With competition in home mortgage lending fiercer than ever, banks need to understand and anticipate how digital-savvy borrowers are changing the rules of the game. Greatly influenced by digital innovation that powers other aspects of their lives, borrowers reward simple, speedy, on-demand and personalized service.
Nontraditional lenders are tapping into this new world, using digital capabilities to drive a differentiated customer experience. This includes both mega lenders like Quicken and digital disruptors such as Guaranteed Rate, Movement Mortgage and SoFi. Nonbank lenders now account for approximately half of the top 20 mortgage origination institutions, even as the industry has shifted from a refinance to a purchase market, indicating that these players are here to stay.
Accenture recently surveyed over 4,000 consumers — “Banking Shaped by the Customer” — as part of a multiyear research initiative to determine how consumers view their banks and what lenders need to do to stay competitive.
According to our survey, borrowers:
- View mortgages merely as a transaction, not a strategic relationship
- Are not loyal to their primary bank when seeking a mortgage
- Prefer digital mortgage interactions
JUST PROCESS THE PAPERS, PLEASE
Consumers’ perception of their banking relationship as transactional or commoditized, rather than advice-driven, is growing at a rapid pace.
Most U.S. consumers (81%) define their banking relationship as transactional, up from 74% last year. A purely transactional, utility-like role, however, can be risky for banks wanting to deepen their banking customer relationships with a mortgage product. Consider that over the last 12 months, only 39% of U.S. consumers got home mortgages and financial advice from their primary bank.
In short, bank loyalty is not a factor for borrowers in shopping for a mortgage loan. Borrowers tend to select a mortgage originator based on product, price and their expectation for a convenient transaction process. Thus, to avoid being viewed as just a service for basic financial transactions, mortgage lenders need to focus on driving the right customer experience and extending the value proposition beyond the transaction.
INCREASED SHOPPING AROUND
Perhaps not surprising in light of borrowers’ view of their banking relationship as transactional, Accenture found that 63% of survey participants in the U.S. have a mortgage with a lender other than their primary bank.This is an increase of three percentage points over our 2013 findings, driven in part by the lack of a compelling reason for borrowers to stay with their primary bank for a mortgage and the fact that online rate shopping has become easier.
Consumers are increasingly open to new and nontraditional lending sources too. For example, 17% of survey respondents said they would use a nonbanking institution (such as a retailer or online lending site) if they were to apply for a loan in the future.
Still, borrowers welcome extended services from their primary bank. According to Accenture research, more than two-fifths of retail bank customers want their bank to recommend neighborhoods and homes, as well as Realtors, that meet their needs.
Nearly one-third say that receiving customer service across the entire transaction would motivate them to apply for a mortgage with their current bank, even without the most favorable interest rates.
Such an experience might include, for example, offering educational materials on the obligations of homeownership, or helping borrowers calculate how large a home they can afford using budgeting tools.
BORROWERS PREFER DIGITAL INTERACTIONS
Borrowers increasingly want to interact with mortgage lenders — from application to closing — through online channels. They expect to view the status of loan applications through mobile,text messaging and other digital channels.
More than a fifth (23%) of U.S .consumers who purchased a mortgage over the past year did so online — an 8% increase over our 2012 findings. At the same time, the number of borrowers who applied for a mortgage through the branch decreased by 25%.
Not surprisingly, 27% of those aged 25 to 29 in North America used the online channel to purchase a mortgage — the highest usage rate among age demographic groups.
For the first time in our research, consumers ranked online banking services as the No. 1 reason for staying with their bank, ahead of branch locations and low fees. Thirty-four percent say that online is the most important channel for banks to invest in over the next five years, followed by mobile (20%).
BECOMING A DIGITAL MORTGAGE LENDER
These insights from Accenture’s research underscore that achieving competitive advantage requires providing a compelling service experience that meets the expectations of digital customers.
Here’s how lenders can optimize the use of digital technology:
• Incorporate data and predictive analytics. Lenders can use the large and growing volumes of customer data sifted through sophisticated algorithms to anticipate customers’ needs and life events. Lenders can then proactively engage prospective borrowers early, just when they are likely to be most interested in home buying and mortgage options.
Another person added to a checking account or the opening up of a savings account for minors, for example, may signal a change in lifestyle, and, at a minimum, warrant contacting the customer to check in.
Customers will see the benefit, beyond transactions, of having their accounts linked together at one bank. Lenders can also use analytics to personalize the experience, offering recommendations and services tailored to individual customers or customer segments.
• Provide online research tools as intuitive and simple ways for customers to learn more about the home-buying process. Such tools can help set buyers’ expectations and educate them about budget planning. Lenders can localize the experience by integrating with multiple property listing services, such as MLS, that allow borrowers to shop for homes within their defined search criteria or connect with real estate agents who specialize in the communities where they want to live.
• Develop online transaction capabilities that give customers a window into the mortgage process and empower them to choose how and when they interact.
Online and mobile tools and channels can allow borrowers to conduct research, apply for loans, submit documents, track status and close electronically. Fully integrate these tools and channels with the lender’s core loan origination system, preferably with the capability for real-time updates.
• Build relationships. Lenders who want to protect and grow market share need to go beyond their traditional role as enablers of loan transactions.
They should use online, mobile and social media channels to extend deeper into customers’ home-buying-related decision making. That means integrating offerings with Realtors, builders, home inspectors, movers, online home marketplaces and home furnishings retailers.
• Leverage branch visits. Although borrowers are increasingly turning to online channels, many still value branches. “We’ll have a loan officer call you” is an insufficient directive. Rather, have a real estate expert available virtually to talk with prospective borrowers via video chat about their needs and possible mortgage options.
Also, introduce your digital channels, online tools and self-service kiosks to branch customers. Encourage them, for example, to download your mobile app before they leave the branch.
• Reap the benefits of the digital era. As borrowers increasingly use digital channels for sales and self-service, a transformational change in how lenders support borrowers through the origination process will occur.
The role of the sales channel will begin to shift from a high-touch, in-person relationship to a borrower-dictated, as-needed touch, remote relationship. The digital borrower’s need for a loan officer can be satisfied via call center and online chat capabilities, resulting in lower costs and a more profitable sales channel. Further, borrowers should be able to seamlessly move between channels.
Lenders need to enable an omni-channel experience that allows borrowers to “start anywhere, finish anywhere.” More self-service means that customers complete fulfillment tasks traditionally handled by back-office staff — reducing the paperwork burden and fulfillment costs.
Defining your institution’s role solely as a provider of mortgage financing was sufficient in the past. But no longer.
Lenders need to find new ways to connect with borrowers, become more integral to the home-buying experience and deepen borrower relationships.
The good news is that digital technology is making it easier for lenders to do just that — providing the platforms to open up new channels and accommodate customers who are more empowered than ever before.