Technology sparks a new wave of online lending competition
Competition drives innovation, and today's competition is occurring online. In the 1999 MORTECH study of the mortgage banking industry, respondents ranked excessive competition as their number one business concern. When asked to identify the source of that competition, 26% listed the Internet. Lenders recognize that the same evolutionary process that transformed the Internet from a network connecting researchers at three universities in 1969, to a network that now connects more than 43 million hosts, is revolutionizing how they interact with their customers. The lure of convenience, speed, prices and product options, motivates consumers to shop online. The question that haunts lenders is, "When the consumer makes a purchase, will their loan be the product of choice?" The answer is impossible to predict, but there is one certainty - if the lender has no online presence, the answer is no. The economics are straightforward, the forecasted demand for online lending is high. According to Deutsche Bank, online mortgage originations will grow by more than 5,000% by 2003 to about $250 billion annually. Yet a 1999 Morgan Stanley Dean Witter Report showed that the supply is weak, with only 9 % of financial institutions having transactional capability within their Web site. The opportunity for a financial institution to acquire new customers through the Internet is viable. What, then, has caused lenders to hesitate? One factor is the availability of technology. Until recently, proven Internet loan origination solutions were not readily available. Many early adopters created proprietary solutions that were both costly and labor-intensive to develop. Most lenders simply could not afford to hire the IT expertise to create and maintain an Internet technology solution, nor could they cost-justify the purchase of the hardware required to host the site. Today, these lenders have an option. Technology now offers lenders the option of a hosted, private-label solution. These solutions take on the look and feel of the financial institution's Web site, yet the technology resides on a vendor-hosted site. This eliminates the need for the financial institution to invest in hardware and an IT staff. When a consumer accesses the financial institution's site and selects an option, such as mortgage prequalification, the consumer is hyper-linked to the vendor's site. There, the data is entered and processed, and the prequalification results are given to the consumer. Afterward, the data is forwarded to the financial institution via e-mail or another preferred method. The consumer is never aware that they left the financial institution's site, the transfer is completely transparent. Another factor that causes lenders to hesitate before implementing an Internet strategy is the recognition that a new customer service model is required to support their online customers. While the early implementers who built lead generation sites received an abundance of inquiries, the inquiries included both leads and general questions. The lenders discovered that they were ill equipped to respond to the volume of requests received. Today, follow-up is streamlined. There are comprehensive Internet lending solutions available that include customer support, eliminating the need for lenders to respond to general inquiries. These solution providers service both the financial institution and their customers. Plus, the advanced capabilities of today's premier Internet solutions act much in the same manner as a simplified point-of-sale solution, meaning that more of the transaction occurs online. All of the required data is collected and the transaction is run through a series of product edits, eliminating the need for follow-up to clarify or correct data. In addition, many of these solutions provide an integration option that links your Internet consumer-direct lending technology with your loan origination software to automate the transfer of data from one system to the other. Clearly there are options available today that were not available a year ago, as is evidenced by the increasing number of online lenders. And with online competition heating up, the remaining lenders are reprioritizing implementation of their Internet strategy. If you're evaluating your online options, here are some things you should consider: * Customer Options - Does the product enable you to offer your customers a variety of services, such as online calculators that allow your customers to determine if this is a good time to refinance or the loan amount they can afford? * Multiple Business Channels - Does the product support all of your lending business? * Product Options - Are you able to integrate options like risk-based pricing? * Customer Support - Is support of your customers online inquiries provided? * Integration - Are you able to automate the transfer of data to your origination solution, and does the origination solution feed data back to the online system so that your customers can check the status of their application? Is the online lending revolution over? Absolutely not. But the battle for the online consumer is fought each day and only those on the Internet are winning.