Building a Modernized Tech Stack in Mortgage Lending
Accelerating successful digital transformation of the employee & customer experience
What is digital transformation?
Anyone that’s worked in any segment of the business world over the past decade-plus has heard the term digital transformation thrown around. You’ve likely also heard synonyms like “digital workplace transformation” or “customer experience transformation” or simply “digitization.” But what do all these terms actually mean? Deloitte defines digital transformation (DTX for short) as “the use of technology to radically improve the performance or reach of an organization. In a digitally transformed business, digital technologies enable improved processes, engaged talent, and new business models.” Gartner goes a bit further, explaining that DTX “can refer to anything from IT modernization (for example, cloud computing), to digital optimization, to the invention of new digital business models. The term is widely used in public-sector organizations to refer to modest initiatives such as putting services online or legacy modernization. Thus, the term is more like ‘digitization’ than ‘digital business transformation.’”
Digital transformation in financial services & mortgage lending
However you want to define it, a 2020 survey from Freddie Mac found that 81% of mortgage lenders are aggressively — or very aggressively — pursuing DTX. Similar research from Fannie Mae found that nearly half (48%) of mortgage lenders are putting “significant effort” into their front- and back-end digital transformations. And nearly all lenders (91%) believe the scope and structure of their work will be changed by digitization over the next 2-3 years.
By 2025, 63% of mortgage lenders expect to be able to handle the end-to-end borrowing journey fully through digital channels.
What’s driving digital transformation in mortgage lending?
The traditionally conservative financial services and mortgage lending industries have been slower to change than sectors like retail and tech. But as digitization creeps into every aspect of modern life, the lines are blurring for consumers. Experiences from retail and other tech-forward segments are influencing consumer expectations for the financial industry. Consumers increasingly prefer online and mobile transactions, and 80% of potential mortgage borrowers have a preference for a completely online loan application experience. Meanwhile, fintech companies and other non-traditional financial institutions and lenders are gaining increasing market share by going directly at these changing consumer expectations — and attacking the slow-moving financial services industry.
DTX drives operational advantages
DTX promises to solve a wide range of challenges in the modern enterprise — from digitizing workflows, to generating and capturing more data on all aspects of the business, to leveraging that data to drive better decisions, and ultimately focusing, enhancing and accelerating the business from top to bottom. Digital transformation is expected to add $100 trillion to the global economy by 2025, and more than half of CEOs say that digitization has already boosted revenue.
In the mortgage lending industry, a report from KPMG noted that digitization could drive serious business value:
- Reducing loan origination costs by 25-50%
- Reducing loan servicing costs by 25-50%
- Increasing sales productivity by up to 75% — driving profitability
- Increasing loan pull-through rate by up 20-25%
Freddie Mac’s 2020 survey of mortgage lenders found that 82% of executives believe DTX can help them reduce initiation costs by at least 10% — with half expecting savings of 26% or more, and 1 in 10 expecting savings of greater than 50%.
DTX is a competitive necessity
The other way to look at the importance of DTX is from a competitive standpoint. With 9 in 10 companies in all sectors already adopting DTX strategies — including the majority of mortgage lenders — DTX is no longer merely a competitive differentiation strategy. It’s critical just to survive.
Fannie Mae research shows that mortgage lenders who are putting a “great deal of effort” into their DTX initiatives believe they are directly building competitive advantages in their markets, including:
- Increased productivity
- Reduced errors
- Lower turnover rates
- Lower costs
Digital transformation and customer experience
A decade ago, operational optimization was, far and away, the main driver of digital transformation efforts. But today, nearly half of companies across all sectors say improving the customer experience (CX) is the leading goal driving digitization. Indeed, in the mortgage lending industry, improving the customer experience is nearly even with operational improvement as the two biggest motivators of DTX. This reflects the overall shift to prioritizing CX. Consumer expectations have been “Amazon Primed.” They’re used to digital-native, ultra-convenient, hyper-personalized experiences — enabling real-time interactions that anticipate their needs and provide frictionless, omnichannel journeys. To deliver on these expectations — and to develop competitive advantage — mortgag lenders increasingly recognize the need to drive digital transformation of their customer experience. And this goes beyond contact center or customer service technology, extending to the way marketing and sales connect and interact with customers — and indeed across the entire “tech stack” of a mortgage lender.
Customer experience is now the biggest differentiator for mortgage lenders
We’re in the midst of a customer experience revolution, with two-thirds of companies across all segments competing primarily on the basis of CX. The CX revolution is firmly underway in mortgage lending, as well: Many home buyers and borrowers now rank customer experience higher than pricing as the main reason for choosing a mortgage lender.
What are the barriers to rapid digital transformation?
Mortgage lenders know they need to deliver consistently exceptional CX — to attract and acquire new customers, as well as to retain customers and build lifetime loyalty. Yet, McKinsey reports that nearly half (47%) of digital investments made by lenders and financial institutions are failing to yield meaningful returns.
So, what are the biggest barriers and hurdles to successful DTX for mortgage lenders?
- Regulatory & compliance concerns
- Organization inertia
- Siloed technologies
How digitization falls short for mortgage lenders
While mortgage lenders were relatively slow to digitize the CX, that’s accelerated greatly over the past two years. Many mortgage lenders now use mobile apps to manage the loan application, origination and closing process. Marketing and sales teams increasingly use customer experience platformst o drive digital-first campaigns. Even back-end workflows have been largely digitized in the typical mortgage lending organization. So, digital transformation achieved — right? Not exactly.
The problem is most lenders have taken an ad hoc approach to digitization, adding tech tools and systems to progressively digitize elements of their business. They’ve bolted these digital technologies onto underlying legacy systems that are often outdated and can’t fully integrate with the new cloud-based tools they’re using. In the process, they’ve created disparate data silos and disjointed workflows that aren’t integrated across teams and functions.
Disjointed tech + data silos = big problems
The ultimate outcome of this ad hoc approach is that the typical mortgage lender can’t see across their entire customer journey. As the customer experience hops from one tool or system to the next, the lender can’t pull together all data form all channels and touchpoints. And that means they can’t leverage insights from all that data to drive smarter work and better CX.
Digital transformation trends: Digital transformation vs. Digital modernization
Even as more organizations prioritize and invest in digital transformation, the reality is that many companies just don’t have the resources and time to do a full digital transformation. But as Forrester explains, what most organizations really need (or, at least, can start with) is digital modernization.
Digital modernization is less about digitizing manual processes — after all, many lenders already have achieved this step, however disjointed the result — and more about upgrading existing digital tools and replacing them with ones that are purpose-built for cloud-powered, tightly integrated synergies. Think of DTX versus digital modernization as the difference between tearing down and rebuilding the whole house — or simply upgrading key components.
Signs of the need for digital modernization
Here are a few telltale signs that a mortgage lender is in need of a focused digital modernization initiative:
- Martech software is stretched to its breaking point, unable to handle the double-wave of historically high refi volume and surging purchase volume.
- Legacy tech that is outdated — leaving marketing and sales teams with limited functionality, while burdening the organization with the high admin costs of on-premises deployment.
- Unintegrated workflows that require manual hand-offs between teams and departments.
- No central source of truth on customer journeys — no central visibility to all things CX.
When any of these symptoms are present, lenders are often failing to achieve their intended outcomes with marketing and sales campaigns. Instead, they’re stuck in a cascade of problematic outcomes:
- Spending too much time on manual data collection/integration
- Not able to see and effectively target the right customers
- Disjointed, manual processes that slow time-to-market and impede agility
Inability to effectively track customer behaviors/journeys and measure the impact of campaigns and CX efforts
Building a digital transformation/digital modernization strategy
- Audit your tech stack — from the customer’s perspective
The first step in building a robust digital transformation or digital modernization strategy is to do a thorough audit of your existing systems and technologies. Best practice is to take a customer-centric view on this audit, mapping out the customer journey — and aligning technologies to each step in that journey, in order to identify gaps, redundancies and other pain points.
2. Create a centralized customer data platform
The core of a digital mortgage lending business is a centralized customer data platform — a single, central source of truth on all things CX, from which analytics and automation can draw. No matter where your CX gaps exist, you will need to be able to collect and integrate all customer data — across all channels, systems and touchpoints — in order to build a modern, digital customer experience.
3. Implement a CX platform that integrates with existing tech
Mortgage lenders can now implement customer experience platforms purpose-built for the mortgage lending industry — and come ready to easily integrate with the rest of your tech stack. A cloud-based, modern CX platform is the key to enabling a digital modernization that doesn’t require a painful and expensive “rip and replace” of all tech.
4. Build digital workflows that fit the way your business (and people) work
McKinsey estimates that 70% of DTX initiatives fail because of resistance from employees. As you evaluate, implement and build out your core customer experience platform, make sure you’re able to fit the technology to the way your people work — not the other way around. This means ensuring your tech-enabled workflows make it easier and faster for your people to work — and empower them with information and insights to be better at their jobs.
5. Take it to the next level with AI-powered intelligent automation
The most successful digital modernization initiatives go well beyond digitization, leveraging rapidly advancing AI capabilities to automate, accelerate and enhance workflows and decision-making. Analysts at McKinsey and PwC estimate that 20% of business activities can be automated using today’s technology — and 4 in 5 mortgage lenders believe they will be able to us AI-powered tech to make smarter, faster business decisions.