Accenture Credit Services Mortgage lending within the Everyday Bank From transactions to relationships
Digital innovators and disruptors continue to shape customer preferences for banking. In a recent Accenture survey of nearly 4,000 North American retail banking customers, 27 percent responded that they would consider a branchless digital bank if they were to switch from their current bank. 1 Younger customers in particular are less interested in convenient branch locations and more interested in accessing digital services at the time and place of their choosing. These preferences have led to increased competition from non-bank entrants for traditional banking products and services. Competitors like Amazon, Costco Wholesale and The Home Depot are drawing on their strong customer relationships to enter the financial services business with digital-powered products and services. Nearly half of North American retail banking customers would likely bank with a company they currently do business with, but that does not currently offer banking services. 2 A new class of home loan borrowers, along with commodity loan products and pricing, lackluster customer loyalty and increasing regulations, is putting pressure on lenders to make the move to a more digital mortgage experience. Lenders that 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. In this article, Accenture offers its perspective on how lenders can reorient their mortgage business around The Everyday Bank to play a deeper role in the digital and commercial lives of their customers every day. The digital borrower 3 The Everyday Bank: Shift from mortgage transaction to borrower relationship 4 Six steps in the mortgage lender transformation journey 6 Getting started on your transformation 8 2 EVERYDAY BANK RESEARCH SERIES
The digital borrower Accenture research shows that digital technology online, mobile and social is being infused more and more into the fabric of consumers everyday lives. Digitally-aware, always-connected consumers in the US alone represent more than 75 million people and nearly $27 trillion in assets. The group makes up approximately 44 percent of the US population and, perhaps surprisingly, spans age demographics, being composed of 26 percent Millennials, 48 percent Gen-Xers and 25 percent Boomers. 3 60% of online banking customers choose a provider other than their primary bank for a home mortgage. 5 The momentum of digital is greatly influencing customer behaviors around banking. According to the same retail banking 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. 4 It s 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. EVERYDAY BANK RESEARCH SERIES 3
The Everyday Bank: Shift from mortgage transaction to borrower relationship Top lenders are already taking early steps to get closer to digital consumers and meet their borrowing needs. For example, consumers can now initiate mortgage applications online and through mobile. According to Accenture banking research, Internet-based mortgage sales in the US increased 75 percent in 2013 while traditional branch transactions shrank 16 percent. 6 However, simply creating upgraded digital or mobile-friendly versions of existing loan products and services will not be enough to address customer loyalty and competitor threats. The Everyday Bank (figure 1) is a strategic vision for how banks can extend their reach into the value chain, shifting mortgage financing the largest experience customers are likely to have with their bank from a one-time event into a long-term borrower relationship. In this vision, lenders take advantage of digital capabilities (such as mobile, analytics, social, interactive and cloud), loan transaction data and a broader ecosystem to engage current and prospective borrowers throughout the customer lifecycle. In essence, they become: Access facilitators: helping borrowers discover products and services relevant to them, as well as buy them and maintain them. Value aggregators: drawing on a network of partners that are useful to home buyers to deliver regular, consistent and thorough mortgage communications and education; offering convenient discounts on products and services to maintain involvement in the end-to-end customer experience. Advice providers: using the insights they have into borrowers financial situation to strengthen their role as an early and trusted advisor in their customers credit decisions, and make the mortgage event a seamless and positive experience. FIGURE 1. The Everyday Bank and its extended banking ecosystem Fuel Electronics devices Food Electrical appliances Textiles & footwear Electricity & gas Home repairs Home cleaning & care Furnishings Real estate (buy or rent) HOME Pets CONSUMER GOODS BANK AS ADVICE PROVIDER Buying Suggestions Comparator TRANSPORTATION Auto (buy and repair) Transportation & parking Home security Health services Personal and family insurance Car insurance HEALTH & PROTECTION Polymorphic Payments BANK AS ACCESS FACILITATOR Ticketing SOLUTION ORCHESTRATION OF LIFE NEEDS FS NEEDS SATISFACTION D-Market Place BANK AS VALUE AGGREGATOR Couponing, Vouchering, Loyalty Target Ads INFORMATION & EDUCATION Newspapers, magazines and books Training activities and education Flights Events TRAVEL & LEISURE COMMUNICATION Ecosystem-based service Large corporates Hotels Sport Leisure activities activities Restaurants & bars Phone & internet Retailer/SMEs/corporates Source: Accenture, The Everyday Bank. 4 EVERYDAY BANK RESEARCH SERIES
Why is movement towards the Everyday Bank critical for mortgage lenders? In doing so, lenders gain three key building blocks for achieving sustainable competitive advantage (figure 2): 1. Optimization and simplification, optimizing cost structures and operating as efficiently as possible to increase profitability. 2. Agility to compete effectively against lending disruptors and seize market opportunities to increase loan origination volumes and business revenues. Accenture analysis indicates that a 35 percent increase in operating income is possible for the Everyday Bank. 7 3. Continuous innovation with the ideas, vision and leadership to better distinguish products and services, deliver a loyaltybuilding customer experience and proactively stay ahead of the market. 35% increase in operating income is possible for the Everyday Bank based on Accenture analysis. FIGURE 2. Lenders gain three building blocks for competitive advantage Sustainable Competitive Advantage Adapt through Drive efficiency through Differentiate through INCREMENTAL INNOVATION Continuous innovation Have the ideas, vision and leadership to proactively stay ahead of the market Agility Be able to seize opportunities in times of change Optimization and simplification Be as efficient and effective as possible in current structure Source: Accenture. Building Blocks EVERYDAY BANK RESEARCH SERIES 5
Six steps in the mortgage lender transformation journey Securing the three building blocks for their business and becoming an Everyday Bank requires lenders to adopt a transformation mentality, one that puts their internal teams on a play to win footing. Based on our experience, Accenture developed a roadmap of six steps lenders can take to progressively drive competitive advantage through a digitally-driven customer experience (figure 3): 1. Streamline and improve processes Simplifying and strengthening the end to end origination process is an important first step for lenders in the digital mortgage transformation journey. An industrialized and lean loan manufacturing process sets the foundation for driving efficiency, quality and customer experience. Before lenders can really explore the art of the possible with digital capabilities, they need to invest in basic process improvement capabilities that are required to compete in today s environment. Accenture research shows that 55 percent of prospective digital buyers that encountered a frustrating experience while shopping for financial services began considering different providers almost immediately. 8 A lack of clarity between sales and fulfillment, multiple hand offs due to antiquated technology and disparate processes can all lead to poor customer service from the start. The first step in keeping the customer engaged is a reliable and predictable process that sets the foundation for a transparent origination experience. 2. Implement basic digital capabilities To maintain status quo, lenders will need to steadily increase the breadth and depth of their digital offerings with the aim of providing process transparency and optimizing basic interactive points with borrowers. For example, lenders are beginning to adopt mobile as a means of streamlining interaction points with borrowers. In some cases, borrowers can submit documents to the lender by taking FIGURE 3. Mortgage Transformation Roadmap to digital Points of Parity Points of Differentiation Customer Experience Streamline and improve processes Implement basic digital capabilities Drive complete digital transformation Customer Centric Extend methods of capture Utilize advanced customer analytics Develop customized customer experiences Key Factors Efficiency Accuracy Transparency Simplicity Accessibility Convenience Customization Flexibility Competitive Advantage Source: Accenture. 6 EVERYDAY BANK RESEARCH SERIES
a photo with their phone or tablet and uploading those documents directly to a mobile app. However, often times these processes are not fully integrated with the core loan origination system (LOS) and require manual intervention on the back-end which significantly shrinks the benefit that can be realized using digital technology. Lenders need to make early investments in digital to effectively compete, but ensure they are constructed as building blocks that can eventually be used in a full digital transformation. 3. Drive complete digital transformation Currently, very few, if any, lenders can call themselves totally digital, which makes a digital transformation a point of differentiation. A complete digital transformation will greatly increase overall efficiency, reduce cost and provide a fully integrated and seamless customer experience throughout the loan lifecycle. Achieving it, however, may involve replacing existing legacy technology and/or infusing mobile capabilities in customers everyday life. It may also mean truly automating how prospects share information with the lender online. While borrowers understand the bank s need for their financial information, they can become frustrated by repeated requests to send the same information multiple times. In the mobile example highlighted earlier, for a lender that has completed a digital transformation, this becomes a fully integrated process. The documents submitted via mobile channels are uploaded directly into the imaging system and using OCR technology autopopulate in the LOS. Using pre-populated information and advanced analytics, conditions can be auto-cleared requiring an underwriter to only review exceptions. 4. Extend methods of capture Competing in the digital age, banks will need to be much more proactive with consumers to initiate a relationship before they even need a mortgage. This means establishing an internal digital ecosystem that allows lenders to engage prospective borrowers early and via digital channels where they conduct a growing portion of their everyday lives. With Everyday Bank capabilities, lenders can drive up to 250 percent more customer interactions. 9 It also involves extending the lender s reach deeper into the value chain by partnering with relevant third parties (including real estate brokers, builders, home security, furnishings, and utilities) to build an ecosystem that allows them to play a larger role in a borrower s more enhanced overall home purchase experience. Slightly more than 40 percent of North American customers would be interested in getting help from their bank with real estate services for the purchase of a home, in addition to getting a mortgage. 10 Lenders must move carefully as they make this transition, taking time to differentiate between what is within the lender s sphere of influence and what is not. 5. Utilize advanced customer analytics Broader data sets and better use of both internal and external data combined with the right analytics tools can give lenders a more complete view of a borrower and his/her home buying needs. More thorough customer analytics against new everyday triggers can help lenders anticipate existing customers needs for a new loan in advance of an application, and act accordingly proactively extending offers to customers and connecting them with other key parties in the home buying process. As such, the lender becomes integral to the home buying experience rather than just a provider of another financial product or transaction. In another example, industry leaders are using customer analytics to better understand the risk profile of non-traditional or non-qualified Mortgage borrowers. With an increasingly competitive mortgage industry these lenders have an opportunity to address segments of underserved borrowers driving incremental revenue opportunity without the incremental risk. 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. This requires banks to be deeply granular in defining their customer segments whether first-time homebuyers facing a high learning curve, investors with more complicated financial situations, or a couple looking to relocate to a new geography. Integration with others in the Everyday Bank ecosystem such as the realtor, builder, financial planner or home security provider for first-time homebuyers will be critical in customizing the lending experience to the unique needs of each segment. While different borrower segments often require different treatment, it is important for lenders to remain flexible and address borrower needs as identified. Increasingly financial institutions are allowing customers to tailor their own experiences by opting in or out of select communications, designating their preferred channel of communication and selecting different service profiles. The key is that lenders listen (via social media and customer service channels) to their customers and respond rapidly to address customer needs at each stage in the process. EVERYDAY BANK RESEARCH SERIES 7
Getting started on your transformation In many respects, mortgage lending is a new game. Winning over digital-savvy borrowers will force lenders to compete more like brand owners in other industries. By expanding traditional mortgage business models toward the Everyday Bank vision, lenders can build stronger relationships with borrowers throughout the customer lifecycle and position themselves for future growth. For more information or to continue this conversation, please contact: Ghazale Johnston Accenture Credit Services North America Lead ghazale.johnston@accenture.com Kelly M. Adkisson Accenture Credit Services kelly.m.adkisson@accenture.com Alex Secchi Accenture Everyday Bank Program alessandro.g.secchi@accenture.com VISIT US AT www.accenture.com/everydaybank FOLLOW US ON TWITTER @BankingInsights ABOUT ACCENTURE Accenture is a global management consulting, technology services and outsourcing company, with more than 336,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$30.0 billion for the fiscal year ended Aug. 31, 2014. Its home page is www.accenture.com. ABOUT ACCENTURE CREDIT SERVICES Accenture Credit Services offers consulting, process reengineering, systems integration and management, and business process outsourcing services for residential mortgage, commercial real estate, leasing and automotive finance lenders and servicers looking to transform and industrialize their operations. The services are designed to bring significant customer service, efficiency, quality, and profitability improvements to Accenture s clients lending business. Accenture Credit Services serves more than 80 major lending institutions worldwide. To learn more, please visit www.accenture.com/creditservices.com. NOTES 1 Accenture North America Consumer Digital Banking Survey, June 2014. 2 Accenture North America Consumer Digital Banking Survey, June 2014. 3 US population data from US Census and the Pew Internet & American Life Project, 2013. 4 Accenture North America Consumer Digital Banking Survey, June 2014. 5 Accenture Banking 2020 survey of 2,000 U.S. consumers, December 2013. 6 Accenture Banking 2020 survey of 2,000 U.S. consumers, December 2013. 7 Accenture, The Everyday Bank: How Digital is Revolutionizing Banking and the Customer Ecosystem Infographic, January 2014. 8 Accenture Global Consumer Pulse Research, January 2014. 9 Accenture, The Everyday Bank: How Digital is Revolutionizing Banking and the Customer Ecosystem Infographic, January 2014. 10 Accenture North America Consumer Digital Banking Survey, June 2014. Copyright 2015 Accenture All rights reserved. Accenture, its logo, and High Performance Delivered are trademarks of Accenture. 14-4811U/9-8369