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Mortgage lending within the everyday bank: From transactions to relationships

Mortgage lenders must go beyond their traditional role to become digital innovators and disruptors.

Overview

Digital innovators and disruptors continue to shape customer preferences for increased competition between banks and non-bank entities.

In a recent Accenture survey of nearly 4,000 retail banking customers in North America, 27 percent responded that they would consider a branchless digital bank if they were to switch from their current bank. Nearly half of these retail banking customers are likely to bank with a company they do business with, but that does not currently offer banking services. Preferences such as these have led to increased competition from non-bank entrants for traditional banking products and services.

Mortgage lenders, who want to protect and grow their market position, will need to go beyond their traditional role as enablers of loan transactions to embrace a more strategic banking ecosystem vision that Accenture calls “The Everyday Bank.”

This point of view offers Accenture’s perspective on how lenders can re-orient their mortgage business around The Everyday Bank to play a deeper role in the digital and commercial lives of their customers.

Background

The Everyday Bank: shift from mortgage transaction to borrower relationship

According to Accenture banking research, Internet-based mortgage sales in the United States increased 75 percent in 2013, while traditional branch transactions shrank 16 percent.

To become an Everyday Bank, lenders need to adopt a transformation mentality. The Everyday Bank is a strategic vision for how banks can extend their reach across the value chain, shifting mortgage financing from a one-time event into a long-term borrower relationship. In this vision, lenders take advantage of digital capabilities, loan transaction data and a broader ecosystem to engage current and prospective borrowers throughout the customer life cycle. In essence, they become access facilitators, value aggregators and advice providers.

Becoming an Everyday Bank enables mortgage lenders to gain three key building blocks that are imperative for achieving sustainable competitive advantage.

  • Optimization and simplification of cost structures while operating as efficiently as possible to increase profitability

  • Agility to compete effectively, seize market opportunities, and increase loan origination volumes and business revenues. Accenture analysis indicates that a 35 percent increase in operating income is possible for the Everyday Bank

  • Continuous innovation with ideas, vision and leadership to better differentiate products and services to help deliver a loyalty-building customer experience and proactively stay ahead of the market

Findings

Accenture research shows that digital technology—online, mobile and social—is increasingly being infused into the fabric of consumers’ everyday lives. For instance, digitally aware, always-connected consumers in the United States alone represent more than 75 million people and nearly $27 trillion in assets. They form approximately 44 percent of the US population and, perhaps surprisingly, span age demographics—being composed of 26 percent Millennials, 48 percent Gen-Xers and 25 percent Boomers.

The momentum of digital is greatly influencing customer behaviors around banking. According to a recent Accenture survey, 51 percent of consumers want their bank to proactively recommend products and services for their financial needs; 48 percent are interested in real-time and forward-looking spending analysis; and 71 percent consider their banking relationship to be transactional rather than relationship-driven.

It is clear that digital technology, changing consumer preferences, continued industry convergence and emerging new players are putting at risk the market share of large traditional lenders. By embracing a more holistic customer relationship and experience, mortgage lenders can extend themselves beyond traditional financing and provide distinguishable value in new areas.

Recommendations

Six steps in the mortgage lender transformation journey can help progressively drive competitive advantage. These include:

  1. Streamline and improve processes: An industrialized and lean loan manufacturing process sets the foundation for driving efficiency, quality and customer experience.

  2. Implement basic digital capabilities: Lenders need to steadily increase the breadth and depth of their digital offerings to provide process transparency and optimize basic interactive points with borrowers.

  3. Drive complete digital transformation: A complete digital transformation increases overall efficiency, reduces cost and provides a fully integrated and seamless customer experience throughout the loan life cycle.

  4. Extend methods of capture: Banks need to establish an internal digital ecosystem that allows lenders to engage prospective borrowers early through digital channels, where they conduct a growing portion of their everyday activities.

  5. Utilize advanced customer analytics: Broader data sets and better use of data, combined with the right analytics tools can give lenders a more complete view of a borrower and his/her buying needs.

  6. Develop personalized customer experiences: By using analytics to predict customer behaviors and emotional drivers, lenders can create a set of “managed experiences” tailored to unique borrower segments.