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Will Big Tech make a Big Splash in the Mortgage Business?

Business Concept

Steve Butler shares thoughts on Google, Amazon and other Competition in Mortgage Lending

June 26, 2019
By Steve Butler, Founder & President, AI Foundry

In a recent article in National Mortgage News, some industry executives weighed in with concerns over Amazon or Google potentially entering the mortgage lending business.

Some think that the entry of these big brands is inevitable, and could cause a major competitive shakeup. Others wonder why it has not happened yet.

While Amazon jumping into the market would be an interesting development for our industry, there are a few things that we need to consider. Here are my thoughts on Amazon, Google or other big brands moving into mortgage lending.

  • The door is open for competition – The current state of the mortgage industry has left the door wide open for newcomers with major brand awareness to enter. Customer experience remains poor. For a millennial that expects immediate gratification, closing a mortgage is an excruciatingly slow process. And, millennials consider filling out applications, making copies, aggregating and submitting documents, having privacy regulation continuously in their face, answering questions about credit, income, and assets, waiting at home for an appraiser, worrying about loan status, and spending hours signing documents…all as mostly needless and wasteful. They see these tasks as artifacts of an “old school” process that they would love to NEVER have to enter. Any lender that can offer that and truly deliver on the promise will capture millennials (and anyone else for that matter). Given the track record of Big Tech in other consumer-facing markets, there is a major risk of old-fashioned lenders being “Amazoned” by the new players.
  • Trust has already been earned – With Amazon, Google and other brands that millennials use today (attention Walmart shoppers), trust has already been built on the fulfillment side because it’s easy to order from them, the shipments arrive on time, it is easy to return or cancel an order, etc. The trust has been earned and the service experience is significantly better than a trip to a mall to buy or return something.
  • But will it translate to mortgage excellence? – However, fulfillment of a shopping order does not guarantee that it will translate to a great experience in fulfilling a mortgage application. In this area, I don’t think that size of company matters. And I don’t think that the fantastic logistics machine that Amazon has built gives it a leg up for mortgages. For example, how does Amazon Prime help with fulfilling a mortgage application so that the mortgage is underwritten in 1 week versus the current 3-4 weeks? In my opinion, Prime and much of the logistics and infrastructure crown jewels of Amazon don’t really help much to dramatically improve the (mortgage) customer experience.
  • It’s still about customer experience and ROI – And, if the customer experience does not improve much, then where is the ROI for the consumer? Without a big ROI, the millennial will surely try getting a mortgage from other trusted brands. As a result, Amazon and Google will simply capture a small share of very traditional loans.
  • Amazon does have some key strengths – It would be foolish to sell Amazon short, because we have seen time and again when the company has delivered cutting-edge technology to dominate markets. Who would have predicted 20 years ago that “that online bookseller” would grow to be arguably the most important business and consumer technology company in the world? Amazon’s technology innovations – particularly in the area of artificial intelligence (AI) could be focused on solving some of the bottlenecks that slow the mortgage approval process down and make it cumbersome or ugly for consumers. But solving this problem is not easy, so Amazon would need to gain the appropriate domain expertise, and also commit the muscle of its AI development teams to the mortgage process, because the right solution will not come about as a “skunkworks” project. Also, AI opens massive can of data and data privacy issues that could be impacted by the evolving privacy regulations in the U.S. This issue has the effect of leveling the playing field, because everyone will have to play by the same rules.
  • Don’t forget about the experts – Finally, don’t underestimate what the true experts are doing today. The largest mortgage lenders (Wells Fargo, BOA, Caliber, Flagstar, Rocket, etc.) all have data science initiatives, strategic partnerships with tech providers, very large IT budgets, and access to limitless mortgage documents and their variants. AI for mortgages is about the intersection of a massive data lake, great data science, and subject matter expertise – the largest mortgage companies have all of this, either in-house or through partners. This puts them in a great position to innovate with AI-based solutions that are equal to or better than anything that Amazon or Google could produce.

So, in my opinion, it’s far from a slam dunk that Amazon or Google can take over the mortgage area for millennials (or anyone else). They will get lots of attempts without having to do any marketing. However, they will have to make the large investment required to build something very disruptive, because I don’t see them being able to leverage much of what they have today in terms of data or infrastructure. The gorillas of the mortgage industry can blunt and win against the tech powerhouses as they have far more of what is needed to create a disruptive solution. But will they move fast enough and be nimble enough to outsource for what they don’t have in-house?

Also, there is one wild card in my analysis: If Amazon or Google buy a large independent mortgage company. Then you could see a real change happen in how/where most mortgages are originated.

It will be interesting to see how this unfolds and what moves Amazon makes in the future in regard to mortgages. If you have an opinion on this, please feel free to connect with me on LinkedIn or Twitter and let me know your thoughts.

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Steve Butler 
Founder & President

Steve leads AI Foundry, which automates and streamlines enterprise business operations. Under his leadership, AI Foundry creates software solutions that makes data “actionable”. Steve’s leadership includes CEO positions for high-performance data analysis, enterprise software, system management and CAE companies.

Connect with Steve on LinkedIn