For months, financial services leaders have been wondering if Amazon will enter the mortgage market. Perhaps they’re asking the wrong question.
Whether or not Amazon offers mortgages doesn’t even matter because Quicken Loans’ Rocket Mortgage has already upended the financial services market. Quicken Loans is currently the nation’s top mortgage lender by volume, originating $20.5 billion in the first quarter of 2018. Rocket Mortgage not only streamlined the application process to eight minutes, it has reduced closing time on purchases to just 16 days.
Quicken Loans isn’t the only mortgage lender that has reduced friction for borrowers. In fact, so many lenders provide such an advanced mortgage lending experience, Amazon may take a pass on the mortgage market because they currently don’t see enough opportunity to gain a competitive advantage.
Most agree that credit unions and banks need to upgrade technology to provide a customer experience that competes with these fintechs. However, financial services leaders are wrong when they think better hardware, more digital delivery channels and improved efficiency are the answer.
Fintechs approach technology differently, baking in innovation instead of just bolting it on. They are organized around customer needs; the customer experience drives operational strategy. Traditional financial institutions, in contrast, are still focused on product and functional silos. Instead of supporting innovation by dynamically adjusting operations, most FIs change one process, function or technology at a time.
Digital channels have eliminated the curtain between front and back office operations. Customers expect automated applications that fill personal information fields from their account data and other sources. They expect tracking tools that keep them informed of exactly where their mortgage loan approval stands in real time.
This back office emphasis has produced a dramatic increase in application abandon rates. According to a 2016 SaleCycle blog, consumers abandon a whopping 80 percent of online financial applications.
A common reason cited is the application process takes too long. According to a 2016 study by Signicat, the average online app took nearly 18 and a half minutes to complete.
Consumers also say too much personal information is needed when they apply for accounts or credit, a complaint that will continue to increase as data is more easily shared among connected organizations.
Financial institutions must reduce digital friction to maintain market share. The Financial Brand identified five ways banks and credit unions can improve their application process to reduce friction and improve abandonment rates. They include:
- Use mobile first design. That means minimizing fields, reducing keystrokes and minimizing scrolling because they take effort on mobile devices. Mobile is how your customers are increasingly interacting with your institution.
- Offer save and multichannel functionality. Requiring a restart always leads to high abandon rates.
- Make the experience 100% digital. It’s hard to believe this needs to be said in 2018, but requiring consumers to visit a branch to finalize an application makes abandonment rates skyrocket. All processes should support digital signatures and support electronic document submission.
- Onboard the requested product first. Resist the temptation to cross sell until after the application is complete.
- Recover abandoned applications. Collect the important information first, like name, email and phone number. Then, follow up on abandoned applications as quickly as possible. Not every abandoned app means the consumer changed their mind.
By the way, just because you offer amazing digital service doesn’t mean consumers will be satisfied. According to April 2018 research from J.D Power, digital-only customers are far less satisfied than customers who use both digital and face-to-face service. That’s because communication is where banking relationships typically fall short, the research revealed. The solution is to include highly personalized digital interactions along with transformed branch experiences that serve the needs of both digital-centric and branch-dependent customers. Which is exactly why we invented POPin Video Banking, to bridge that gap, improve communication and reduce friction.
So back to Amazon entering the mortgage market. If the market is already saturated with fintechs that provide frictionless service that rivals Amazon, tomorrow is too late to transform your innovation culture. You must begin today.
See how friction is directly affecting your business by clicking below to download the The Science of Friction Infographic.