like getting a mortgage. While we pat ourselves on the back, are we really changing the game? We’re still seeing FinTech companies that simply digitize the existing business model being skyrocketed to Unicorn status, when we could have done much of this a decade ago if we had the vision to do so. What many customers don’t know is that mortgages close, on average, 6 times slower than the regulatory environment specifies. The industry is still centered on how to mitigate the ever-rising cost of loan origination, but where is the focus on creating new value for customers when we live in an age where Sci-Fi is real? It’s time to modernize and speed up the 40+ day home loan process. Will the industry continue to duct tape efficiency-oriented point of sale technology on top of brick and mortar-oriented operations, or will we stop dragging our feet, with more visionary ideas in hand?
For years, financial institutions have been dancing around FinTech companies with new functionality for consumers: offering online banking, online transfers, mobile deposits—but brick and mortars locations are still needed for paperwork and fee intensive home loans. For the most part, everyone has finally come to realize that they need to focus on doing what they do well. FinTech can’t take over banking, and FIs don’t have the competencies to evolve in this space on their own. The business models and cultures are too rooted in the old world for this to happen quickly.
Technopreneurs are in love with the concept of disruption, yet the chasm between those with insight into the regulatory compliance requirements, bankers, and those with the ideas of how to reimagine the industry is often too vague. Every alternative lender says they are re-engineering the mortgage industry, but are they really innovating? As an industry, we rely on engineers to reinvent the most complicated financial process—getting a mortgage—when many of these coders haven’t yet applied for a mortgage in their lifetime.
In the long-term, reimagining the mortgage space won’t be so much about digitizing basic transactions. It’ll be about creating new capabilities that evolve both what customers expect and how we fundamentally approach the relationship. In the sterility of the digital space, how do we create and maintain customer intimacy, and what should the goals be for innovation, outside of simply decreasing the cost of originating new loans? The questions the industry needs to shift its focus to should relate more to what new capabilities don’t yet exist, that solve new consumer problems, in ways never attempted before; meaningful consolidation of the home loan process to speed up closing those transactions—real innovation.
Up to this point, consumers have accepted the fallout of the intense regulatory regime and scrutiny, and bide their time as weeks or sometimes months pass while they work to secure a home and close the transaction. Regulations are essential to counteract organized crime, banish shady business practices and protect the consumer. However, we now live in a country where you can buy a car the same day, but it takes an average of a month and a half to buy a house. If we are to create new customer value, shouldn’t this be a good place to start? We’re layering moderately innovative technology on top of unbelievably inefficient processes; it’s not good enough. There would be nothing special about being able to order products through Amazon, if it took an average of 21 days to six weeks of deliver after purchase. That’s what we’re doing with mortgages.
Customer expectations are heavily influenced by what people experience in other areas of their lives, like retail shopping online. The convenience that ecommerce companies are achieving is shifting how people think about shopping altogether. Once customers expect more, that genie won’t go back into the bottle. We are so close to being able to order a pizza poolside by having a conversation with an AI Bluetooth device, and having a drone drop it on our backyard coffee table 15 minutes later. The immediacy of today’s world won’t wait around for banking to catch up forever. Innovation is at hand.
The financial world is taking note of developments, but we’re undecided on how to take our commoditized product suites, our thousands of branches, our change resistant cultures, our business models that prioritize self-protection, knowing that real change means building new business models from scratch. With the advent of machine learning and artificial intelligence, cryptocurrencies and decentralized ledgers, impressive disclosure integrations, the ubiquitous and lightning-fast smart devices in everyone’s hand, there is more that can be done, today.
At ONYX Direct, we’re asking questions like:
- What if consumer credit was an active relationship where clients were always approved?
- What new forms of value could we deliver by having an active credit partnership with consumers, and what kinds of problems could we solve for people?
- What if closing a home purchase took only a handful of days, rather than the industry average of a jaw dropping 42 days?
- What if the customer didn’t have to foot the bill through bad pricing for these antiquated and painfully slow compliance processes?
- How can we leverage private capital sources to create mutual value for buyers and sellers, in ways not broadly deployed previously?
The most exciting part of working in mortgage banking today is knowing that this industry is ripe for change, and that we could be the ones to make that happen. Real disruption happens when the existing economic order is replaced with new products or ways of delivering products, when it permanently changes customer expectations, and is facilitated by completely new business models.
(Co-authored by Lucas Filinski, Founder & CEO of ONYXDirect.com and its parent company ONYX Lending and Kirk Leverington, Vice President Corporate Strategy at ONYX Lending headquartered in California’s SF Bay Area.)