And the digital share of the niche is growing apace. Accenture banking research data show in 2013 year-over-year Internet-based mortgage sales increased 75% nationally while traditional branch transactions shrank 16%.
The annual mobile mortgage banking volume increased nearly 50% since 2012 as more customers, up to 80% in 2013, engage in online banking transactions at least once a month, indicating it is “the single most important area” banks need to invest in and develop in the future, according to Accenture banking research findings.
Added to the fact that roughly 60% of online banking customers choose a provider other than their primary bank for a home mortgage, these findings also suggest that unless banks have the right customer-friendly technology in place, their market share will progressively decline instead of increase as more mortgage clients come to the market.
Ghazale Johnston, a managing director with Accenture Credit Services, says untraditional gainers are benefitting from the rapid automation of mortgage lending.
“Leveraging customizable technology” that meets borrower demands and offers user-friendly experience for customers will be crucial for lenders and servicers in 2014, agrees Barry Hays, co-founder and SVP of TeleVoice. Technology helps manage delinquent borrower services, such as specified inbound and outbound call campaigns that comply with the single point of contact requirement and the needs of new or potential borrowers whose business represents new market share.
Traditionally, banks look for new ways to grow their business using Internet-based market testing and product comparison, Johnston says. Data show borrowers have become more comfortable with banks pulling their credit information online. “Therefore they’re more likely to initiate the applications online than they have ever had in the past,” motivating banks to increasingly use these tools.
Market research also shows how borrowers differ. “First-time homebuyers who are still getting familiar with the mortgage process are more likely to want that person-to-person interaction,” she says, which is an important consideration as the purchase mortgage market picks up. These borrowers “are more concerned with making sure they will get a commitment from the lender about their closing,” and often that level of comfort and confirmation comes from face to face lender-borrower communication.
What may not be that obvious, she says, is that online banking “is actually helping to support that interaction” making it more convenient after the mortgage loan has already been approved and moved on to loan processing. Borrowers become very interested in knowing where their place in the pipeline is and what is expected of them, “which is a big opportunity for the lender.” It is the best time to make loan data easily available so customers can review it, add missing information, or continue to communicate live with the bank using electronic channels. It means the lender has to be able to accept and manage that information that way as well.
She says years of mortgage technology development have kept changing banking business models.
Competition has driven banks towards “niche lending and specialization that is a bit more strategic” and forward looking, Johnson says, sometime helping losers become gainers and vice versa. The list of top 20 mortgage originators and servicers “keeps evolving and market share continues to disperse, so it will be interesting to see how digital capabilities will be implemented to optimize business growth efforts in 2014.”
Expectations are high. Lenders need to have processes for first-time homebuyers who sometimes have different expectations or prefer a different level of lender engagement.
“I do not think this means there’s going to be a bunch of niche players to cover this market by any means but more lenders who diversify their services,” she adds. “It will be interesting to see how lenders will use their digital capabilities, whether it is mobile banking or social media, which are bound to become more important to lenders across their entire value chain.”
What is about to happen in 2014, she says, is that these changes will optimize and simplify banking, despite regulation and other challenges.
In this environment compliance pressures are an opportunity “to change strategically and in a way that takes the customer experience directly into consideration, looking at it holistically, not necessarily looking at it as a bunch of fixes to meet regulation,” she says, but really doing it within the context of transforming the business process.
“Due to regulation in the last few years, lenders had to pick and choose when to be strategic and when to be really tactical and get it done. It continues to be an inflexion point to make sure you’re being smart about it.”
Accenture’s market-analysis indicates that by 2020 an estimated 15% of traditional banks’ revenues could shift to online-only players, including branchless banks and new technology entrants. Another 20% could shift to retail-driven players with a mass-market focus—under partnerships between big-box retailers and banks, and potentially independent ventures by retailers.
“Digital technology and rapid changes in customer preferences are threatening full-service banks that do business primarily through branches,” says Wayne Busch, managing director of Accenture’s North America banking practice. “Given the scale of these disruptions, traditional full-service banks, as a group, could lose significant market share by 2020 to banks that reorient around digital technologies and to new entrants from the retail and technology sectors. Our research shows signs of this already occurring.”
If until now the Internet has not been able to outperform branches as the dominant sales engine, Busch explains “that as calculus changes, market share will be increasingly up for grabs, particularly given consumers’ strong tendency to look outside their primary bank for new products.”
Traditionally, U.S. consumers tend to stay with their primary banks hence only 9% switched banks in 2013. But thanks to mobile technology the inclination to shop around for new products has increased significantly. In 2012 it helped sell 34% of traditional retail banking products to non-primary banking customers, according to the survey.