Technology evolves & is adopted over time. It’s important to know where you are on the technology evolution scale to make decisions. Early adopters capture certain benefits, but need to adjust accordingly as technology becomes “stale” if not upgraded. There are several key pitfalls to watch out for and adjust around. If you are successful in this process, you will maximize your ROI on innovation and technology investments while keeping your business agile for the future.
In with the new, out with the old.
For decades, the trend has been monitoring & evaluating new technology development & innovation, and comparing it to existing systems, then evaluating if there are gaps in business needs. “In with the new, and out with the old.” In the past, this has been less of a full rip and replace and more of a “duct tape it together” approach, building on top of the legacy systems, bolting on, integrating to, and finding work arounds to keep all of the technology in the mix, attempting to squeeze value from old assets. I’m sure you have seen this across many organizations in your careers. The challenge becomes costly maintenance, a challenge to find people to get excited to work on the legacy systems, slow feature release, and as a result, a high TCO with lagging innovation.
The global pandemic and technology evolution.
Something changed in 2021. First, the pandemic drove a required “hair on fire” problem for financial services firms and lenders, forcing a decade of digital transformation & technology adoption into 4-8 quarters. Second, technology platforms are simplified, mobile devices are ubiquitous, APIs for system integration are as common as electricity, cloud adoption and SaaS delivered software are the mainstream, and data flows like water.
Version 1.0 for Digital Mortgage
For those of you who have been close to the Fintech revolution, and specifically digital mortgage and Point-of-Sale (POS) in lending, 2016 was defined as v1.0 of this new wave. Rocket Mortgage spent hundreds of millions of dollars and launched their digital mortgage product during the Super Bowl, January 2016. Many new digital mortgage solutions were born during this cohort of “Digital Mortgage v1.0”, to help the other thousands of lenders across the US compete. The last 5 years have been a blur as the warp speed of the interest in this category has been mindblowing. I have never seen an industry change as fast with as much momentum, including both capital and the smartest people on the planet putting their effort to drive change. And this isn’t a small industry as you know; it's a multi-trillion dollar scale. For those of you involved -- It’s exciting. It’s exhilarating. It’s daunting.
If you are a lender, you know this story all too well. If you were an innovator as a lender, you probably heard about some digital mortgage software solutions, and maybe even tried one in your operations, say 2016 or 2017. If you were an early adopter, you likely tried a solution or mix of them in 2018 or 2019. For those in the early majority, your lending business likely selected or piloted a digital mortgage solution in 2020 or 2021. For those who are in the process of evaluating something, you fall into the late majority...and those who are still quarters or years out, well...you are laggards. Better late than never, else becoming extinct is for sure the path for your business. It's important to know where you as a lender fall in the technology adoption cycle, because this should be an organic process, with continuous evaluation & action to ensure the needs of the business are met with the best solution, at the best cost, driving the most business and strategic value.
The innovator's dilemma - a change for the worse over time
What we are seeing is that many lenders in the early part of the adoption curve tried various pieces of digital mortgage technology, either as silos or with some level of integration, and are realizing that they are not getting the value they expect any longer.
This happened for a few reasons:
1. Lack of insight
One, many of the v1.0 digital mortgage software companies didn't have experience in mortgage lending or operations, forcing a lack of insight on what problem to solve or how to solve it. As a result, they build a shiny mousetrap, for a very narrow problem, which may have even worked at one point for a niche part of the business, but likely they didn’t have the insight to build the mousetrap to scale and adapt to a rapidly changing mortgage, technology, and innovation environment; therefore hamstringing the platform from evolving, and preventing those lender businesses who attempted to use the technology from adapting as the macro environment and other aspects to the market changed. Many software companies created a ‘shiny & expensive online piece of paper’ to capture the borrower’s loan application - but in reality, this is only 20 minutes of a month or two journey. Here are a few of they key questions many lenders wrestle with:
How do you shift from a refi focused market to a purchase focused market or the other way around?
How do you change your lead strategy to include capturing leads from real estate agents or home builders?
How do you successfully add or change your channel mix (e.g. retail, consumer direct, wholesale/broker, or correspondent).
How do you streamline your origination process and operations, especially if the business has changed over time (which most have.)?
How do you ensure all of your technology pieces work together, as you add and upgrade features overtime?
2. Diverging Roads (Yes, we read robert frost in our free time)
Two, the digital mortgage software companies have evolved, and have strategically moved in a different direction than your lending business, often with incongruent or worse, conflicting paths. Maybe a private equity company bought your software provider, and they substantially increased prices. Maybe your technology provider merged or was acquired by a competitor, and isn’t any longer focused on your needs. Maybe your technology provider decided to focus on a different segment of the market, and thus changed their product roadmap focus. Regardless, it negatively impacts the value you receive from the digital solution.
3. "smoke and mirros" and lack of usage
Three, the technology solution actually doesn’t work, isn’t being used, or is being used for only a small percent of its capabilities. Unfortunately, I have seen this story too many times, and hear about it from clients and client prospects every day.
As a result of the issues outlined above, the lender acquires multiple incomplete software solutions in each area, creating duplicate, triplicate, or worse.
- “I don’t know where our company data is located.”
- “We are using 2 CRM systems, and 3 POS systems, and still don’t have our business needs met.”
- “The Tuesday report takes hours to compile and send”
- “We have our most valuable LO resources wasting 20%+ of their time on inefficient communications - very detailed, administrative only, recurring updates.”
- “I need one workbench”
- “Need a PhD in CRMville to understand it.”
2021 is going to be coined “The year of the tech stack refresh.” I wish this was an insight I would have developed on my own years ago, however it is one that I observed first hand in client meeting after client meeting over the last 12 to 18 months. It’s the same story over and over. Those lenders who are not with software solutions that have helped the lending operation adapt to the ever-changing environment, are getting unplugged and replaced with the v2.0 digital mortgage solutions. Some of the v1.0 platforms were able to continue to innovate to achieve the v2.0 status, and are thriving as a result, but others were born into v2.0 and are yet to be proven.
In my entire career of over 20 years, I have not seen the momentum or focus to make these needed changes to an industry. And to my surprise, it's not a duct tape or slow moving glacier type shift, it's a full and immediate reboot; a ‘Tech stack refresh”. This includes system consolidation, system rationalization, and reviewing business strategy, operational needs, and approach to demonstrating innovation to ensure technology solutions are inline and supportive of not only current operations, but where the lending businesses are going.
Technology and business will continue to evolve. We all make decisions with less than perfect information. There will be new technology brands & categories to choose from and other brands and technology will become less relevant to our lending businesses. What’s important is that we stay nimble, keep a realistic mindset and awareness of where the business is and needs to go, and maintain the ability to adjust and adapt to new technology & workflow over time to win. Easier said than done, but having the right partners in your corner definitely helps.
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