March 14, 2019
When I was growing up in New York, medallion cab drivers were grumpy and sullen, but knew the city streets like the back of their hands. They didn’t take credit cards until the turn of the 21st century, and even then, begrudgingly. When this upstart, Uber Cab Co, threatened to change everything, cab drivers insisted that their knowledge of the city map would keep them on top; but they started accepting credit cards with a smile, and apps like Curb and Arro emerged allowing you to pay via your smartphone and avoid interacting with the driver. Still, Uber simplified its name, upgraded its app, and became ubiquitous, while Yellow Cab Co in San Francisco filed for bankruptcy in 2016.
We are somewhere on that timeline of digitalization that hit the taxi industry — exactly where depends on your vantage point. The larger players continue to get larger and produce most of the loan volume. There is a proliferation of technology available for all phases of the loan origination lifecycle. The trend is clear: fewer players will be taking most of the volume, and digital players have the most momentum. Going forward, the winners will be those who continuously optimize their value chain by harnessing the digital possibilities within their area of strength.
One road to digitalization is populated by IMBs and other traditional lending organizations embracing new technology offerings. This equates to when taxi-cabs started using Curb or Arro, bolstering up their offering with some digital bling.
This group of players identify places in the existing mortgage value chain where digitalization can be used to enhance the borrower experience, create operational efficiency, make quality improvements, optimize interfaces between 3rd parties, or simply generate more volume by enhancing their public image. They implement software, apps, portals, and doc storage. They use software products that have vendor interfaces and hook into settlement solutions where available.
Despite all the new systems and processes, the cost to manufacture a mortgage has nearly quadrupled since 2008 — begging the question of whether this road to digitization is even keeping up with, let alone outpacing, the growing compliance and regulatory requirements that are generally credited with the rising costs. Further analysis of the value chain is called for; there are optimizations waiting to happen.
Another road to digitization is populated by technology companies that lend money — the Uber-ization of mortgage lending. For this group, the fully digital mortgage value chain is a wholesale change from the established mindset and from the product and services delivery assumptions. It’s not simply an overlay to the old value chain — it’s a whole new one!
These companies either have started from scratch, or have process re-engineering agility, willing to abandon old assumptions and completely re-tool for the new age. Their revised value chain consists of borrower collaboration, a digital back office, and third-party collaboration, with a lot of automation around workflow, data mining, artificial intelligence, and business-rules processing. Their use of technology has cut costs by compressing closing times from the previously standard 45 days to now 20, 10, or 8 days, depending on what you read on what day. And they have shown an ability to handle volume fluctuation without increasing processing time and costs.
Two of the top six lenders in 2016 were digital mortgage companies, and they didn’t even exist 10 years earlier!
Regardless of whether you are (or aspire to be) a medallion cabdriver, Uber Cab Co, Arro, Curb, or Uber, the way to achieve value as you move to the digital world is to deconstruct your value chain into the smallest pieces possible, overlay on that the promised changes due to digitalization, and then define and measure expected improvements in these same terms.
First, articulate your organization’s goals in terms of customer acquisition, volume by demographic group, by product, by channel. Articulate goals for net income, workforce optimization, customer satisfaction, repeat business, and social visibility.
Then, quantify where each new digital solution inserts into your value chain and the results you expect from it:
• How does this technology affect your need for human resources — in hours, and in skillsets?
• Do you have the runway and patience for the adoption period, during which things may cost you more, not less?
• Is your ‘culture’ ready for the disruption that this technology will bring?
• Do you understand the tech environment you are stepping into: security, connectivity, and more?
New technologies and the new digitalized value chain open the opportunity for new products, services, and revenue lines, both for the historical players and the newcomers. These times are ripe for creative thinking and strategic planning. Successful players in the field are looking at the greater ecosystem — finding how their audience and their data may lead to solutions in related areas. They’re looking to squeeze additional value from the enhanced data they gather; searching their history of success to find avenues of future growth; asking how to leverage brick-and-mortar in this age of digitalization. We see digital mortgage platforms linking borrowers to moving companies, neighborhood associations, and legal services. We see traditional mortgage bankers branching out into consumer direct and wholesale channels.
The market is undoubtedly moving to a more connected mortgage ecosystem, deeper vertical and horizontal integration, a straight-through closing process, and more profits for the successful players. Get in the flow, don’t be timid, don’t be Yellow (cab)!