This week as a new decade begins, it makes sense to forecast what the next ten years will look like for originators and lenders. Many predictions have common themes such as interest rate fluctuations; the rollout of industry regulations; and the emergence of new technologies in mortgage banking. While these are important concerns, today I would like to share my thoughts on how dramatically the consumer’s home-buying journey has changed and what this means for the financial industry.
Sometimes it is hard to grasp that changes can appear to be slow but really are happening at a fast and furious pace. Take for instance, the rise of Uber — a company started in 2009 because the two founders couldn’t get a taxi in Paris while attending a conference. Who hasn’t had trouble hailing a cab at some point in their life!
In the span of 10 years, Uber grew to become the highest valued private startup company in the world. Eventually, it went public and now is valued more than the market cap of Ford Motor Company and General Motors Company.
From a company that did not exist until the end of the last decade to a company that everyone knows and probably has used, Uber has changed everything in the transportation industry. Uber took ride-sharing to another level and was able to keep costs down by having drivers use their own cars while earning an income. What a smart idea!
Uber provides a good lesson for the financial industry: to expect the unexpected. Competition and disruption can come out of left field. One day someone that is not a competitor can become a dominant player in an industry. The same holds true for other industries. For example, book retailers Barnes & Noble and Borders didn’t see how much convenience really mattered to consumers and underestimated what a threat Amazon was to their business models.
The Future of Mortgage Banking
So, what does the future hold for our industry? While it has long been anticipated that non-financial companies would enter the financial arena, that scenario is now a reality. Amazon and Google have issued credit cards and Goldman Sachs is offering small loans under the brand name Marcus. Zillow is also advertising pre-approvals to potential homebuyers. These are major disruptions and a fight for the consumer’s buying power and their data has started big time.
How this will play out is obviously not known but it is clear that lenders are challenged to become more technologically savvy and pronto! The consumer financial marketplace is changing by the minute and lenders who want to survive and thrive in this environment need to adapt accordingly.
While regulations and capital barriers of entry have traditionally prevented non-financial firms from competing with lenders, the situation today is different. Companies such as Amazon are using banks to manage the transaction side of the business while the front end is being managed by AI from technology firms. This is a potentially ominous sign for lenders if they exit from the origination side of the business and concede to other firms that can handle the front end better than them.
It won’t be long before lending will not require prospects to stop by a branch to fill out an application or call an 800 number. Instead, the loan process will be driven by a customer saying, “Alexa, I need to renovate my home. Who should I talk to about it?”
While the challenges ahead are certainly formidable, in my opinion, lenders and originators can still offer something that technology can not yet deliver to home-buying prospects: An exceptional customer experience.
This can be a tall order but companies that make the investment in the sales talent and technology to provide a great customer experience will have an advantage over the competition in terms of repeat and referral business.
In the next decade, I predict that change in our industry will continue at breakneck speed. For companies that want to succeed in the years ahead, providing a stellar customer experience will be mandatory.