Transcription:
Heidi Patalano: (
Good afternoon and welcome to our discussion on proactive finance and the future of banking. I'm here today with the CEO and co-founder of Blend, Nima. Thanks for joining us.
Nima Ghamsari: (
Thanks Heidi. Great to talk to you again.
Heidi Patalano: (
Lovely to talk to you again. I want to invite the audience to, submit any questions they have through the platform, throughout our discussion. And we can try to get those in here as we discuss the topic. So, I think, first and foremost, let's maybe talk about what proactive finance is. How would you define that, Nima?
Nima Ghamsari: (
Well, let's start with just, what everyone knows already, which is today, most of finance is somebody filling out an application form for a product that they know they need at your institution. And then you come back to them either instantly or a day later, or a week or whatever it is, saying, great, we have a solution for you for this, with this product that we offer, which is great. And I think that's gotten better and better over time. When we think about all the things that have transformed in the digital mortgage landscape, the digital mortgage landscape has become more and more digital and more and more frictionless with things like data verifications, real time decisioning, pre-approvals, digital closings. The process has gotten better over time, but it still is reactive.
Nima Ghamsari: (
So the concept of proactive finances: understanding the customer need, understanding the customer's data profile, to be able to show them the products that might make sense for them, or the things that are available to them without them even applying. The basic premise says, if people know they have to apply, that's already a huge hurdle they have to overcome to understand what's out there in the financial system. So what if you could show people based on their data, what products they're eligible for before they even apply? Think of how many people in this country are not aware that they can get a mortgage, that they think they need 20% down to get a mortgage. Just that specific example alone. There's tens of millions of people who probably don't know they can get a mortgage and have enough down payment saved to get a mortgage for their first home, or think about the tens of millions of people who have a mortgage and don't know they can save a hundred, $200 a month because we're not going out there and proactively sort of soliciting them to say, "Hey, you know, rates are low. "
Nima Ghamsari: (
"You should probably save money on this mortgage." Or they don't know they built equity in their home. And because there's been a lot of appreciation for homes recently and they don't know they built equity in that home. And so they're looking at it and they're saying, well, you know, I love this home, but I'm maxed out on my payments and it turns out maybe they can use, they want to do a renovation. Maybe there's some equity they can get in their home to be used towards something like renovation without having to worry about, saving up cash for renovation themselves. And so, those are some examples. But in a world where all of the data is available and that we understand the customer really, really well as an industry, we should be able to show them all the things that we can do for them, without them having to apply. That'll be really good for access to credit and it'll be really good for broader financial wellness, I think, long term for consumers.
Heidi Patalano: (
Yeah. I think it's a really interesting idea. In our previous discussion about this, just preparing for this conversation today, you had really nicely broken out about three different ways that proactive finance can be done for customers. I was wondering if you could take us through how you think of them, how they're divided up.
Nima Ghamsari: (
Sure. So the basic premise, like I said, the application is dying. Then the consumer will show up in their mobile device and they'll be able to see in their mobile and you can't see it because of my green screen here, but they'll be able to see in their mobile device, all the things that are available to them. So let's talk about an existing homeowner as an example, and the types of things that you can do for an existing homeowner that you should know you can do. If the technology was there to support you — which candidly it's not today, but we're working to build some of that and others are working to build pieces of that one first and foremost — if you can save [for] them on their existing mortgage, show them those savings. Help them understand those savings, not just not the mortgage, but also the home insurance policy.
Nima Ghamsari: (
Make sure they're not getting skewered on a home insurance policy and I think of all this in the context of a home ownership center. So, let's say you had a home owner, that's a customer of yours that had gotten a mortgage with you. First show them the savings they can get, and that makes a lot of sense. Second, if there is somebody who — maybe visualize a home ownership center or the top part is, here's the savings we can get you if you want. The second part is, here's the equity you built in your home and how we can offer you money to renovate people are living at home. It's, COVID, here's the second part of the home ownership center, which is how much can we offer you? Whether it's a mortgage or a home equity loan, or a personal loan, there's money that could be offered to you in some ways to help you make improvements your home.
Nima Ghamsari: (
And then maybe the last step is, we now know enough about you because we have done your first mortgage and we have a bunch of other information on you because we've been keeping track of all the things that you've provided to us with your permission. What does it look like to trade up to your dream home? So, the third section of the homeowners center could be showing the consumer what their next home could look like, what their step up could look like, because maybe they're having a kid or maybe they're getting married or whatever it may be. They just want to understand and you just want to be able to show them what they could do if they wanted to move up to the next home. So those are the kinds of things, that is one concrete example of this concept of a home ownership center that I think is something that will exist at some point in the future. But it's something that if we are able to do that and we can more proactively serve those homeowners, there's so much more value that we have from a financial wellness perspective for them.
Heidi Patalano: (
Yeah, that sounds really interesting. I'm really interested to hear more about how AI could be capable of predicting things in the, the consumer's life. What are some ways that you see AI being applied in the future to predicting those needs?
Nima Ghamsari: (
Well, I think of AI as being a utility that can be used across the entire mortgage life cycle or home ownership life cycle. So at the very front end of the process, think about it as it can be used to understand, based on the data profile you have on the consumer, what that— So this is the first bucket. There's three buckets I'm gonna talk about. The first bucket is, understand based on the data profile of the consumer, who is likely to want to buy a home or to refinance their mortgage or to renovate their home. And that is a common pattern, common signal thing. By the way, the way that we know that AI can work for use cases like this — although maybe we don't have all the data for yet, and nobody's really done it at scale yet — is we've all had the experience of somebody talking about something in our lives or mentioning something.
Nima Ghamsari: (
And because there's some connection to someone who's already been thinking about it and maybe even Googling it, now and starts showing up in my Facebook feed. That mattress that I was talking about just shows up my Facebook feed. So, AI can get really good at helping target people. I think if done responsibly, the beautiful thing about financial products, like home ownership, things like that, is it can be really, really good for people's financial lives. So, I want more people to understand it. I want more people to be have access to it because if they have access to it. They'll be able to do more with their lives long term. Now, it has to be done responsibly. It has to be done in a careful way. We don't want it to be creepy. We want it to be something that helps the consumer understand that the financial system is here for them when they're ready for it.
Nima Ghamsari: (
And here's the benefits of it. So that's the first part, which we just call it this AI targeting layer. The second part I think of as the AI underwriting layer, which we've seen some examples of this — Upstart in personal loans. Upstart is a personal lender. The tricky part about underwriting for mortgage — there's two parts that are tricky. One is, a lot of the underwriting criteria are sort of set in stone by the agent, so most mortgages or agency mortgages, Fannie Freddie, VA FHA — those criteria are mostly set in stone. So most of the work goes in the processing side, not the underwriting side, but let's just take the underwriting for a second. The second part that I worry about with underwriting algorithms being AI-driven is there's some possibility of bias in those AI algorithms.
Nima Ghamsari: (
AI is not inherently biased or unbiased, and so you have to kind of force it to be unbiased if you're gonna make that a capability. I think this underwriting space is the last space that will get any sort of AI attachment to it. But the end of the mortgage life cycle towards the closing, there's a bunch of processing work that has to happen. That processing work I think is ripe for AI automation. We announced a few partnerships in this space with a few AI companies with the idea of, 'all the work that's being done to underwrite that consumer, how do we make it more digital? How do we, it more automated and the way to make it more automated?' Because a lot of this information is unstructured. It's not structured information. A lot of it's unstructured is via AI. And so I think AI has a really strong use case in that processing phase of a loan.
Heidi Patalano: (
In terms of consumer expectations, there are so many things that are happening so fast now, so many capabilities that are now a part of things in terms of finance. So I was wondering about — we're talking about this through the lens of the future of banking and what do you think consumers — what will be like a level that their expect expectations are set at going forward in terms o this kind of service, where your lender says, "hello, We can see you're eligible for this, that and the other."
Nima Ghamsari: (
Well, I think that it'll be interesting. The lenders that are, are able to offer that level of service, where they're putting the entire financial institution in that consumer's pocket and the consumer, all they have to do is load up their phone, look at their balance on their loan or whatever it may be and see a bunch of options that are available to them for their financial wellness... The ones who are able to make it that frictionless and that transparent are the ones that are gonna grow and gain market share over time because, if we can put the entire financial institution in the consumer's pocket, it's so good for everyone. It's cheaper for the institution that's working with the consumer. It's better for the consumer to understand what's in the system.
Nima Ghamsari: (
And have the system not be so opaque and complex to them. They should just understand what the system can do for them. By the way, could even just be a new customer working with a loan officer they've never worked with before, but having the ability for that loan officer to give them the tools to understand an ongoing basis, what they're eligible for those kinds of things, I think are a necessity because there's so many people who do not know the financial system is there for them. There's so much that can be done there and the lenders that are able to figure that out — or the banks or lenders or fintechs or whoever it is that are able to figure that out — are the ones that are gonna grow market share, because they're gonna be the ones that consumers turn to because they're going to be top of mind.
Nima Ghamsari: (
I don't go — when I get a targeted ad for a pair of a travel bag that I like — we were just talking about travel bags as gift ideas for Christmas before this when we're in the green room — I don't go and then try to find a different retailer for that travel bag. I click on the ad and then I'm like, 'okay, yeah, this does make a lot of sense as a perfect gift. Let me buy this thing now.' Maybe I'm not the most responsible shopper, but, I think a lot of people take that approach of, what's the thing the most like tangible for me? What's the thing I can understand the most and not go and try to go out of their way to spend a bunch of extra time and energy on things that are being presented to them proactively. And so I think, I think long term it's super important to the industry and it's very important to consumers in the accessibility front, in financial wellness front.
Heidi Patalano: (
Yeah, I would love to have a proactive Christmas gift suggestions. If there's some algorithm that could, one day .
Nima Ghamsari: (
There probably will be in your Instagram feed after this call.
Heidi Patalano: (
Right. So true. You know, we were also talking about this beforeL We all get those kinds of notifications. We're all blitzed with so many notifications that are like, 'you qualify for this and you qualify for that. ' obviously you're saying this is something that would come to you from your primary bank, the place that you do the most of your financial life. It exists there. So I guess one question for me is, this idea of proactive finance really seems to apply best to these large institutions. So how could smaller players and smaller lenders kind of apply this idea in their own business operations?
Nima Ghamsari: (
I actually don't think it applies just large lenders. I think it does apply to the smaller ones. And it goes to, you know, how do you best apply the tools that are out there? The one thing about being small that's underrated is there's this agility that comes with being small. And so if you see new tools and you can offer them to your customer base faster and better than anybody else, those kinds of things become a huge advantage to you and your customers. And so I think the small ones can grow and gain market share and become not large, maybe not like, you know, JP Morgan Chase size, but they can become large institutions with pretty good customer bases by offering the best to their relatively niche customer base to start with.
Nima Ghamsari: (
Every institution started small, is what I always like to think about. Everybody started small and grew over time, maybe through acquisition, maybe through just organic growth. But everyone started small and so I think the agility of being small is actually really good. Then the personal aspects of being small, where you are doing a human transaction, and there is a value in being a personal service to those humans on the other side and they appreciate it and they value it. So those two things together and the ability to adopt new tools. But I would say, use your strengths. Use your agility as an advantage. I think sometimes, I see two different types of small institutions I talk to: one who are like, well, we're gonna double down on the personal thing, but we're not gonna use the tools because we're all about personal touch. And I'm like, but one of your advantages is you can use whatever tools you want. You can do whatever you want. You can give your customer the best experience. Make sure you don't leave that on the table and actually get behind on the technology front, because you're so focused on the personal touch.
Heidi Patalano: (
Another thing that you've touched on a bit here, and one thing that we wanted to cover in this discussion is the idea of how proactive finance can be applied to the mission of creating greater racial equity in home ownership. I just wanted to hear what you thought about how this could be applied in that way.
Nima Ghamsari: (
I think there's two aspects to racial inequity that I think technology help with. But there is a lot of aspects that technology can't help with. I don't like to think of technology as the silver bullet. It's just the area where I am. I'm a software engineer. So I think about how can I help? And these are the ways I can help with some of these things. The first is because the ability to reach consumers is very expensive and the value of the products to financial institutions is a function of the size of the loan. Financial institutions are naturally incentivized to serve higher dollar potential populations and that leaves a lot of lower dollar populations on the table or off the table, I guess. And I think one of the beauties of technology, when we talk about putting the financial institution in people's pockets, that problem sort of goes away.
Nima Ghamsari: (
Now, you can, you can serve the entire low income, high income, modern income —you can put in everyone's pocket for the same price, for the same, whatever it costs to download a mobile app. That's really powerful because if those people can just on an ongoing basis, always know what the system can do for them and the distribution problem is no longer there, it just becomes so much easier to serve all sorts of different communities. The second part that I get really excited about is I think the underbanked and let's talk about minorities, I think there are some study that was out there. I can't remember which, the Freddie Mac study about this, but there are so many who don't know that they can get access to the home ownership industry.
Nima Ghamsari: (
Because they have misconceptions about how much down payment it takes or whether they can even get approved for a loan, their current FICO score. This is the other aspect of product to finance that gets really exciting for me is if we can just tell them, 'yes, you are approved. You are fully approved and here's all of the reasons you're approved. You beat this FICO threshold and your income is above this much and you have the 3% down that you need.' If we can just show them that proactively, then it becomes less of a battle of education. It becomes less about, we want you to apply and more about here's the products that you're you're approved for. I think it'll take a lot of those people who don't think the system can serve them and offer them a better product, a better service that otherwise they would never even bother looking at.
Nima Ghamsari: (
So I hope that it creates both awareness, for the first thing, around distribution being cheaper. And then also an understanding of what they're eligible for, what they're approved for on the site, what the second thing with the technology to power or the approvals, the real time approvals. And so, all product finance is it is truly this concept of real time, always-on approvals. That is the concept and then showing in the right ways. So doing those things and distributing 'them to every consumer in the country and hopefully eventually the planet it's just gonna be, it's going to give more and more people– the financial services system is much, much larger today or sorry, much smaller today than it will be once all these things are in place.
Nima Ghamsari: (
More people will look at it and say, oh, I could pay the same as my rent when I get a mortgage and I could own the home and all the upside when we see rising home prices. That's the kind of thing that I want.— and it's not just that, it could be around a personal loan to consolidate your debt. It could be around, whatever it may be, refinance your auto loan, cause you're paying 9%. You should be paying 4%. You got a predatory lender who gave you your first auto loan. Those kinds of things are all possible. I think that's gonna make the financial services industry much bigger and much more sustainable long term.
Heidi Patalano: (
Yeah, that's really interesting. The down payment assistance programs for example — there's really a lack of awareness about what is out there and that it could help with that. I can see how that would be something that would be very useful for lenders and for the consumer, just to know that they exist. In our prior discussion you had mentioned general data protection, which was enacted in 2018, to dictate how companies could handle the data from customers in the EU. Pardon me, I'm looking at my notes. In the U.S., We only have this kind of patchwork set of rules with regards to consumer data, so I just wondered how you would see a broad, general rule such as the GDPR impacting proactive finance initiatives in the U.S.
Nima Ghamsari: (
Well, I think the spirit of that law — and I'm not an expert in GDPR for what it's worth — but I think the spirit of that law was around giving consumers access to their own data and be able to make it portable. If something like that becomes commonplace in the U.S., it will mean that more people can offer this proactive finance to people who are not even their customers yet, meaning let's say that in the old way, the institution I'm working with today, bank of X, they own my data. They don't have to release my data. I can just use them and they'll be able to offer me a better experience than anybody else, because they know more about me. They understand my financial history with them. They understand my credit history with them.
Nima Ghamsari: (
They understand how much deposits I have on file with them. In a world where data becomes more portable, which again, I actually don't have a strong sense of whether or not this will happen in the U.S. or not, then the consumer can sort of authenticate which entities can access their data or not. Then that data can be used to power essentially a broader set of institutions to think about it as like those institutions could bid for consumers in some ways. Or maybe I really like a certain new fintech or I really like a certain credit union or really like a certain bank, but I don't work with them yet. I could just authenticate and give them access to my data and they can make a real-time decision on me and maybe create this real-time approval area that we're talking about. The reality is this kind of exists today in some ways, because we are able to connect via the data aggregators around asset data. There's some income patchwork data that we can make income data available to our institution on an ongoing basis. There's pieces of this that kind of exist, but there isn't a holistic solution in the U.S. I think if there was a holistic solution in the U.S., it would make it more possible for more institutions to approve me for every product
Heidi Patalano: (
Yeah. And, you know, just thinking back, I really appreciate that idea that you mentioned about if the lender meets my need, they've actually hit upon something that I need, the instinct that I will go to them because they've thought of it, they're the ones who came up with it and came to me with that. They have the best kind of offering that really will help to draw customers in. I was just wondering, what else do you see on the horizon in terms of proactive finance? There are a lot of ways that some of these things are already happening. What do you think we're on the cusp of, the latest, the newest kind of functionalities of this kind of thing.
Nima Ghamsari: (
Yeah. I think one of the things about this industry that I love is that is that it's — the customer base is very passionate about serving consumers and they want to adopt new technologies to bring them to the consumers. One of the things that I think is tougher is that it tends to move a little slower and the reason it moves slower, the industry moves slower is because a lot of money is changing hands and it's very regulated. And so for good reason, things move slower. So I don't think we're on the cusp of every consumer in the world, or even in America carrying the entire financial system in their pocket. I think that's a good North Star goal. That's something that we should drive to. We talked a little about TikTok in our last talk. TikTok is amazing because it's something that's the most personalized.
Nima Ghamsari: (
It brings content to everybody in the world's fingertips that they otherwise would never have gotten before. It's super personalized to that specific consumer's interest and demands and desires. Put TikTok aside — whether people like TikTok or not, the ability for it to create that personalized content and personalized product has made it the most engaged with app by Gen Zers or by any generation. I think in the history of the world, like it's so engaging. It's almost frightening how engaging it is. It goes to show the power personalization. The reason I bring up that example is the power of personalization, all that personalization, not coming to your customer and saying, 'Hey, fill out this form and I'll get back to you.' It's about, 'here's what I know about you, and here's what I'm gonna do for you and how I think it's gonna help your financial wellness.'
Nima Ghamsari: (
And so I do think this personalization trend is coming and it's something that we'll start to see pieces of on a day to day, week to week basis. You'll see new announcements. Then eventually we're gonna wake up in a decade and every everybody's gonna have the entire financial system in their pocket, but it's going to be a methodical sort of day by day, week by week, month by month, get a one piece of functionality in there, get another one in there, get one product line in, in this way, keep adding more over time and eventually we're gonna wake up and we're gonna say, 'wow. It used to be that people had to go to their financial institution and apply.' That's gonna be the old way of doing things. It used to be. You had to go to find content like that. You had to go search through pages and pages of Google and nobody even created the content because there was no incentive to create the content because nobody would ever find it for the TikTok content.
(
And so, that's my long way of saying, I think it's gonna be more methodical in this industry, but this personalization trend, it's here. We're going to start to see examples of it. We're going to be doing a few things with our customers right now around this concept of personalization. How do we offer you the most effective way to improve your financial wellness? As a consumer, I think that's a really powerful concept. In a decade I will look back and say, well, everything's like that.
Heidi Patalano: (
Yeah, that's really interesting. It is like it's already here in some ways, uh, you can kind of see exactly how it'll translate over to finance in terms of how we get served, Instagram ads, like we were talking about. I's kind of a similar thing. I wondered if you could perhaps talk about proactive finance from the organizational perspective, from the lender side of things. Just kind of talk about implementing these kinds of processes from that side of things.
Nima Ghamsari: (
Sure. Interestingly, when I talk about personalization, a lot of times what people think about is they think about it in the old architecture of the world of how do I get people to come and apply to my institution. And so they'll hand it off to their chief marketing officer and say, do a targeting campaign that has personalized targeting mechanisms to these consumers. I understand why they do that. That's the box that fit in the past. But I don't think that's the solution. I think, to your point earlier about all these people are getting buzzed with notifications left and right. If I'm getting a generic buzz saying, I might be approved for something, if come and apply, click here to apply, it's just not very compelling, long term. It's not certainly not as compelling as, 'Hey, we know you. We've been working with you for a few years. You've given us, access to this data. Based on your data, you are already approved to save a hundred dollars a month on your existing mortgage, which has a balance of $200,000. So just click here and we've already got all the paperwork ready for you.' I mean that one story is so much more compelling. It's so nuanced because they both seem like they're these like pings that have similar wording and similar context behind them, but one assumes that you understand the consumer to the depth that you will willing to fully approve them, like you're basically putting your money on the line.
Nima Ghamsari: (
The other one is more of a historical sort of marketing segmentation effort. A lot of times when I talk to lenders about it, their first instinct is that marketing segmentation world. I have to sort of reframe it and say, 'no, actually the way I think we should do this is we should start with understanding who's already approved and your current customer, and then can go to those customers with not an offer that they can then come to apply, but an actual offer that they can accept. It's a little different. It's just a slightly different concept, but the ones that they can accept will have a much more likelihood for the consumer to want to engage with them because they know there's no work behind that for them to get that process finished. So I think very important that we don't think of this as a marketing exercise and we think of this as a customer service exercise for it to be truly successful long-term.
Heidi Patalano: (
Yeah, absolutely. Well, Nima, thank you so much for joining us today. This was such a great discussion. I really appreciate your insights about this and looking into the future and discussing how all of this fits together. Thanks again for joining us and, uh, thank you all for being a part of the session.
Nima Ghamsari: (
Yeah. Thanks Heidi. Appreciate you having me.