Embedded Banking: The Future of FinTech Highlighted at Las Vegas Fintech Meetup
Last week, I had the opportunity to attend the annual FinTech Meetup in Las Vegas, where industry leaders and enthusiasts gathered to discuss the latest trends and innovations in financial technology. A hot topic this year was embedded banking, a concept that has the potential to revolutionize the way we interact with financial services.
The Growing Interest in Embedded Banking
Embedded banking refers to the seamless integration of financial services into everyday activities and platforms, such as social media, e-commerce, or even your favorite ride-sharing apps. This means that instead of relying on traditional banking channels, consumers can access financial services at their fingertips, whenever and wherever they need them.
The FinTech Meetup was buzzing with conversations about the potential of embedded banking to reshape the financial landscape, improve customer experiences, and create new business opportunities. The excitement was palpable, and it was clear that this concept has caught the attention of industry insiders and innovators alike.
Key Takeaways from the Meetup
Enhanced Customer Experience
One of the most significant benefits of embedded banking is the improved customer experience it offers. By integrating financial services into platforms that users are already familiar with, customers can enjoy seamless transactions without needing to navigate a separate banking app or website. This user-centric approach is poised to create a more convenient and enjoyable experience for consumers.
Opportunities for Collaboration
Embedded banking has the potential to create new partnerships between FinTech companies, banks, and non-financial businesses. This opens up a world of opportunities for businesses to work together to provide innovative and value-added services.
For consumer-focused companies this creates the ability to provide in-app loans or payment solutions, making the shopping experience even smoother for customers. As an example, Shopify, an e-commerce platform that enables businesses to create online stores, has partnered with financial institutions to offer loans and financing options to their merchants. This service, called Shopify Capital, allows merchants to access funding directly within the platform, based on their sales performance and other relevant metrics. This embedded finance solution eliminates the need for merchants to approach traditional banks or lenders for financing, as they can apply for and receive funds directly through their Shopify dashboard.
A small business example of embedded finance is the integration of invoicing and payment processing services within a project management tool like Trello. Suppose a small freelance web design company uses Trello for managing projects and collaborating with clients. In this case, Trello could partner with a payment processing service (such as Stripe or PayPal) to allow the web design company to create invoices and accept payments directly within the platform. When a project milestone is reached, the freelancer can generate an invoice within Trello, which is automatically sent to the client. The client can then pay the invoice using their preferred payment method, without leaving the Trello environment.
Increased Financial Inclusion
One of the most significant challenges in the financial industry is providing access to services for underbanked or unbanked populations. Embedded banking can help bridge this gap by offering financial services on platforms that these individuals already use, such as messaging apps or social media networks – in fact, person-to-person (P2P) payments is a feature that has already been rolled out on several widely used social media apps such as WhatsApp, WeChat, and Facebook. By making financial services more accessible, embedded banking can help promote financial inclusion and empower millions of people worldwide.
As embedded banking becomes more widespread, the amount of data generated by these integrated services will increase exponentially. This data can be leveraged to provide valuable insights into customer behavior, preferences, and trends, enabling businesses to make more informed decisions and deliver personalized services.
As with any emerging technology, embedded banking will face regulatory challenges. During the Meetup, experts highlighted the need for clear guidelines and regulations that balance innovation with consumer protection. As embedded banking continues to gain traction, it will be crucial for industry players and regulators to work together to create a secure and compliant environment.
The FinTech Meetup in Las Vegas was eye-opening in terms of the latest thinking on embedded banking and its potential to reshape the financial landscape. By offering seamless, convenient, and personalized financial services, embedded banking is set to transform the way we manage our finances, creating new opportunities for businesses and customers alike. As we move into this new era of financial services, it will be critical to watch this concept evolve and adapt to these exciting changes. Feel free to reach out to me if you have any questions or want to discuss this topic!
In early 2022, my wife and I noticed a slight drip in the kitchen sink that progressively worsened. We quickly discovered that if we adjusted the lever just right, the drip would subside for a while. Right before the holidays, we had an issue with our water heater that wasn’t so livable, so we called an expert. After the plumber finished up with our hot water tank, we asked him to check our sink. In 5 minutes, he fixed the problem that had inconvenienced us for months! We had become so used to our workaround that we didn’t even realize how much time we spent in frustration trying to get the faucet handle just right (let alone double checking it all hours of the day and night) when we could have resolved the issue in just a few minutes of effort from an expert!
Sometimes, our workarounds are only efficient in our minds. They may save us time or a few dollars upfront, but do they save us anything in the long run? In my case, the answer was a resounding ‘no’.
In our professional lives, we’re trained to seek out our solutions for the ‘leaky faucets’ and typically only bring in an expert when we encounter a major problem that we can’t live with. For credit unions, the ‘water heater’ problems are typically the front office, as they live and die by the member experience. Having the right technology and interface (along with a myriad of other things) tends to be the core focus when it comes to investing in process and technology improvements.
Where are the ‘leaky faucets’ usually located? The back office. Temporary workarounds are created and then become standard practice; these workarounds are largely unknown to the broader organization, time-consuming, and surprisingly easy to correct. They add up and lead to frustrations and inefficiencies, just like my family experienced with our sink. I recently sat down with Mike Lawson of CU Broadcast and John Wyatt, CIO of Apple Federal Credit Union, to discuss the value of a back-office assessment.
You can check out a clip of that conversation here:
To see the entire segment, click here (just scroll down to the bottom of the page). I enjoyed speaking with Mike and John and encourage everyone in the credit union arena to subscribe to CU Broadcast if you haven’t already – it’s a great show, and one I’ve enjoyed for years.
So, when is the last time you checked your faucets? We’d love to hear from you – reach out to me if you have questions or want to learn more about maximizing your back-office efficiency.
In reading about all the FinTech lenders that have been re-imagining the customer digital journey, if you were an outsider (or a PE investor? ), you’d be left thinking that the banks and credit unions were all customer-journey challenged elephants destined to lose customers. Elephants, who are sitting on their hands, even though they oftentimes have better rates. But this is far from true. “Online-oriented” banks and credit unions have an ever-strengthening hand that they are playing. They are providing their customers and members with the service they’re looking for while outrunning the fintech models by improving their customer experience, but also leveraging their sophisticated call center capabilities. Here are two examples:
My dear 80-year-old mother, my iPhone-using, cross-country skiing mother, recently got a talking to from her son about how much more interest she could garner by moving her savings from a local brick-and-mortar-focused bank into an online outfit. We found that her interest rate would go from 0.5% to 4.0% instantly – it adds up. Easy right? We fired up the iPad on Sunday morning and got her started in opening an account at one of the leading online banks that you’ve undoubtedly heard of. But no! She didn’t pass the onboarding identity check as they couldn’t verify her existence and would need to wait to hear from a rep. Crazy right? In my Gen X point of view, I was furious and impatient, “what do you mean it can’t be done instantaneously?!”. Then again, I should have tempered this with the understanding that she hasn’t needed consumer credit since the 80s. Much to my surprise, come Monday after I had returned home contemplating how hard it would be to act as ‘remote support’ for her ongoing digital journey, my mom was called by “a nice woman,” who walked her through the process and <boom> the online bank now has a significant, sticky, new online customer that is quite pleased with their rates.
What would a fintech mantra have called for? I’d bet a paycheck they’d respond only to those that made it through the digital native process. Before you think of that as ‘the cream of the crop strategy’, what percentage of society is that really? And does that percentage have as much money to put into an online savings account as the older generation? On the surface, her new online bank seems to care more about her making a bit of money on her money than… dare I say it… her hometown bank. By combining technology and training staff on end-to-end processes (this was not that call center agent’s first rodeo), the elephant can dance. The whole experience was a real surprise to me.
In another example, at a large online-oriented credit union client of ours, I got a front-row seat of the customer journey from the other side of the fence. I had the pleasure of meeting the heads of open banking, customer journey, and customer interaction at a holiday luncheon. Those groups don’t all talk together about end-to-end journeys that often. While open banking at first is perceived as “allowing our members to provide access to their personal financial data to others,” it is now being understood as an opportunity to initiate the customer journey. A journey to keep a member from being pulled into the fintech journey, where the rate is much worse than the credit union can provide! In this case, the online credit union is working to establish a small set of predictive features from the open banking request that will trigger outreach to the member, highlighting the basics of the credit union’s competing offer (as in we think you are shopping for a personal loan; our rates are highly competitive, and we can approve you in 5 minutes…). It’s not hard to imagine the Elephant moving to a more sophisticated dance (let’s call it a ‘cha-cha-cha’) by running a soft inquiry and providing a firm offer of credit, but I suggest that a timely, but basic, triggered communication will start to become very common. And, in most cases, it’s good enough.
Execution is the hardest part of any plan, and the team at CC Pace excels at helping to turn strategy into results. Give us a call or reach out to me on LinkedIn to explore the ways we can help you tap into a more efficient customer journey process. We know your elephant can dance, and we can help.
How do you move forward as an organization to achieve your vision? What’s working well? What’s holding you back or bogging things down? As a mortgage consultant who’s worked in the industry for years, I hear these questions all the time from organizational leaders. And there is help! One tool that’s very effective in helping you answer these challenging questions is an Operational Assessment. Operational Assessments are a pulse check for your business. Every company can benefit from an operational assessment; it provides an open, honest, and objective viewpoint of your business’s current processes, procedures, technology, people, and risks. And once you have this information, you’ll be able to create a plan and chart a path for the future.
So how do you get started on an operational assessment? Where do you find the information? Again, the operational assessment is to provide a checkup of your organization. There is no better way to get to the truth than talking with your employees and clients.
Most Operational Assessments include the following components, so you’ll want to frame your questions and surveys around these business areas.
So, what’s the best approach to collecting data? Staff interviews and ride-a-longs are a great option, and it is through these conversations with employees that you’ll gather a lot of information to complete the assessment. Listen carefully. Because without question, you’ll gain tremendous insight into the formal and informal processes and cultural norms that drive the business. For example, does the current technology effectively support the business? Does it help employees complete their jobs, or is it a constant issue? Are leaders delivering a consistent message, uniting around common goals and direction? In short, are we all together in the boat rowing in the same direction? People are the core of the business, and it’s important to understand their feedback, comments, perspectives, and observations. Through open dialogue, you’ll uncover things that are not always seen, like workarounds, completing work in a strange order, missing key items that could make reporting better, outdated policies and procedures, etc.
For external customers, consider using interviews, or to reach a broader audience, surveys are also very effective. Do customers have a positive experience when engaging with your organization? Are they satisfied with the business relationships? You’ll want to incorporate feedback from closed and unclosed loan clients, as well as your realtor/builder partners.
An operational assessment is only as good as the honest and open feedback received, a clear view into the company’s current operations, AND leadership that is willing to listen, then adjust and apply any apt learnings.
This blog is a very brief overview of an operational assessment that could help you objectively determine the status of your organization. Once you can see things with complete transparency, it can help define intentional growth or organizational change steps. Once you know where you are, THAT VALUE can help you get where you want to be.
When I was first introduced to Agile development, it felt like a natural flow for developers and business stakeholders to collaborate and deliver functionality in short iterations. It was rewarding (and sometimes disappointing) to demo features every two weeks and get direct feedback from users. Continuous Integration tools matured to make the delivery process more automated and consistent. However, the operations team was left out of this process. Environment provisioning, maintenance, exception handling, performance monitoring, security – all these aspects were typically deprioritized in favor of keeping the feature release cadence. The DevOps/DevSecOps movement emerged as a cultural and technical answer to this dilemma, advocating for a much closer relationship between development and operations teams.
Today, companies are rapidly expanding their cloud infrastructure footprint. What I’ve heard from discussions with customers is that the business value driven by the cloud is simply too great to ignore. However, much like the relationship between development and ops teams during the early Agile days, a gap is forming between Finance and DevOps teams. Traditional infrastructure budgeting and planning doesn’t work when you’re moving from a CapEx to OpEx cost structure. Engineering teams can provision virtually unlimited cloud resources to build solutions, but cost accountability is largely ignored. Call it the pandemic cloud spend hangover.
Our customers see the flexibility of the cloud as an innovation driver rather than simply an expense. But they still need to understand the true value of their cloud spend – which products or systems are operating efficiently? Which ones are wasting resources?
I decided to look into FinOps practices to discover techniques for optimizing cloud spend. I researched the FinOps Foundation and read the book, Cloud FinOps. Much like the DevOps movement, FinOps seeks to bring cross-functional teams together before cloud spend gets out of hand. It encompasses both cultural and technical approaches.
Here are some questions that I had before and the answers that I discovered from my research:
Where do companies start with FinOps without getting overwhelmed by yet another oversight process?
Start by understanding where your costs are allocated. Understand how the cloud provider’s billing details are laid out and seek to apply the correct costs to a business unit or project team. Resource tagging is an essential first step to allocating costs. The FinOps team should work together to come up with standard tagging guidelines.
Don’t assume the primary goal is cost savings. Instead, approach FinOps as a way to optimize cloud usage to meet your business objectives. Encourage reps from engineering and finance to work together to define objectives and key results (OKRs). These objectives may be different for each team/project and should be considered when making cloud optimization recommendations. For example, if one team’s objective is time-to-market, then costs may spike as they strive to beat the competition.
What are some common tagging/allocation strategies?
Cloud vendors provide granular cost data down to the millisecond of usage. For example, AWS Lambda recently went from rounding to the nearest 100ms of duration to the nearest millisecond. However, it’s difficult to determine what teams/projects/initiatives are using which resources and for how long. For this reason, tagging and cost allocation are essential to FinOps.
According to the book, there are generally two approaches for cost allocation:
- Tagging – these are resource-level labels that provide the most granularity.
- Hierarchy-based – these are at the cloud account or subscription-level. For example, using separate AWS accounts for prod/dev/test environments or different business units.
Their recommendation is to start with hierarchy-based allocations to ensure the highest level of coverage. Tagging is often overlooked or forgotten by engineering teams, leading to unallocated resources. This doesn’t suggest skipping tags, but make sure you have a consistent strategy for tagging resources to set team expectations.
How do you adopt a FinOps approach without disrupting the development team and slowing down their progress?
The nature of usage-based cloud resources puts spending responsibility on the engineering team since inefficient use can affect the bottom line. This is yet another responsibility that “shifts left”, or earlier in the development process. In addition to shifting left on security/testing/deployment/etc., engineering is now expected to monitor their cloud usage. How can FinOps alleviate some of this pressure so developers can focus on innovation?
Again, collaboration is key. Demands to reduce cloud spend cannot be a one-way conversation. A key theme in the book is to centralize rate reduction and decentralize usage reduction (cost avoidance).
- Engineering teams understand their resource needs so they’re responsible for finding and reducing wasted/unused resources (i.e., decentralized).
- Rate reduction techniques like using reserved instances and committed use discounts are best handled by a centralized FinOps team. This team takes a comprehensive view of cloud spend across the organization and can identify common resources where reservations make sense.
Usage reduction opportunities, such as right sizing or shutting down unused resources, should be identified by the FinOps team and provided to the engineering teams. These suggestions become technical debt and are prioritized along with other work in the backlog. Quantifying the potential savings of a suggestion allows the team to determine if it’s worth spending the engineering hours on the change.
How do you account for cloud resources that are shared among many different teams?
Allocating cloud spend to specific teams or projects based on tagging ensures that costs are distributed fairly and accurately. But what about shared costs like support charges? The book provides three examples for splitting these costs:
- Proportional – Distribute proportionally based on each team’s actual cloud spend. The more you spend, the higher the allocation of support and other shared costs. This is the recommended approach for most organizations.
- Evenly – split evenly among teams.
- Fixed – Pre-determined fixed percentage for each team.
Overall, I thought the authors did a great job of introducing Cloud FinOps without overwhelming the reader with another rigid set of practices. They encourage the Crawl/Walk/Run approach to get teams started on understanding their cloud spend and where they can make incremental improvements. I had some initial concerns about FinOps bogging down the productivity and innovation coming from engineering teams. But the advice from practitioners is to provide data to inform engineering about upward trends and cost anomalies. Teams can then make decisions on where to reduce usage or apply for discounts.
The cloud providers are constantly changing, introducing new services and cost models. FinOps practices must also evolve. I recommend checking out the Cloud FinOps book and the related FinOps Foundation website for up-to-date practices.
Banking is continually evolving, and lately, I’ve been reading a lot about the need for community banks to embrace digital transformation. How do Community Banks create an omnichannel model while maintaining their hometown appeal? As I was thinking about this question and the growing call for change, it made me reflect on the community bank that was central to the small town where I grew up. This brought back a lot of nostalgia and memories that I wanted to share about my community bank’s role in my life.
I grew up in Damascus, a small town in Montgomery County, Maryland. Our local bank, Damascus Community Bank, opened when I was a sophomore in high school by two pillars in the local community, and it grew very quickly. In a short amount of time, the bank had six locations. It was instrumental in supporting many local businesses, and also offered programs to teach kids about savings and checking. In Damascus, it was the “Cheers” of banking; everyone knew your name. And, of course, lollipops were plentiful!
Although my high school was part of a wealthy county, our athletic facilities were dated, and we were last on the list to have lights installed on our football field. Friday night football games were the social glue of a small town back then. Football games were where everyone would catch up after a long week before going to the bank Saturday morning. Unfortunately for the Damascus community, “Friday Night Lights” didn’t exist because of a funding issue. While the community frequently petitioned the county for assistance, they only offered a portion of the required funding. But when Damascus Community Bank opened, they set a plan in motion to help us raise the money necessary to close the gap so we could finally get lights for our football field and have Friday night games. This commitment to the community is still visible today; the lights are still on every Friday night. This local support was second nature for Damascus Community Bank and allowed them to become fully entrenched and accepted as a vital part of the community.
When I graduated high school, I needed a reliable car to drive back and forth to college. I didn’t have much money saved, so the first place I turned to for help was Damascus Community Bank. I knew the loan officer well; they had helped me open my first checking account. So, when I needed a car loan, they sat down with me to explain how much I could borrow, my monthly payments, and approved me for my first loan, even though I had no credit. At this point, I still hadn’t found a car to buy, but I had the loan to get the process started. Eventually, I found a great Burgundy Chrysler LeBaron, just what every 18-year-old girl dreams of driving. But there was an issue. The down payment I needed was not covered in my approved loan amount. When I went back to the bank, they agreed to issue another loan for half of the down payment. This is the result of having a personal connection with the bank and the employee who worked there.
My experience of purchasing my first car is something I will never forget. It was significant for several reasons. For starters, it was a rite of passage to become an adult; I purchased the car without any help from my parents. But secondly, it was my first experience dealing directly with a financial organization. Damascus Community Bank recognized me as a person, not just an account holder. They extended credit even though I had no history of credit yet. They were willing to take a chance on me. This type of experience doesn’t typically occur outside the community bank structure. Something I came to realize when I started dealing with larger banks.
While attending college, I needed money to cover tuition and living expenses. My job at the local garden mart was seasonal, and it just wasn’t cutting it. I decided to try banking instead, and off I went to apply for a part-time bank teller position at Damascus Community Bank. Because they knew me, I was given my very first job in a professional setting. Through this experience, I realized that I truly enjoyed serving and helping other people. Damascus Bank was the heart of the community, and every week, I would see neighbors and friends when they stopped by to cash a check or make a deposit. The bank impacted me as well as the people it served.
The Damascus Community Bank doesn’t exist today. Like so many community banks, it was acquired by a larger financial institution. When I drive back to visit my hometown, it always feels a little sad not to see the bank sign that had been there for so many years. But time marches on, and through mergers and acquisitions, community banks are being swallowed up; they are no longer the hub of the community. And I can’t help but wonder if other people miss that connection the local bank provided.
There is no question that continual enhancements with current banking technology and omnichannel banking strategies have created more services and options for customers. Change is a necessary part of growth, and today’s banks provide a vast array of services, from opening a bank account to restructuring a mortgage. These offerings provide numerous benefits and advantages. So how does a community bank progress with technology while maintaining their connection with the customers they serve? I still believe that the community bank is a vital business needed in every small town across America.
Do you have a community bank story?
So, it was early 2009, I had been laid off and decided to relocate from Dallas to Austin. After getting established, I set out to find a job, NOT in the mortgage industry. I wanted to be more technology-focused. I searched and interviewed at many places and began receiving offers.
BUT – that mortgage tug – kept pulling at me. So, I thought this would be a suitable time for me to get back into Sales or Operations and get to see how the technology affected the users as well as how things had or had not changed. I was able to accept a position as an Underwriter and soon after oversaw a team of underwriters for a region. I got to live and breathe the end of the month cycle again, see how the technology was hampering or helping, provide tips and tricks and I really had a wonderful time.
In mid-2011, Mortgage IT (Information Technology) jobs came calling again. It took me back to Dallas where we selected and rolled out a Loan Origination System, supported Capital Markets and Warehouse software, opened a Call Center, and more. That company was sold to another company, and layoffs were beginning, so I took an opportunity and moved to Houston to do another Loan Origination Selection for another employer, among other projects. Then back to Dallas where a company had bought another company and they needed to consolidate to one system. At that last company, I was Vice President of PMO (Project Management Office). Then leadership changes occurred, and they laid off the entire PMO staff. I secured as many jobs for my people as possible and decided to investigate Consulting. At this point in my career, I had been laid off three times, and climbing that ladder just to get chopped off had become exhausting.
I have known CC Pace since 1998, as they helped us roll out automated underwriting. Following that, I worked with them throughout different employers over the years.
So, we made it happen. In September of 2015, I went to work for CC Pace as a Senior Consultant. It has been so much fun being on this side, we get to help solve so many different problems for so many different clients. From POS (Point of Sale) and LOS (Loan Origination System) Selections to Implementations, Compliance Reviews, Process Reengineering, system tune-ups, staffing reshuffling, website buildouts, security reviews, system assessments, due diligence, and more. Getting to meet so many new people from all over the country and develop relationships has been the most rewarding.
When I moved from temporary to permanent in 1992 as a Loan Processor, my mom wrote me this letter:
On 5-1-71 I began my career in the mortgage industry. Here we are 21 years later, and you are beginning your career in the mortgage industry. My beginning salary was $375 per month and over the years that income has increased 10 times +. I hope you will experience the same kind of financial rewards but more than that I hope you enjoy the work and challenges as much as I have. It’s a good business and you will work with a lot of good people. Good Luck – you deserve it.
She was and is right, my beginning wage was $7 an hour and the financial rewards have been good. But so much more than that, I love the mortgage industry. I have met some of the best people in the world and many of them I am proud to call my friends, 30 years plus, some of them.
Much of what we do in this life is about the journey and nurturing good relationships along the way. On the Consulting side, we get to build so many relationships, see so many problems and help solve those problems. You see problems, we see solutions. What can I help you solve?
In case you missed it, check out Part 1 of this series here!
By June of 1991, I was in college, and I had been working at Albertsons, climbing the ladder, and was manager of my own department. I had to take mandatory time off because we were trying to catch an inventory thief. I was talking to my Mom, who was a Regional Operations Manager (ROM) for a mortgage company, and told her that I had to take this time off, but I didn’t have any plans. She suggested that I come earn extra money by working in their Shipping Department. So, I did. I became a part-time Shipper and Post Closer. I loved the office life, as it was so different from the grind of the grocery business. It was a grind, don’t get me wrong, but my clothes stayed clean all day and I was learning so much!
(By the way, we did catch the thief!)
There were not any Personal Computers (PCs) on the desks. There were smart typewriters, thermal fax machines, and we used runners (companies that would take a closing package from the mortgage company office to the title office). There were tons of manual forms, file cabinets galore, single – double – triple hole punchers, and colored folders. Heck, you could still smoke in the office back then.
In our department, we used a PC with FoxPro to track everything. The first thing I did was make the database much better. I had been dabbling in computers since I got my first TI Sinclair 1000 in the 8th grade, then graduated to a Commodore 64, then my first Hewlett Packard.
I was hungry to learn as much as I could. I read every manual I could get my hands on. I began reading the loan documents as I stood at the copier making two copies: one to send to corporate and one to retain in the branch. From there, I moved to Loan Setup, and this is where I revolutionized how they put the origination packages together and streamlined that operation. I also was the WordPerfect whisperer and created, updated, and/or streamlined many forms. The Regional Manager didn’t know how to use a computer, so when it was budget time, I was called to work in Lotus 1-2-3 and that was how I learned budgets and P&L statements.
Then in 1992, computers came. These Data Processing folks descended upon our branch. Cables were laid and PCs were put on every desk. I came in over the weekend and followed them around like a puppy dog. Then, after providing some training for everyone, they left. So, who was on-site tech support for all the PCs, the printers, the LAN? You guessed it, me. Printer or PC not acting right? Call Greg! I would intuitively know what to show them or how to fix their issue. I watched as they struggled to enter data and then figured out that I was good at teaching people how to do things and showing them ways to do their jobs faster, more efficiently.
For my actual part-time job, I went on to work in several departments, again, trying to learn as much as I could. My Mom who was the ROM, moved to be the Wholesale Account Executive, and now that nepotism was out of the way, I was offered the full-time job as a Loan Processor. I quit my job at Albertsons and fully devoted myself to mortgage.
Over those first eight years in the industry, I was living the branch life and held positions such as Shipper, Post Closer, Loan Setup Clerk, Loan Officer Assistant, Quality Control Reviewer, Loan Processor, Loan Closer, Pre-Underwriter, Lock Desk Specialist, LAN Administrator, Operations Manager, Assistant Branch Manager, and Loan Officer. I moved all around Texas, from San Antonio to Austin, and then to Dallas.
When I was in Dallas, a unique opportunity came up for me to work in the Data Processing department. I had a direct line to this group and always shared how the system or a form could be better. So, they offered me a job and I moved to Scottsdale, Arizona. I also was able to be on the ground floor of rolling out laptops to our sales force. I got to pick the laptops, load them with the software, work on the interface to the processing system, then fly about the country training and rolling them out. I got to go to conferences and branch events. I did not love living in Arizona, so when an opportunity came up for me to move back to Texas, I took it.
I worked on the Help Desk where my hours were three 12-hour days and a half-day on a Saturday once a month. I loved that schedule. But that schedule was short-lived, as within two months I was a Business Analyst working on the Point-of-Sale software and rolling out laptops for a much larger organization that had also bought another mortgage company. Those were some crazy times and late nights.
I spent the next ten years of my career in Information Technology (IT) roles. I continued to strive for and climb into higher and higher positions with more and more responsibility. I ran Point-of-Sale Systems, Loan Origination Systems, branch and loan officer websites, then three POS systems across three company brands, then consolidation of those three systems down to one. I held the roles of Business Analyst, Team Manager, Project Manager, Program Manager, Business Information Officer, and Assistant Vice President. It was a great time to see all the technology changes within the mortgage industry and be involved in discussions with Fannie, Freddie, HUD/FHA, VA, software vendors, C-Suite level executives, all the managers in between, down to all the individual roles. Curating solutions that came on the heels of adapting to market changes and acquiring feedback from users.
Over almost twenty years, I came to realize that because of my production and operations background coupled with IT knowledge, I filled a great niche because I could speak the Business AND the IT languages and bridge the gaps between the groups.
Then KA-BOOM, www.ml-implode.com became daily life. It was a terrible and scary time for anyone in the Mortgage Industry. By the end of 2008, I, along with 10,000 people at my company, had been laid off.
By this time, I was living in Dallas, TX, and wanted to get back to Austin, TX. So, I sold my house, turned down a lateral-down move to stay with the company that had just laid me off, and headed into the unknown.
Continue following Greg’s journey in part 3 of the series here!
A recent Credit Union Times article noted that while credit unions continue to perform strongly with long-time customers (those over 65 years of age), the industry is struggling to retain and add younger customers. The same article notes that the average age of a credit union customer is 47 years old and that only 10% of people aged 20 – 34 currently utilize credit unions for their financial services needs.
So, why are younger depositors leaving credit unions for other institutions and services? A CU Insight article suggests that a combination of cash incentives, reward programs, and gamified customer experiences are driving younger customers to these providers in large numbers.
This implies a trend that will have devastating impacts to the industry if not addressed.
For the last several years, the industry has managed the problem of growth through mergers and acquisitions (similar to the activity seen in the banking industry in the late ’90s and early 2000s). Asset consolidation has led to a few very large credit unions holding a majority of the industries assets, and according to the American Banker, a group representing 12% of credit unions now hold 81% of all managed assets.
While this has solved the problem of scale for some credit unions, it does not help smaller independent credit unions, nor does it provide a path to long-term, organic growth for larger ones.
So, what’s the solution?
Should credit unions pursue similar strategies to traditional banks to attract customers? This can be tricky, as many credit union customers were attracted because they wanted a very different experience from traditional banking; also, offering considerable up-front financial incentives to attract new customers can be problematic, as the incentives have traditionally been focused on lower overall costs and higher returns on deposits.
How about pursuing more unorthodox methods a la companies like SoFi that provide softer incentives through gamifying customer experience? This might be a reasonable approach to attract very young customers who respond better to these types of incentives. This, combined with robust social media strategies can begin to claw back a portion of the Gen Z and Millennial populations that have begun to abandon their parents’ choice of the financial institution; this might shore up customer numbers, but will not likely have a major impact on assets held.
To be successful in the long term, credit unions must continue to focus on differentiation with traditional banking. Superior customer service has been a cornerstone to the value proposition of credit unions, and the industry must continue to look for ways to promote this fact – along with the generally higher return on deposit and investment products. This can be a challenge given smaller advertising and marketing budgets, but as noted above, properly leveraging lower-cost channels provided by social media can provide significant brand lift with a reasonable investment.
In addition, many credit unions have been expanding their reach into the small business segment within their markets, offering loans, payments processing, and other related services and this class of service could be a significant source of long-term growth if the industry can overcome significant headwinds from both traditional banks and FinTechs (see this article from American Banker). Once again, credit unions bring a unique value proposition compared to these other providers, but it is critical that those advantages are made crystal clear through effective marketing, advertising, and social media campaigns.
In short, credit unions offer some incredibly compelling advantages over traditional banking, as well as stability and reliability compared to FinTechs moving into the consumer and small business banking arena. Recent trends in loss of customers is concerning, but with continued focus on maintaining best-in-class customer service and continuing to offer products aligned with the needs of local markets, along with aggressive attention to marketing and branding through more modern channels will both help stave the loss of customers from newer, younger bankers and demonstrate a focus on continued uncompromising service to its members.
Interest rates are on the rise and affordability is tightening. New and old methods will need to be tapped to continue to put borrowers into homes, are you and your platform ready?
For many, it has been a very long time since anything beyond a straightforward fixed-rate product guideline was added to the LOS platform. In some cases, adjustable-rate (ARM) or other more complicated guidelines have never been entered into the current platforms, as the LOS was replaced with new technology more recently.
It’s time to check your systems to make sure everything is ready for when those new guidelines are needed. Whether it’s an ARM with a SOFR index rate, a piggyback, or some other product, you need a refresher on the data that needs to be collected to define the product. What about documents that may be needed and information the system needs to define new product guidelines. Processes and procedures also need to be reviewed to ensure they address any additional or different steps needed during the origination. Also, the points of integration should be assessed to ensure that the requisite data to support an expanded list of products is fully supported. The last step is particularly important given the addition of technology to support all aspects of digital lending throughout the pandemic.
If you’re ready, CC Pace can help. We have a proven track record of working with our clients to revitalize technology infrastructure, update systems to conform to current practices and implement organizational/process best practices.
I am a mortgage baby, and proud of it!
That is what I was called, before I even started my journey in the mortgage business, a mortgage baby.
I officially began getting a paycheck in mortgage banking in early 1991, although I knew about mortgages way before I entered the business. I am excited to have been able to evolve and grow into a Director, Mortgage Practice for CC Pace Systems, Inc. I hope to share my knowledge, wisdom, and lesson learned with our many clients.
My mom and dad were both originally in the Savings and Loan business in the early 1970s. In the late 1970s, my dad (Gerry Self) transitioned to being a Mortgage Insurance Sales Representative. My mom (Sylvia Burnett, formerly Sylvia Self) began working for a mortgage banking firm and she had a side gig, underwriting loans for the local HUD (Housing and Urban Development) office, way before Direct Endorsement. What I remember about the early days of that, was that my dad was always on the road and my mom worked a full day, then would bring home boxes of files from HUD and after getting us all nestled into our beds, she would underwrite loans.
Then in 1984, my parents went to work together at the same company. My dad was the Branch Manager, and my mom was the Operations Manager. They opened the Killeen branch, then we moved to San Antonio, and they opened that branch. I would work many hot Texas summer days from 1984-1986 at that company. I did some light clerical work, like answering the phones, filing, typing, organizing, fetching. Lots of fetching.
What I remember from that was that there were no fax machines and certainly no computers. There were typewriters, IBM Selectric III’s, everywhere. The FHA (Federal Housing Administration) forms were multi-page with all sorts of colors with carbon paper in between. There was liquid paper in several colors; Acco punchers and fasteners; file folders and file cabinets; staplers and staple pullers; three-hole punchers; blue pens and red pens. The blue pens were so you could tell it was an original signature. The red pens were used by the underwriters, who, I assumed like teachers, graded your work.
Paper and manual everything was king. Automation was not even a sparkle in anyone’s eyes.
In November of 1986, I turned 16. Over the Thanksgiving holiday, while we were in Lubbock, TX with the grandparents, my parents bought me a 1981 Buick Skylark for $2,000. I got to drive it all the way back to San Antonio, it was awesome. After unpacking from our trip and settling back in, one day after school my mom came to me. She sat me down and very sternly let me know that it was time to find a job. So off I went to the nearest Albertsons, turned in my application, and was interviewed. I was hired that day and I started the very next day. I came home and let my parents know and my mother was flabbergasted, thinking that it would take me more than a few hours to land a job. So, in December of 1986, I started my job as a Courtesy Clerk (Bagger) at Albertsons on the corner of San Pedro and Thousand Oaks and left the mortgage world behind me. Or so I thought…
Follow Greg’s journey in part 2 of the series here!
I sincerely hope that you’ve been enjoying Mike Gordon’s recent posts on the changing landscape of banking in the digital world. (If you missed them, please bookmark this post and click this link to read them before continuing any further.) Mike has done a great job of outlining many of the macro-level changes afoot among the banking industry leaders, the innovators and the smaller local lenders as they respond to customer demands and competitive pressures in a time of rapid acceleration of mobile computing and personalization of services available in finance. Mike deftly explores how the responses may vary by institutional types along with his insights as to why the digital approach most often aligns with the customer population that typically defines their respective markets.
I recently ran across an excellent thought piece from Alex Johnson and Darryl Knopp of FICO, based on a session they presented (virtually, of course) at an American Banker’s Digital Banking 2020 conference in December and was struck by how well it complemented Mike’s posts at a more tactical and granular level. The executive summary of their session, entitled “The 11 Commandments of Digital Banking”, can be accessed here (Download Executive Summary). I think that you will agree that Alex and Darryl’s “commandments” are well reasoned and thought provoking in the way that they articulate the customer experience requisites of our times, well punctuated with humor and the obligatory TikTok reference our pop culture demands. Coupled with Mike Gordon’s overviews of the current landscape, these pieces give us a lot to think about how well we are doing with regard to transforming our own businesses to better serve our customers and keep up with the times.
Please drop in a comment to let us know how your own digital transformation is going. We would love to hear from you.
In my previous blog, I highlighted that different banking “personas” have differing goals with respect to digital banking. The large, national financial institutions envision digital banking as being a fundamental competitive differentiator they need to continuously build upon. The smaller community banks and credit unions are looking to continue to provide an attractive, local alternative like they have done in the past, while meeting the growing digital requirements within their budget constraints. Meanwhile, new, online-only entrants are making a bet that their future banking clientele do not require any physical presence, particularly in the millennial market.
This blog delves deeper into the strategies and tactics being deployed by the first group, the large national players. With the financial wherewithal to invest in new technology, these institutions strive to provide the widest array of banking options and features to attract and retain customers, while also improving efficiencies within their companies.
As early adopters of online and mobile banking services, the national banking institutions enjoyed an advantage over their smaller competitors when the pandemic hit and physical access to bank branches became limited. Not surprisingly, the J.D Power 2020 Retail Banking Satisfaction Study found that these large financial institutions had both a greater penetration of digital customers and a higher customer satisfaction index of their customers, using more advanced online and mobile capabilities to achieve this advantage while increasing revenues, managing costs and improving service.
Many large national banks have increased revenues and grown market share largely by focusing on customer experience as an essential component in attracting clients from large and small competitors alike. By increasingly using human-centered design techniques and mobile banking services to tailor technology to the needs of the customer base being served, these banks have rolled out highly effective online and mobile platforms that leave customers feeling good about their experience. This approach often includes faster onboarding, simplified payment processing, and easier access to account and transaction information with digital signatures and mobile check deposits reducing the need to come to a branch to create a new account or conduct many common transactions.
Reducing foot traffic into branches has not reduced the ability to grow revenues by selling more products, however, as the national players have increasingly leveraged artificial intelligence to mine their data to determine which customers are likely candidates to purchase certain products, and then following up with targeted online marketing campaigns to promote those products and make signing up quick and easy via online banking.
Despite the obvious technology costs of deploying digital banking capabilities, the large players have found ways to use digital banking to reduce two of their largest expenditures: labor costs and fraud losses. Like most companies, the largest expense for a bank is their human capital costs. Technology has successfully enabled the large financial institutions to serve more customers with fewer employees.
Using robotic process automation, more and more activities previously performed manually by bank staff are now computerized. Chatbots and Voice Assistants are also being used to allow customers to get answers to questions or to process certain transactions with less need for interaction with a human employee. As an example of the magnitude of this labor cost reduction, in an interview with CNBC in October, 2020 Brian Moynihan, CEO of Bank of America (BofA), stated that through the adoption of technology, BofA has reduced its workforce in the past decade from 288,000 people to 204,000, a 29% decrease.
While the increased use of digital banking has led to efficiency in bank operations, it has also increased the risk for bank fraud. Online and mobile banking provide new gateways for criminals to defraud businesses and consumers. Fortunately, artificial intelligence and machine learning platforms have provided a means to combat these criminal activities and reduce the losses associated with bank fraud. As the sophistication of these systems have grown, they have become more equipped to recognize emerging trends and behaviors to identify additional transactions of concern. In the past, one common mechanism to mitigate risk of a potentially fraudulent transaction was to simply deny an application. Today, using artificial intelligence, fraud losses are being mitigated with less impact to approval rates.
Finally, with respect to improving service, a growing trend particularly popular among younger customers is the concept of digital self-service. Self-service is the ability for customers to get answers to questions and process transactions without the need to wait for a service representative to help them. According to Salesforce’s “State of the Connected Customer”, 59% of consumers and 71% of business buyers say self-service availability positively impacts their loyalty.
Features like Frequently Asked Questions (FAQs), videos about banking products, or financially-related knowledge articles have been added to bank websites and mobile apps as part of this self-service. Combined with Chatbots and Voice Assistants mentioned above, customers are now getting the answers they are looking for much quicker than they were when waiting for a customer service representative on the phone.
These digital banking technology investments have provided the large financial institutions a strategic advantage over their smaller, less well-healed competitors. So, what are these community banks and credit unions doing to counter this advantage? Stay tuned for my next blog in this series.
While digital banking has been on the upswing for many years, the COVID 19 virus has changed its trajectory. While many consumers prefer conducting banking transactions from their phone or computer over making a trip to their local bank branch and dealing with the lines at teller stations or drive-up windows, the pace of adoption has lagged expectations until the recent crisis.
Digital banking can have slightly different meanings depending upon who you are speaking with. For contextual purposes in this blog series, consider digital banking to be the movement of the traditional banking activities that were historically performed when a customer physically went inside of a bank branch to now being performed online through a web browser or a mobile phone. These activities could include:
- Check Deposits
- Money Transfers
- Bill Payment
- Account Management
- Application Submissions for Financial Products
Most commonly, the digital banking experience occurs at a traditional bank that has augmented its branch services with online and mobile tool options. However, new entrants into the financial services market have created digital-only banking where no brick and mortar branches exist, and all transactions are performed electronically.
This move towards digital banking reflects a broader societal trend of conducting more transactions in a self-service mode, which has been advanced by the younger generation who are more comfortable using technology to conduct business. However, not all banks embrace digital banking with the same mindset. Some larger institutions see digital banking as transformational, envisioning a new overall model for conducting business with less bricks and mortar and more ancillary revenue generated by the online transactions. For the most part, smaller players have taken more of a “follower” position, providing basic mobile and online banking functionality that meet a minimal bar for a modern bank but nothing that serves as a marketplace differentiator.
The COVID-19 pandemic has greatly accelerated the adoption of digital banking apps, with the clear expectation that, even if it were to end, many consumers will no longer go back to the physical branches like they did in the past. The J.D. Powers’ 2020 Retail Banking Satisfaction Study found that:
- 36% of respondents plan to use more online tools to do more of their banking
- 20% plan to go to their bank branch less often
- 24% plan to use mobile payment apps to make purchases in stores more often
- 18% plan to use ATMs less often out of concern over spreading the COVID virus
The large, national financial institutions envision digital banking as being a fundamental competitive differentiator that they need to continuously build upon. Leveraging technologies that include artificial intelligence, data analytics and advanced fraud detection will provide some of the avenues they seek for further enhancing the experience and convenience to their customers.
The smaller community banks and credit unions have used their local commitment and high-touch approach to provide a different option than offered by their bigger rivals. This distinction is being highly compromised by the reluctance, if not inability, to go into a physical branch for the foreseeable future. To compensate, these local players are looking to find ways, such as mobile account access, to adapt to the current trends and situation, while still providing an attractive alternative as they have done in the past.
Digital-only entrants seek to capitalize on consumer preference changes shifting towards online and mobile devices, making a bet that the future of banking does not require any physical presence. They see that customers are increasingly willing to switch banks for digital features and thus strive to provide the optimal digital experience. Their target market focus are millennials who embrace technology and who are rapidly becoming the largest consumers of financial products.
In my next three blogs, I will provide: 1) insights into what the largest players are investing to further transform the digital banking environment, 2) strategies that the smaller traditional players are taking to compete effectively in the changing landscape and 3) the differentiation strategy that the newer, digital-only entrants are employing to gain some market share and how well it’s working.
We recently conducted a (sold out!) webinar on the LIBOR Transition, driven by the NY DFS sending a letter to over 1,000 companies that they regulate Board of Directors, with a response due on March 23, 2020.
The first question we received in response to the webinar was “you guys use a lot of acronyms, can you explain what it means, please?” And it’s true, we do use a lot of terms, so we put together a LIBOR transition cheat sheet (a Glossary) to explain not only what each acronym means, but why it is important in a LIBOR transition context.
Some facts about LIBOR:
- LIBOR has been in use since the 1970’s and is well understood by the markets and regulators.
- Many loans use LIBOR as an index rate, especially mortgages and student loans.
- However, dollar volume of LIBOR based contracts, futures, options, or other types of derivatives is far greater than its use in loans.
- Although people talk about it as if it were a single number, it actually has its own “Term Structure” (see our glossary) with 7 different rates and its own yield curve. Having a Term Structure is a great attribute for a Reference Rate to have, and most Alternative Replacement Rates do not have that, at least not yet.
- The Financial Conduct Authority (FCA, below) that oversees the publication of LIBOR decided in 2017 to not compel any bank to contribute to the LIBOR process after December 31, 2021. This means it is very unlikely that banks will participate after this date, and LIBOR will cease to be credible if it exists at all.
- Liquid markets require many participants. Therefore, regulators and associations are issuing Replacement Guidance to move participants to a new market. In the US, the ARRC (below) is guiding markets towards SOFR (below).
Here are the first four LIBOR-related acronyms you’ll hear us mention when we talk about the transformation. The full list of terms can be found here. It will be updated on a regular basis.
The new URLA is coming. But the status report, for July 2019, is decidedly Red.
Warning signs regarding the immensity of the forthcoming changes have been out for well over a year, yet it seems some lenders are just starting to realize the size and implications of the coming changes related to the new loan application – the Uniform Residential Loan Application (URLA, aka 1003 or form 66). This is the first of a short series of blogs exploring the benefits and challenges that lie ahead.
The URLA is undergoing a total redesign for the first time in 30 years and that is driving major changes in four areas:
- The application itself – its form, data elements, organization and fundamental operation
- Its corresponding data file, the Uniform Loan Application Dataset (ULAD)
- The agencies’ automated underwriting systems (DU, Fannie Mae’s Desktop Underwriter and LP, Freddie Mac’s Loan Prospector) submission, interfaces and files
- The retirement (at least not keeping current) of the Fannie Mae DU3.2 file, which has long been the industry de facto standard for transferring data.
The optional date is coming soon – July 1, 2019 – and the required date is February 1, 2020 – not very far away for a truly major change.
When the subject of the new ULRA came up at the recent National Advocacy Conference, a gentleman sitting at my table said, “My vendor is taking care of it.” When he didn’t smile and the rest of us figured out that he was serious, the branch manager and the lawyer at my table both asked him “You mean your vendor sets your policy for how to fill out the language preference and whether you let the MLO do that instead of the borrower?”
I saw two other issues myself, including “Which vendor?” and “Are all your counterparties ready? Does your entire process work end-to-end?”
On the issue of leaving things to your vendor, even small lenders are likely to be dealing with two or more vendors who not only have to be ready, their systems have to be tested together to make sure that your process works.
Below is a simplified snippet taken from CC Pace’s Reference Architecture, showing internal interfaces that are affected by the new URLA:
That’s a lot of moving parts undergoing substantial change that need to continue to work together. Let’s look at things from the perspective of relatively common test cases. It seems reasonable to expect that a POS submission to DU and an LOS submission to DU will both work. But in an equally common, but decidedly more complex scenario, when you take the application on the POS, transfer the loan to the LOS, where you rerun DU and then request a set of documents from your doc vendor, it’s not hard to imagine that initially something will break down, simply based off of different assumptions that were made.
On the issue of counterparty readiness, the reference architecture reveals even more counterparties and vendors that have to be ready and that you will have to test your process with:
But wait, there’s more! As far as the industry is concerned, not only do you and your counterparties have to be ready, but the entire ecosystem has to be ready, end-to-end. And the status for that is decidedly red.
Take the previous difficult test case and now extend it to a common industry chain. A broker starts the application, it closes with a mortgage banker who then sells it to a correspondent investor, who now runs Early Check or LQA on it, purchases it from the mortgage bank and then delivers it to Fannie or Freddie. It is known that this will not all work in July 2019.
Here is what I gleaned from the MBA ResTech call from May 16th, 2019:
- Many individual vendors appear to be ready – but what that means is that they are ready to be tested in conjunction with other counterparties in the ecosystem
- Not all components necessary for an agency correspondent transaction are ready
- Correspondent Purchasers are starting to issue guidance that they will not purchase loans on the new URLA until 2020
It is CC Pace’s recommendation that every organization be extremely active monitoring the status of the new URLA both within and outside of their company; it is impossible that “our vendor is taking care of it all” is the right answer. This July through February represents a significant and much needed test period, not just for the systems and your process, but also for your compliance and training.
Some Correspondent Purchasers are issuing their own guidance on the matter. Have you?
Whether delivered by a rocket or obtained at a depot, the reality is that the digital mortgage has finally arrived. Regardless how different organizations may define digital mortgage, the fact remains that mobile applications, eSignings, and eNotes are very real, with more lenders steadily getting on board. This then begs the question, “Alexa, what’s next in lending?”
Today the answer appears to be blockchain, artificial intelligence (AI), and robotic process automation (RPA). This article takes a look at why these technologies may be the next big deal.
To begin, let’s look at blockchain, the secure distributed ledger system behind cryptocurrencies such as Bitcoin. Tim Williams, Managing Director, Institutional Equity Sales, at GMP Securities, who specializes in blockchain, told me in no uncertain terms, “Blockchain will singlehandedly completely disrupt the infrastructure of all sales transactions worldwide.” Tim went on to explain how blockchain will become a required component within the fabric of all software support systems to complete a sales transaction, especially in the banking and mortgage banking sectors. That said, Tim then issued a stern warning to those firms operating on legacy systems, “They should be most concerned since you can’t just thread blockchain into an existing architecture or infrastructure. It’s not only a preposterous experiment, but impossible.” Tim estimates that every organization is going to have to strip out their existing legacy system and replace it with a blockchain-based platform. This is a significant consideration that lenders and mortgage bankers will have to seriously ponder, especially when considering all the benefits that blockchain promises to deliver.
Blockchain is already making significant strides to help reshape the housing industry in other parts of the world, helping organizations, cities, and even countries achieve real cost savings, security, and efficiency. Ukraine’s government recently passed new laws requiring blockchain, as it is believed to be the catalyst to help drive up their real estate values, which have fallen nearly 70%. Sweden, one of the leaders in blockchain adoption, is currently in the third phase of its move to blockchain-enabled land title registry. The Swedish government believes blockchain could save their taxpayers over $100 million a year by being able to do faster loan transactions, significantly reduce paperwork, and dramatically reduce fraud. Following Sweden’s lead, the United Kingdom is completely re-designing their land registry system using blockchain as the foundation. Maria Harris, Director of Intermediary Lending, at Atom Bank in the UK, says, “blockchain allows us to get to a point where the customer might be looking at an online estate agent and clicking through to get that data as part of looking at a house and get approved, before they even engage with a lender.” Based on these success stories, it appears the US mortgage markets have some catching up to do.
Next, let’s look at artificial intelligence, or AI, also referred to as intelligent machines or machine learning. While many may think that AI is the realm of IBM’s Watson platform or nifty devices from Amazon being used in the home for simple tasks such as building shopping lists or turning on lights, a few lenders are starting to leverage AI’s capabilities to help reduce support costs, increase efficiencies, and improve the customer experience. Scott Slifer, the CEO at Sutherland Mortgage Group in Raleigh, NC highlights how they do social media monitoring using AI to scour Twitter, Instagram, and Facebook for any negative commentary that pops up so that they can address issues immediately when they are uncovered. At Atom Bank in the UK, Amazon’s Alexa platform is helping mortgage brokers by letting them access case tracking and the to-do-list on any given transaction. Alexa will communicate what cases are outstanding, what documents they’re waiting on, and who is doing a valuation on what day. One of the fastest growing banks in Europe, Atom Bank implemented a combination of AI tools, including chatbots and an avatar, to collectively reduce inbound phone calls by 92%. Atom claims the cost savings are adding up quickly, particularly when servicing over a million loans.
Lastly, lenders will need to adopt more advanced Robotic Process Automation (RPA), something that often goes hand in glove with AI. RPA is the use of software to handle high-volume, repeatable tasks that previously required humans to perform. A survey of 1,500 banks and lenders conducted by Capgemini in July 2018 found that while 40% have successfully adopted RPA using the basic RPA tools, such as imaging and programming rules to automate tasks, only 4% have gone on to use the more advanced functionality of RPA. It is estimated the machine learning component of RPA is where the real operational, long-term, cost savings will be achieved. Sarah Green, director of business development at Sutherland Mortgage Services UK, estimates that Sutherland’s 205 bots currently handle over 120,000 transactions each month, driving nearly a million dollars in monthly operating cost savings.
In another example, OCBC Bank in Singapore has been experimenting with RPA since 2015, assisting the consumer secured lending team with home loan restructuring and slashing processing time by 97%. Prior to RPA, these tasks involved an employee executing 199 process steps while toggling across five systems and 27 screens for one loan application, a process that took more than 45 minutes to complete. Now, with a well-programmed bot in place, it takes just one minute. Another bot at OCBC is assigned to the finance team to help with sales performance reporting – a task that took 120 minutes when handled by one bank employee. The RPA bot does the job in just 12 minutes. When considering bot development, Cheryl DeRoche Johnson, managing director of innovative solutions at MUFG Union Bank indicated, “you have to consider your robots as another set of staff. You wouldn’t have staff do a job without having process and procedures in place.” As a result, you’ll have to program the appropriate rules, process flows, policies, and procedures to successfully train the bots. While RPA’s machine learning capabilities are still in the very early stages, it’s apparent the savings are already adding up.
When considering the sophistication of these tools, lenders need to recognize them as being more challenging than ever to develop, integrate, and implement, but well worth the effort. So how do we get there from here? While the answer isn’t necessarily crystal clear, or the path altogether easy, one thing is for certain: the next wave of change is just starting and we all need to be involved. CC Pace is here to help you successfully transition from the current state to the future state. As we like to say: “You see problems; we see solutions.”
CC Pace is proud to announce the launch of our most recent market survey in which we explore some of the current trends in mortgage lending, including improving the customer experience, going digital and more. We invite our readers to participate by clicking the link below. The survey takes less than 10 minutes to complete and all data collected will be treated as confidential.
Well known in the mortgage industry for our work in process engineering and successful project execution, CC Pace has been conducting industry surveys for our clients for years, gathering market intelligence and preparing trend analyses. Recently, we’ve been increasing the frequency with which we’ve conducted surveys for consumption by a broader audience within the industry.
Our last survey (get it here), was extremely successful, with many industry publications touting the paper’s availability and various statistics from the paper were quoted by numerous sources on social media. Most gratifying, Austin Kilgore, editor in chief at National Mortgage News, chose to use data from our report to illustrate several of his points in an article entitled “Five Trends that will shape the mortgage industry in 2018”.
By participating in the survey, you will get an advance copy of the resulting white paper and be the first in line to get valuable insights as to how your plans and strategies relate to those of your peers and competitors. Surely this is worth ten minutes of your time (actually, SurveyMonkey tells us that most early respondents are completing it in just over 7 minutes).
Can you imagine a world without engineering? It’s a tougher question to answer than you might think. Many people do not actually know the extent to which we rely on engineering for our daily lives to function, and the amount of work that has gone into it by different types of engineers.
The discipline of engineering is one of the oldest, arguably as old as civilization itself. The first engineers were those who developed the lever, the pulley and the inclined plane. Egyptian engineers designed and built the Pyramids, and Roman engineers conceptualized the famous aqueducts. Today, engineering covers a broad range of disciplines, all devoted to keeping the “engine” running — a world without engineering would soon come to a standstill.
In a recent conversation, I answered the usual “What does CC Pace do?” question with my standard response regarding our services, to which she replied, “Oh, you’re process engineers!” Her response was compact, narrowly focused, and remarkably spot on. With people processes and systems processes at the heart of much of what we at CC Pace do, yes, we are process engineers, yet it had never occurred to me to describe us as such.
Quoting liberally from Wikipedia, process engineering focuses on the design, operation, control and optimization of a series of interrelated tasks that, together, transform the needs of the customer into value-added components and outputs. Systems engineering is a close corollary activity that brings interdisciplinary thinking to focus on how to design and manage complex systems, beginning with discovering the real problems that need to be resolved and finding solution to them. That’s what we do here at CC Pace in a nutshell.
Some folks make the mistake of thinking business processes are in place to only ensure internal controls remain strong and to make people accountable for what they are doing. In fact, business processes constitute all the activities your company engages in—using people, technology, and information—to carry out its mission, measure performance, serve customers, and address the inevitable challenges that arise while doing so. Processes determine the effectiveness and efficiency of your company’s operations, the quality of your customers’ experience and ultimately, your organization’s financial success.
At CC Pace, we pride ourselves in achieving organizational excellence by being the industry leader in business process and technology engineering. We are dedicated to driving innovation and delivering exceptional quality in everything we do. As systems and process engineers, we help our clients streamline, standardize and improve their processes to retain a competitive edge. You see problems; we see solutions.
Almost everywhere we look, we see the signs of a rapidly progressing transformation to an online, digital future, in the way we communicate, consume entertainment, shop and manage our finances. Very surely more and more aspects of our daily lives are changing at a clip unlike anything we’ve seen before. Is it possible the banking and mortgage industries are immune to this transformation? Absolutely not.
But disturbingly, a survey by Mindmatters Technologies Inc., a firm that specializes in helping clients maximize innovation in new product development, found that 81% of US businesses do not have the resources needed to fully pursue the innovations and new ideas capable of keeping their companies ahead in a competitive marketplace. Polling from CC Pace’s own recent survey (Mortgage Banking & Technology: Lenders’ Perspective) found that thus far, fully 80% of lenders have failed to take substantive steps towards creating the capability of offering their customers a truly end-to-end digital mortgage experience.
Banks and lenders continue to find themselves trapped by mature, complex processes, products, and systems, and the cost of breaking these chains to enter the digital age will only continue to mount. Further, lenders exhibit little confidence that their software providers are doing enough to help them with the transition. Evidence of this concern is validated in our recent survey where we found that 64% of lenders today continue to be “unhappy with” or “resigned to” their current technology provider.
Even as many in the banking industry struggle to overcome inertia in their move towards digital, they are feeling threatened by “outsiders” who are not as bound by the past, thus are able to more freely design, build, and launch solutions that offer cutting edge technology and processes that better meet the demands of today’s consumer. Whether motivated by fear of survival or the desire to be an industry leader, one thing is for sure: lenders can ill afford to sit idly by, waiting for the future to arrive.
Consequently, lenders are increasingly deciding to take the future into their own hands. For some, that means moving away from traditional vendor-supported platforms in favor of developing technology in-house, but such moves are not for the faint-hearted. Many more are finding that the most cost-effective (and risk averse) strategy for moving into the digital age is to begin building on top of their existing platforms to effectively cross the chasm. Bolting new capabilities onto legacy systems from among a host of FinTech upstarts, coupled with adopting aggressive process reengineering and business transformation projects can allow them to attain new benchmarks of success.
With many lenders lacking the time and resources to sustain a complete technology overhaul and engage in an end-to-end business transformation, often they turn to third-parties, including CC Pace, to help pave their way to success in the digital age. Employing innovative ideas, judiciously selected technology additions, and a well thought out approach to reengineering can allow almost any lender to successfully reposition themselves to attain their digital transformation goals.
I’ve always said, “it all comes down to execution”. A key component to successful execution is knowing that successful process reengineering is less of an IT effort and more of a strategic business design project. For lenders to catapult themselves successfully across the chasm into the digital age, it will require a balanced approach of taking the future into their own hands, designing a realistic roadmap, finding the right partner to work with, and executing flawlessly. You see problems; we at CC Pace see solutions.
The Financial Services Team at CC Pace is very proud to announce the posting of a new white paper, which is based on the results of a recent industry survey. The senior consultants in our Mortgage Practice periodically reach out to a broad cross-section of the industry to gather direct input on the mood in the marketplace, current trends, pain points, technology innovations and more. The results from a survey we conducted in late summer can be found in “Mortgage Banking & Technology: Lenders’ Perspective”.
In this white paper, you will find lender input on a broad array of topics, including the competing priorities in the current market, the role of technology in competitive advantage, lender satisfaction with current technology and current progress toward a digital mortgage. One of the things we at CC Pace like to think distinguishes our survey results from others in the industry is our approach toward capturing a detailed, open dialog with our participating lenders. While the white paper certainly includes numerous charts quantifying the various positions the participants have on an array of topics, it also includes a wealth of insight in the form of direct quotes from lenders (albeit provided with anonymity, as per our agreement with the participants) on many issues. We hope you will agree that our open dialog approach makes our industry reports compelling reading, full of insight and perspective.
We hope you will enjoy our latest white paper and the view put forth by our participating lenders. Please share your thoughts with us, both on the paper itself and on topics you would like to see us cover in a future survey. And please let us know if you would like to be included in our next market survey, currently targeted for the first quarter of 2018.
With Star Trek: Discovery’s television debut rapidly approaching, I can’t help but reflect on the many valuable lessons on project management I took away from the original series, Star Trek, and its successor, Star Trek: the Next Generation. Those two TV series counted on the strengths of their ships’ captains, James T. Kirk and Jean-Luc Picard, respectively, not only to help entertain viewers, but to provide fascinating insights into the characteristics of leadership. In so doing, the shows created timeless archetypes of starkly contrasting project management styles.
Kirk and Picard both had the title “Captain,” yet could not have been more different. In project terms, both series featured a Starship Captain operating as Project Manager, Project Sponsor and Project Governance all rolled into one. Yet despite common responsibilities, they were very different in how they carried them out, each with different strengths and weaknesses; one would often succeed in roles where the other would fail, and vice versa. Each episode was like a project, but on the show, thanks to their writers, each ship’s captain seemed to always get a “project” that they were well-suited for. But that only happens in real life if someone makes it happen, and most real-life projects don’t have writers working on the scripts.
Kirk and Picard were polar opposites in management style in many ways, and most people involved with project execution have common traits with each. Suppose you are like one of them – are you a Kirk or a Picard? – what should you do to maximize your strengths and minimize your weaknesses? Suppose one is on your project – how do you ensure they are put to their best use? How should you be using them and what role should they play? What would they be good at and not so good at?
To get down to basics, the biggest difference between the two is Kirk is “hands on” versus Picard is “hands off.”
Kirk is clever and energetic. Because he is “hands on,” he is always part of the “away team” – the group of people who “beam down” to the whatever this week’s show is. The senior management here is typically the project team. When additional work was found, he did it himself, or with the existing team.
Picard is visionary and a delegator. He is more of a leader than a manager. He set objectives, made decisions and, obviously “hands off,” told Number One to “make it so.” Number One led the project team; Picard rarely went himself.
The best use of a Kirk is as a project manager with delegated authority on a short-term project with a fixed deadline, like a due diligence effort requiring the current situation to be assessed and a longer-term plan of action defined to address deficiencies. Kirk’s style and authority allows the team to move quickly; if additional tasks appear, Kirk will summon enough energy to get himself and the team through it. When decisions need to be made, he makes them. He will shine. But on a long-term project, if there is additional scope discovered (and there always is), Kirk will become a martyr, skipping vacations and asking his team to do the same. He will fail at some of his primary tasks – staffing the project properly, as example – and will inadvertently overestimate the current state of the project to his stakeholders, and underestimate the risks. Here again, it only works on TV.
The best use of Picard is as a project sponsor – he has the vision and needs you to implement it. The trick will be keeping him involved. On a short-term project he wouldn’t be your first choice for a PM – unless it was a subject that he cared deeply about – because he might delegate without being very involved.
If Number One got into trouble, but didn’t know it (e.g., the boiling frog parable: as the water heats up, the frog never notices until it is too late), Picard wouldn’t be providing enough oversight to know it either. Or, if his insight was needed, then there might be a delay while waiting for him to decide. On a long-term project, the project will need strong oversight to monitor progress and ensure engagement. That way Picard can keep the team focused on the right things. Picard could also be a PM on a long-term project like a process transformation. If there was a new requirement, it would never occur to him to try and do it himself – he would go to the sponsor to explain the tradeoffs of doing or skipping the new requirement, and get the right additional staff to do it. His management style is great for delegation and building a team, as well as developing the people on that team.
I know that both Kirk and Picard have their fans, and their project management skills both work on TV and in movies – but because there they always the type of project to work on that suits them, as the writer made it be so. In real life you need to be more flexible in how you use them, and apply the right one, or at least the right traits, to meet your business objective. Understanding this, and acting accordingly, may be as close to having a script writer for our projects as most of us will ever get.
A startling statistic that often gets overlooked is that 70% of projects world-wide fail. Each year, more than one trillion dollars are lost to failed projects. Most importantly, statistics show that these failures are frequently not the result of a lack of technical, hardware or software capabilities. Instead, these failures are typically due to a lack of adequate attention being paid to program management.
After seventeen years working in program management―implementing enterprise business strategies and technology solutions―I continue to be surprised by business leaders who misunderstand the differences between project management and program management, or simply think them to be two terms that refer to the same thing. Fact is, program management and project management are distinct but complementary disciplines, each equally important to ensuring the success of any large-scale initiative.
Let’s take just a minute to level-set the roles of both. Project management is responsible for managing the delivery of a ‘singular’ project, one that has defined start and end dates and is accompanied by a schedule with a pre-defined set of tasks that must be completed to ensure successful delivery. Project management is focused on ‘output’. Program management, on the other hand, takes a more holistic approach to leading and coordinating a ‘group’ of related projects to ensure successful business alignment and organizational end-to-end execution. A program doesn’t always have start and end dates, a pre-defined schedule or tasks to define delivery. Program management is primarily responsible for driving specific ‘outcomes’, such as ensuring the targeted ROI of an initiative is achieved. Put another way, program management is basically the ‘insurance policy’ of a project, the discipline needed to make sure all the right things are done to ensure the likelihood of success.
One analogy I often use to help differentiate the roles of a program manager and project manager is that of a restaurant. The executive chef (project manager) works within a defined budget, makes certain the kitchen is adequality staffed and creates the menu. The executive chef will provide defined tasks, processes, tools and strategies that ensure efficient and consistent delivery of meals. The meals are a tangible delivery (output). Overseeing the chef, the restaurant owner (program manager) will provide the executive chef with a budget to work from and will closely monitor the output of the kitchen. The owner will make sure each delivery and support role is adequately staffed, trained and paid (e.g., wait staff, hostess desk, dishwasher, bussers and bartender). The owner will also make certain all the details like music and lighting are in place and establish an appropriate ambiance. The owner will make sure the right tools are in place for flawless execution (such as utensils, glasses, napkins, water pitchers, pens and computers), while making sure expected standards and key performance indicators are being met to achieve overall profitability targets and a great end-to-end customer experience (outcomes). The restaurant owner’s primary responsibility is to focus on merging the tangibles with the intangibles to support successful business strategy execution.
When it comes to mortgage banking, an industry that’s known more than its fair share of failed implementations, it is critical that we start giving program management a greater priority, and ensuring that those commissioned to perform the role are equipped with the requisite skills and tools. Whether it’s adding a new imaging platform, bolting on new CRM or POS technology, or something as expansive as replacing an LOS, every enterprise initiative requires a project manager to be leading the implementation effort and a program manager focused on change management and roll-out. Consider the addition of an end-to-end imaging system. A program manager’s tool box should include strategies and frameworks to effectively manage the roadmap for each critical impact point. This would include things like training, updating policies and procedures, executing an internal change management strategy, synchronizing marketing communications, and updating key performance indicators. In some instances, the project may require staff analysis, skills assessments, compensation analysis and adjustments, or even right-sizing of the organization. All of these are key components of the program manager’s toolbox, and not generally covered within the role of a project manager.
Bringing this dialog back full-circle, program management helps reduce project failure rates by maintaining a holistic approach to guiding an organization’s successful adoption of the impending change, leaving the nuts and bolts of build-out in the hands of project management. By addressing the myriad of intangibles required to orchestrate successful adoption and acceptance of change by an organization’s personnel, program management also helps ensure that business strategies and projects remain in full alignment and ROI objectives are achievable. Preparing management and staff for the impending changes defuses fears that can send adoption off the rails and eases the transitions and realignment of resources and roles that often accompany larger initiatives.
In closing, it’s not surprising to find the lines between project and program management will easily get blurred. Our experience is that it is often difficult to identify a really good project manager that is proven capable of undertaking a large-scale effort, but even more so to find someone truly adept at managing all the moving parts of the program. This difficulty is even more apparent in organizations where undertaking significant projects is a relatively rare occurrence and these skills are simply not found among existing staff. While it may seem adequate to budget for a singular project manager and hope that the program elements will be attended, managed and executed, unfortunately, “hope” is not a viable strategy when it comes to business-critical initiatives. The assignment of a skilled program manager, whether sourced internally or externally, will ultimately prove to serve as an effective insurance policy to your project investment. In an industry where failure cannot be afforded, it’s time to stop gambling on project execution and begin implementing program management
Pulling from our considerable experience with the unique aspects of implementing a mortgage loan origination system (LOS), CC Pace has recently published a new white paper on the topic, “The Art of Planning an LOS Implementation Budget.” The information covered in the white paper, while essentially specific to LOS implementations, is broadly applicable for any product implementation project.
Best practices indicate that thorough project planning is the most critical step for a successful system implementation, and we concur wholeheartedly. One of the key activities that should be performed during the planning phase is the development of a detailed implementation budget. The budget is particularly important when establishing expectations with Senior Management and gaining support for the effort. Too often, planners fail to consider the costs beyond those of the software, vendor configuration and any vendor-provided customizations when in fact the all-in cost of an implementation includes much more.
We hope that readers see the importance of taking a more comprehensive perspective when planning their next project and we welcome your feedback. What other line items do you include in your budget preparation process?
As a continuation of our blog series on system selection, it’s time to discuss helpful tips to facilitate a successful product demonstration. The organization and management of the entire process requires upfront preparation. If you drive the process, your demo evaluations will be far more effective.
Demonstrations are one of the most critical components of the software selection process. Seeing a system in action can be a great learning experience. But not all demos are created equal. Let’s talk about how you can level the playing field. To make the most of everyone’s time, CC Pace recommends the following best practices for product evaluations.
Tip One – Keep your process manageable by evaluating no more than five systems. If you evaluate too many vendors, it becomes difficult to drill down deep enough into each offering. You will inevitably suffer from memory loss and start asking questions like, “which system was it that had that cool fee functionality that would be really helpful?”
Tip Two – For each software vendor, set a well thought out date and time for the on-site demo. Depending on your team’s travel schedule, try to space out the demos a few days apart so that you have time to prepare and properly analyze between sessions.
Tip Three – Logistics play a big role in understanding how a system looks and functions, so do your part to help your vendors present well. Whenever possible, arrange for a high-quality projector or large HD screen for the attendees in the room. Hard-wired internet connections are always better. There’s nothing worse than being told, “the screen issues are because of a resolution problem” or “it’s running slow because the air card only has one bar.” Providing these two items can easily remove doubts about external factors causing appearance and performance issues.
Tip Four – Involve the right people from your organization. It’s important to have executive sponsorship as well as hands-on managers involved to assess the software modules. This is also the best opportunity to get “buy-in” from all parts of your organization.
Tip Five – Be sure to head into these demonstrations knowing your key requirements. Visualize it as a day in the life of a loan and follow a natural progression from initial lead into funding. Jumping around causes confusion and can be difficult on the vendor.
Build a list of requirements based on the bulk of your business. Asking to see how the software handles the most complicated scenarios can send the demo down needless paths. No one wants to watch a sales person jump through a bunch of unnecessary hoops for a low-volume loan product.
If you highlight which functional capabilities are most important to your organization, the vendors can spend more time demonstrating those capabilities in their software. Communicate how you think their software can help. But be careful not to justify why something is done a certain way today, but rather focus on how it should be done in the future.
Tip Six – The easiest way to take control of the demo process is to draft demo scripts for your vendors. Start by identifying the ‘must-have’ processes that the software should automate. Don’t worry about seeing everything during this demo. Set the expectation that if the demo goes well, the vendor will likely be called back again for a deeper dive. Provide a brief description of each process and send it to the vendor participants so they can show how their software automates each process. The best vendor partners will have innovative ways to automate your processes, so give them a chance to show their approach.
As you watch the demos, keep track of how many screens are navigated to accomplish a specific task. The fewer clicks and screens, the better. Third-party integrations can significantly help with the data collection and approval process. Always have an open mind regarding different ways to accomplish tasks and don’t expect your new software to look or act just like your legacy system.
Simple scorecards should be completed immediately following each demonstration. This will make it easier to remember what you liked and disliked and prove invaluable when comparing all the systems side-by-side when your demos are complete.
One final suggestion: always request copies of the presentations. Not only will this help you remember what each system offers, it’s useful when the time comes to create presentations for senior management.
photo credit: http://www.freepik.com/free-vector/business-presentation_792712.htm Designed by Freepik
Is the RFP dead? As a tool for helping guide the selection of the best possible loan origination software, the traditional Request for Proposal seems to be increasingly viewed as an optional, and not particularly helpful, part of the selection process these days. And for good reason.
We at CC Pace have been questioning the value of a formal RFP for LOS selection, at least as typically applied, for some time now. Traditionally, the RFP is used to serve two primary functions: 1) to provide an apples-to-apples comparison of features and functionality among a group of worthy competing systems and vendors, and 2) to provide helpful documentation to the selection decision. But in today’s origination software market, the functionality included with competitive systems is more alike than ever before. LOSs have matured such that the differentiating factors are most often “how” they do things, not “what” they do. The RFP is simply not well suited to “how” distinctions, as “yes or no” questions are geared more for “what” and seldom shed light on the more nuanced distinctions of the candidate systems. In short, why bother asking detailed functionality questions when what is really needed is a better understanding of how each system handles those features that are “make-or-break” factors in your search?
The big problem for many lenders trying to navigate the software selection process is getting too caught up on debating the merits of a plethora of “bells and whistles,” while largely ignoring the bigger questions of whether the system meets their most important criteria and can they be successful in implementing it? In most situations there are only a relatively small number of things that really define what is absolutely critical, so why not limit the RFP to a short list of things you want the vendors to provide detailed answers on? Beyond that, well-orchestrated, in-depth system demonstrations typically do a better job of telling you whether a given system will meet your functional needs in a way that will fit well with your company’s organizational culture and processes.
Once having used detailed demonstrations to narrow the field to a small number of seemingly suitable candidate systems, the most important things a lender should want to focus on are 1) which of the systems can be successfully deployed in my shop and 2) will we be happy with the results afterwards? As simple as they may seem, these questions are exactly what you should strive to figure out in the process of selecting a system. And surprisingly they are often left out of the selection process entirely.
Too often lenders try to answer the first question (can we successfully deploy the system?) by looking at who the vendor has sold the system to recently. Many attempt to shorten the selection cycle simply by accepting that if Company ABC and XYZ bought the system, it must be good, without regard as to whether ABC or XYZ have successfully deployed it as yet, or if they’ve even begun that process. The truth is that not every LOS implementation goes all that smoothly, with something like a quarter of them failing outright. Rather than asking the vendor about their track record for successful implementation, it is far better to speak to as many customers of that vendor as possible and ask them directly. Probe into how their implementation efforts went, how happy were they with the vendor through that process, what kind of attention they received, and whether everything went as planned. Most of your lending brethren will be remarkably candid about this process when asked, even if the response doesn’t reflect all that well on them or the vendor. Use that candor to your advantage and learn from it.
Then ask how similar ABC and the others are to your company. When it comes to an LOS, one size does not fit all, so success with one company may not mean that much if they aren’t very similar to your company. Do they have the same operational model, offer the same products, and leverage the same channels? Ask them what level of effort was required of their own resources and how well prepared they were to meet those demands. Make sure you are ready to hold up your end of the implementation bargain, so listen carefully to what those that have succeeded tell you. Don’t over-reach by choosing a system that demands in-house analytical, configuration or development skills that you aren’t well-suited to provide, as those are critical factors when assessing suitability of organizational fit and common contributors to implementation struggles.
When it comes to being happy with the resulting system post-deployment, once again we strongly suggest doing your homework by talking to the vendors’ customers. Speak to as many current clients of the system as possible and ask probing questions about their satisfaction. Be honest with them about your expectations and goals and solicit their feedback on whether the system, in their opinion, can deliver. Here again the real trick is to not set yourself up to fail. Take the time to document your expectations up front, then carefully vet whether the system under consideration is truly aligned with those expectations.
The goals you are trying to achieve by replacing an existing LOS should be your north star guiding the process from start to finish. The desired outcomes should be things far more substantial than just successfully implementing a system. Clearly defining those desired outcomes at the outset is critical to guiding the implementation process, and to measuring your success at completion. Focusing the selection process on how to meet your critical needs while increasing the likelihood of successful deployment and roll-out is the right approach and one that relies very little on the traditional RFP.
So, should the RFP be laid to rest? My vote would be “no.” The RFP can provide important value, but skip the lengthy laundry list of functionality check boxes. Keep it short, ask open ended questions and focus on those critical things that are the real “make or break” factors in your search. But more importantly, the RFP should only be the start of your due diligence, used to help narrow the field before launching into asking the really big questions of whether you can succeed and by happy with your choice.
Still a bit overwhelmed with the selection process? Let’s talk.
“There I was on assignment for a month in the Sahara Desert of Northern Africa during a time of the year that was supposed to be fairly mild. Unfortunately, there was a heat wave during most of that month, which drove temperatures into the mid 120’s. With little to no shade, relentless flying and crawling insects, and sparse meals that caused me to lose 20 pounds, I continued to work toward getting that ‘perfect shot’, at the perfect time. This assignment proved to be the most physically demanding I ever endured. Nonetheless, I’d choose that job every day over an unstimulating project.”
So goes the story of a high school friend and renowned photographer, Don Holtz, whose impressive work includes the likes of Tom Hanks, Morgan Freeman, Steven Spielberg, Time Magazine and chronicling the Foo Fighters. Yet despite his amazing success, Don humbly shared with me (when asked) that there is no perfect time for taking the perfect shot. Instead, he explained, it is by the continued effort of working ‘toward’ perfection that he is able to achieve the highest level of success.
Similar to Don’s challenges in Africa, mortgage bankers continue to maneuver stringent regulations, weak GDP growth, and persistently low interest rates that limit their ability to help grow the local or national economy. As a result, most lenders are content to maintain a conservative approach to lending while instructing their IT departments to tweak or revamp old and disparate technologies in order to keep management, maintenance and overall IT project costs down rather than pursue innovation and rethink how business could be done better. Basically, most are waiting for the ‘perfect time’ to rebuild, reengineer and transform their business.
Conversely though, there are nearly 80 million millennials (18 to 34 years old) in the US who are actively shifting from renting to home buying as their family’s needs grow. In a recent study by the National Association of Realtors (NAR), millennials were the largest share of home buyers in 2015, at 31%. All evidence points to this trend actually increasing throughout 2016.
Just consider that the millennial generation, who has maximized the use of Snapchat, Facebook, Facetime and texting to such an extent they do not know of any other way to live, communicate or do business, is now the greatest force driving home buying. This should put pressure directly on the backs of mortgage bankers to re-think and rebuild century-old banking and lending practices in order to successfully support this new generation of borrowers. Millennials are first and foremost a tech-savvy generation of borrowers who are fiercely brand loyal (think Apple) and seeking to do business with firms that speak their language of fast, easy and friendly, supported by best-in-class technology platforms.
Over the last thirty-six years, CC Pace has helped implement scores of mortgage banking technology platforms supporting strategic initiatives and business transformation projects, but never have we seen a greater need than exists today for business transformation in mortgage banking. Business transformation is desperately needed that will successfully help to attract and support the new generation of home buyers. Such projects require lenders to challenge their organization’s own institutionalized thinking in order to evaluate all aspects of the firm’s strategy, its lending process, its technology and equally importantly, how they provide the service levels this generation requires. Business transformation is needed not just to entice the millennial generation, but to earn their loyalty for return business as well.
Certainly embarking on new large-scale business transformation projects is stressful and risky (which is why firms hire CC Pace). But the alternative of risking alienation of the millennial borrower generation by failing to meet their needs and expectations will prove to be devastating to lenders who choose to continue a conservative approach to facing the future of mortgage lending.
When I asked Don what he thinks it means when people indicate they are waiting for the perfect time to take the perfect shot, he said, ”The idea of perfection is more dependent on a state of mind than on external conditions that we can’t always control.” He went on to highlight how he takes responsibility for how he will respond to changing conditions, spending his energy planning, as best he can, to arrive at a shoot prepared to adapt his game plan for both the existing and changing conditions to ensure the best possible outcome. As Don put it, “There is no perfect time, but that doesn’t mean you don’t continue to work ‘toward’ perfection.” This is as true for mortgage bankers as it is for world-class photographers. If you aren’t working toward transforming to meet the demands of the market, you will never achieve greater success. So as lenders continue to expect mild temperatures, they may soon find themselves in the middle of a heat wave. There is no perfect time; there is no perfect shot. Success can only be achieved by actively working toward the goal of perfection.
Don Holtz is the owner of Don Holtz photography services. If you are interested in Don’s services he can be reached at here.
As Wall Street analysts predict smartphone sales will continue to level off due to varying levels of market saturation, does that actually mean smartphone utilization is set to follow? Is the smartphone honeymoon over? Is the saying ‘there is an app for that’ dead? Perhaps the sales of new smartphones are in fact tapering off, but I am a firm believer that ‘utilization’ is just getting started.
Since the turn of the Century, each new generation of trains, planes and automobiles continues to be enhanced in order to increase consumer satisfaction and society’s overall productivity. With each new generation they become faster, easier, and cheaper to run and maintain, and lighter, smaller and in many cases even more luxurious. Why should the smartphone be any different? It has revolutionized how we store, manage and transport information. In the short term, the smartphone has allowed people to immediately ditch the bulky briefcase loaded down with a calendar, address book, calculator, plane tickets, a newspaper and manila folders to that of just a handheld device which simply fits into a shirt pocket.
The invention of the smartphone is on par to that of the automobile. Society’s overall successful adoption of the smartphone has been in an effort to help increase one’s ‘quality of life’. With that said, it’s quickly becoming high noon in the world of business where the lack of an effective smartphone strategy for both customers and employees will likely seal the fate of said business. Most at risk may in fact be the financial services industry, given the volume of legacy systems built and now required to support some of the most comprehensive of services and investment products. The up and coming millennial generation has made it blatantly clear they will adopt those who have successfully adapted. Moving forward it’s incumbent on a business that their success, let alone their survival will be dependent on their smartphone e-strategy. So in reading the following article, it confirmed my belief that the smartphone generation is just getting started. Read more about it in Strategy+Business, “Radical Intimacy and the Smartphone”.
CC Pace remains committed to helping guide organizations in the development, deployment and adoption of their e-strategies.
Development of your business strategy requires a long and hard look ahead to the future. Anticipating what the industry may look like, what your customer profile may be and what technology might be available is critical. Yet as important as looking forward is, it is equally critical for an organization to look back and analyze how you got here, what has made your company great and how you’ve managed to retain and build your customer base over the years. The combination of these views will play a significant role in designing a powerful ‘move forward’ strategy for your organization.
In recent years the financial services industry has been heads down focused on navigating the regulatory environment, including the most widely recognized and intrusive regulation of TRID. As a result, any vision for long-term strategic planning has taken a back seat. As TRID begins its final march toward implementation, it’s high time for the industry to begin looking beyond the recent strains of compliance and begin to recall the lessons learned from the past and imagine what the future might be with the development of an effective business strategy. Adidas learned this lesson by regaining control of their future after taking a long, hard look at their past to ensure they break the chains of recent history. Read more about it in Strategy+Business, who wrote “How Adidas Found Its Second Wind”. It’s now time for the financial services industry to get its “Second Wind”.
The Missing Piece: Standardized Test Data
The mortgage industry has invested heavily in standardizing the exchange of information, primarily under the auspices of MISMO. This has made it easier for lenders to switch service providers providing the same or similar services, for technology providers to expand their connectivity and integration offerings to their customer base with limited effort, and for service providers to have a standard approach to communication with their customers. All this standardization should be and is helpful, reducing technology costs among other things, but it stopped short of the goal by not addressing a key piece: the standardization of testing.
The missing standardization is not related to the process of testing, but rather the data used to verify and validate the process. Today, each service provider defines their own test cases to be used against their systems. This has left the testers of the various connections with the unenviable task of constantly adjusting the test criteria to meet those defined for the respective service provider being tested. Due to the many points of integration and service providers involved with the origination process, end to end testing of an LOS cannot be completed “cleanly” due to the data changes needed to interface with the respective service providers.
The LOS can include upwards of 20 separate data exchange transactions with external service providers. In lieu of actually testing the system in an end to end fashion, the system testers must constantly adjust the data (usually through system administration functions) to meet the terms of each service providers’ test samples, or create multiple loans that are only testing specific streams of the process to validate selected transactions. Even something as simple as defining “Joe Homeowner” at “123 Main Street, Fairfax, VA 22030” as the information with which services can be ordered through the test environments, becomes a time saver.
Although standardizing this information, is very different from standardizing the transaction, it is no less important when discussing introducing efficiencies and streamlining the exchange of information. Standardization of the test data includes defining multiple test names, property addresses, social security numbers, and other common fields to be used in the test transactions. While each service may require a different set of data, some standardization will go a very long way, particularly when attempting to complete end to end testing of the technology.
Each service provider maintains a different approach to testing. In some instances, the test data is sent to a production environment, where the specific test data is recognized and treated differently from a production request, e.g., not charging the lender for the transaction. Other providers open their production environment for a limited period, allowing queries to be run without any charges being incurred during the verification process. Still others support a testing environment that includes sufficient information to respond to the transactions submitted with the test data. The standardization being discussed would not inhibit the selected service provider’s testing methodology, rather it would define, and possibly expand, the data used during the testing activities.
What do you think? Have you experienced this issue? Is it time to standardize the testing data across services and providers?
When speaking with leaders in the mortgage banking industry of late, the chorus always remains the same, “we are heads down on TRID.” Despite the CFPB’s recent announcement regarding leniency on enforcement of this new regulation, industry executives know full well that there is no delay. Only firms who make a “good faith effort” to comply with the new regulation will experience leniency on enforcement. The theme at lenders nationwide therefore remains “stay the course” for hitting the August 1st deadline.
TRID has been widely recognized as one of the single most impactful regulations to befall the mortgage banking industry in recent memory. The real significance of this regulation goes well beyond the requirement to change an already comprehensive and sophisticated consumer disclosure document. By shifting the burden for the consumer closing document three days prior to close from the title company to the lender, it also forces both the lender and title companies to rethink a hundred year old workflow and business relationship, engaging in a more collaborative partnership. To accomplish this effectively, TRID requires lender reconfiguration of business rules, workflows and processes, which has a direct impact on business strategy, technology requirements and system configurations while making certain audit trails go deeper and wider. Amidst it all, lenders are having to work overtime to protect the customer experience by reengineering the loan closing process and better setting expectations with consumer to ensure a positive customer experience and to avoid multiple reschedulings of loan closings. Ultimately putting added pressure on each lender’s cost to produce, not to mention potentially increasing housing costs for consumers.
With less than 60 days remaining to implementation, lenders continue to break the glass and retrieve their proverbial Mortgage Bankers First Aid Kit in order to swiftly bandage together the disparate impact points of TRID, not only to ensure compliance, but for self-preservation. With almost two years to prepare and most vendor organizations fully focused on developing various document solutions and workflow assistance, it’s unfortunate there has been little offered in the way of a universal “one size fits all solution” that lenders can simply plug in and safely implement to help ensure compliance, workflow efficiency and a winning customer experience. Yet after twenty-seven years in the mortgage banking industry, I remain confident mortgage bankers will once again be resourceful, agile and pliable to ensuring successful adoption of the new TRID regulations to ensure consumer satisfaction. After all, it’s in our DNA. We will do what it takes, even if it means throwing bodies at it (similar to days gone by) or adding new layers of manual processes and procedures or quality control checks. I am convinced most will be ready to meet the industry’s new requirements. But at a cost.
So the question remains, “What’s next? Where do mortgage bankers focus after August 1st?”.
As with many disruptive changes, focus before the deadline is on complying with the regulation. Afterwards the focus must shift to actually making it work effectively and efficiently. This could mean that lenders need to take a pause, step back and get back to the basics by conducting an end-to-end full-scale process assessment. A business process assessment serves to help ensure lenders are originating loans at the lowest possible cost to produce by looking to remove redundancies, maximize technology configurations, better integrate appropriate vendor solutions and new business rules, or by simply amending a series of processes and procedures in light of new ones.
Veteran mortgage banking executive, A.W. Pickel, President and CEO at Leader One Financial, is very concerned about the impact of TRID regulation on consumers. “My concern is, what happens to customers with a moving van in the driveway and due to circumstances beyond their control they now have to wait three more days to close. Regulations meant to do good may cause further harm. Will this regulation then cause realtors and loan officers to do off balance sheet items?” In regards to how to how to mitigate the risk, Mr. Pickel goes on to say, “The only way to offset this risk is through the adoption of additional procedures. In the end, however, additional procedures can equate to increased cost to produce a loan.”
Pete Lansing, former President of Colorado Mortgage Lenders Association and President of Universal Lending for over thirty-four years, feels TRID really isn’t any different than any other regulation. “Post August 1st we will be in full force compliance evaluation and review, looking for any holes left over that were not covered before the implementation date. Every organization must keep their eye on regulatory compliance at the same time keeping customer service as its number one objective. The balance between these two objectives has always been the mortgage banker’s concern and goal. I believe these new changes are no more difficult than those previously issued by the regulatory forces.”
Taking it one step further, Gellert Dornay, President & CEO of Axia Home Loans, when speaking of his TRID implementation strategy, put it this way, “Post TRID implementation, lenders should be auditing compliance with the new rule and identifying any areas that require further training or process tweaks. However, if you’re not doing a full-scale operational assessment until after the rule has gone into effect, you’ve missed the boat.”
While the mortgage banking apocalypse is not likely to take place on August 1st, what is more likely is that lenders are going to need to take time post-TRID implementation to conduct a full-scale audit of their end-to-end origination process in order to lower cost to produce and ensure consumer satisfaction. Based on CC Pace’s experience in conducting business process assessments in the mortgage banking industry, we encourage lenders to keep three key components in mind when conducting their post TRID operational assessments. First, be honest in asking yourself if your recently amended TRID process is actually economically “scalable”―is it scalable enough to support what is anticipated to be a growth market if secondary liquidity truly returns due to a rising interest rate environment? Second, when reviewing the operational assessment, challenge yourself with this question, “Is the right long-term answer to take the temporary bandages off and look at full-scale reconstructive surgery of processes, systems and organizational structures in order to successfully implement long-term, scalable growth strategies?” Lastly, decide on a strategy and move forward. Meaningful operational assessments that end up sitting idle on the shelf collecting dust are generally reflective of an overly conservative approach and commitment to long-term failure. Such efforts are best defined as exercises in futility.
After August 1st there is no better time to stop, rebuild the origination’s foundation and prepare for the new mode of lending.
An important part of any system selection process is when the vendor is asked to demonstrate their products. This is a pivotal time, when the dry responses to the RFP become something that is seen and the staff can begin to visualize themselves using the system in their daily work. Selection Team members walk out of a demonstration with their preconceptions turned into expectations of what the product can or cannot do, and what benefits it may bring to the organization. These impressions stick with the audience; it is hard to move someone away from what they’ve seen or heard during a demonstration.
I’ve always considered the demonstration, as well as the set-up and coordination activities around this meeting, as where I earn most of my fee for managing a selection process. It is important not to view this as a one-off meeting, or standalone activity, but to view it as integral to the overall selection process using information already collected and providing output to the next steps, as well as the final decision.
Steps prior to the demonstration including defining and prioritizing the business requirements, creating a potential product list, developing/distributing an RFP and assessing the vendor responses. That assessment should narrow down the field to those 2-4 vendors that best meet your baseline requirements and are most worthy of being invited in for a demonstration.
Recommended activities to surround the demonstration, include:
Schedule: I try to group the demonstrations within a 1-2 week time period, without significant time gaps between sessions. This is rough on the individual calendars of those attending the meetings, but worth it to keep the purpose, critical requirements and comparisons top of mind throughout.
Agenda: Using the most critical requirements identified previously, the agenda is set to walk through all key aspects of the functionality, with a focus on any particular area where the selection committee is particularly concerned. The agenda is also set up to allow users to manage their time, so they are only present when the demo is covering their functional areas, without tying them up for the full session. Importantly, a well thought out agenda ensures the vendor spends adequate time on all the aspects of the system the team is interested in, with little opportunity to gloss over areas of weakness.
Scorecard: Any attendee in the demonstration should complete a scorecard for the parts of the demo they participated in. The scorecards must be completed before the participant exits the room, as their thoughts quickly get mixed between systems, and other priorities occur that take attention and time away from completing the scorecard. The scorecard is never overly long, but serves to provide a quantitative view of the participant’s impression of specific functionality in the system, and to capture any comments or questions that may be pending at the end of the demo. To avoid skewing the quantitative results, participants should only score those sections with which they have expertise. Entries on the scorecard are aligned with the agenda for easy following, and are weighted based on priority for quantitative comparison across products.
Attendees: I discourage the selection team members from looking at the systems early in the process, before their requirements are known and prioritized, to avoid any preset leanings in one direction or another. The size of the group varies on the size of the organization, breadth of functionality for the system being selected and amount of time devoted to the selection. The preference is to keep the participating audience at a manageable size and consistent across all systems being considered. All audience members should be prepped beforehand, as to how the meeting will run, the agenda and the scorecard.
Facilitation: The facilitator role is an active one, ensuring the focus remains on the agenda and covers all the topics in the scorecard. Questions may be tabled, conversations cut short (particularly those that serve a small part of the audience present at that time), and information prompted out of the audience or the vendor. Another role is that of translator and interpreter. It always stuns me how we all say the same things in entirely different ways within and across financial sectors. It is important that the vendor’s presentation is translated into the audience’s terminology whenever possible for maximum appreciation of what is being presented. It is equally important to also interpret what the vendor says into how the audience members think. The facilitator’s knowledge of the industry, the available products, implementation, maintenance, etc. are all leveraged to steer the discussion such that the audience will appreciate not only what they are seeing, but what they will need to contribute for configuration and maintenance and whether the system has the flexibility to meet their needs in different ways. This leads to a more mutually fulfilling discussion between the vendor and the audience, as everyone speaks from the same page.
Post-Meeting Roundtable: A facilitated session of key audience members should quickly follow each demonstration (to mitigate crossover confusion with what functionality went where or when a particular comment came up). A review of the scorecards should be completed prior to this session, so disparities can be addressed. This meeting is the opportunity to discuss the demo, questions raised, and establish a general consensus about where the product stands and that the functionality represents similar things to everyone. It is not unknown to find a score of 1 and a score of 5 (using a 1-5 range) for the same functionality line item on the scorecards of two different participants. There is no expectation that everyone will score things the same, rather that scores should be in a similar ballpark. Large disparities like this one indicate misunderstandings by one or both team members, and those need to be put on the table for clarification as soon as possible, before perceptions are cemented and expectations set in one’s mind that cannot be met.
I know companies who failed to follow one or more of the steps above during their selection process and the result was typically missed expectations and buyer’s regret. Allowing the vendors free roam for their demonstrations causes confusion when comparing products, as the vendors may approach the discussion from totally disparate functional areas. Lack of a schedule requires a larger investment of time, as people with only a small area of functionality to observe are sitting in for much longer time periods (or the meeting is stopping and starting, while new people are called in and others leave). Most importantly, what someone hears versus what was intended may be completely different messages that were not caught prior to a final recommendation. That “results in not getting what you thought you were getting”.
While key to the overall selection process, the demonstration is not the final task in the process. A quantitative comparison of RFP responses and demo results can be used to further reduce the short list of potential candidates prior to moving into an in-depth due diligence process. Targeted system demonstrations, or question/answer sessions with the vendor may occur during this period to collect additional information or clarify any points.
Once the due diligence is completed, the qualitative and quantitative results are assessed to identify the final recommendation from the selection process.
Are you competing on price?
Economists and finance executives world-wide acknowledge that being the low-price leader can be a viable short-term strategy that may help boost bottom-line profits but warn this is an extremely risky long-term strategy. Within the financial services industry margins are already squeezed and products continue to be distinctly vanilla. So what’s left when it comes to high-impact business strategies? Perhaps it’s time for business transformation by way of customer-focused differentiators.
Sometimes one doesn’t have to look beyond their local hotdog cart for inspiration.
Check out the accompanying photo. How is it that in downtown Denver while one hotdog vendor who charges $3.50 for a hotdog, chips and soda has no people at his cart, when a competing hotdog vendor less than 100 feet away has a line of people who are willing to pay $4.75 for virtually the same hotdog, chips and soda, everyday? Simply said, it’s called customer experience.
Meet Biker Jim. Jim Pittenger, a former repo man from Anchorage, Alaska, moved to Denver looking to open his own hotdog cart. Jim knew it wasn’t going to be easy. He was an unknown in the area and opened up several blocks from the main street, where competition was already entrenched. Jim recognized at the time that Denver’s most successful cart owner was occupying the premier location of cart real estate and essentially just had to ‘show up’ each day. If Jim was going to be successful, he knew he had to do things differently.
When I first met Jim, I shared how I had been analyzing his business and asked him to come down to the office to share his story. There, Jim explained, “I knew I had to set myself apart. I challenged myself to think about all the things I could do differently. Ultimately, I knew it would come down to focusing on the customer and the customer experience, and frankly, when I put my mind to it, it wasn’t hard. I sat down and made a list of the things I could do to make for a better customer experience. I studied not only what my competition was doing, I studied what they weren’t doing. I knew I wanted to build great relationships with my customers while making sure I created a great experience. Some of the things that made my list included cranking up some music that people could tap their foot to, and setting up a big umbrella that screams ‘something good is happening.’ I rigged my cart with some nice size exhaust pipes that would send the smell of my grill up and down the city streets. I added condiments that others didn’t, like grilled onions, sauerkraut and cream cheese. Giving the customer more options rather than just a plain hotdog with ketchup or mustard.” Jim went on to say, “Honestly, it’s really not about the hotdog, it’s about the experience.”
Joel Horn of Horn Funding Corp, a client of mine at the time put it this way, “The perceived value of buying a hotdog from Biker Jim is far greater than buying from his competition.” It wasn’t long after my interview with him that Jim’s chief competition was out of business and Jim was invited to take over the premier cart location in downtown Denver, the coveted corner of 16th and Court Place. At the time he was still working the cart each day come rain, snow or sleet, but since then Jim has gone on to international acclaim and even greater success. Biker Jim has expanded his menu, been praised by the world’s foremost food critics and successfully launched into several retail locations.
What are you doing to re-vitalize your business in today’s demanding markets and vanilla products? What kind of customer experience are you building to spark the neural network like Biker Jim? Are you creating a customer experience like I experienced when I was in line for my dog and the guy in front of me called his buddy on his cell phone to make sure he was at the right place? What’s your customer-focused business transformation strategy? Joel Horn summarized it best, “Regardless how bad things are or the amount of fear inspired by the media, if you have your customers’ best interest in mind when creating your long-term vision, you will succeed!”
I was recently reminded of a column I wrote back in February 2008 titled “Maintaining a Vendor Relationship”, for Mortgage Banking Magazine (available here). I’ve been working on multiple system selection efforts of late being driven by proactive customer decisions to look at options available in the marketplace. These efforts have been driven by dissatisfaction with the current vendor but without pressure of a looming deadline or need for immediate change. In most cases, the dissatisfaction came after the vendor/product was acquired by a larger organization changing the dynamic between client and vendor.
The recommendations I outlined in that well-aged column included:
- Identify your vendors
- Know the contractual highlights
- Maintain open communication
- Leverage the partnership
- Maintain documentation
- Validate escrow
- Increase internal resources
- Do market research
And while these recommendations are still valid today, they don’t fully reflect the new landscape of the consolidated marketplace where there are few independent vendors with a single, focused product offering. Most vendors these days are part of larger conglomerates, with seemingly deeper pockets to support innovation, who have created through acquisition a portfolio of offerings to their financial services clients. In some cases this includes multiple solutions addressing the exact same (or very similar) functionality, possibly, but not always, targeted at different customer segments.
So what does this mean and how does it change things?
In today’s market, there are additional recommendations needed to manage the vendor relationship. These address the more complex organizational structure, the focus of those organization (and where those deep pockets may be utilized) and looking further ahead, not only for the product you’re using, but for the overall vendor objective. Let’s face it, your vendor’s move from a sole product offering to being a small fish in a larger pond is a culture shock not only to your relationship, but to the staff supporting the product, as well. There is a lot of change to be managed and it’s important to stay on top of it.
- More layers of communication: While open communication is still important, there are more options for who you might communicate with. Obviously the product support team is key to the upkeep of service levels and current enhancement plans, but there should be connections maintained up the ladder. This group may not be fully in the know on the long-term strategic plan for the product or the organization. Do not wait until there is an issue to figure out who the contacts outside the product group are, and do not let the relationship languish in order to avoid reaching out, only to find out that they have left the company or moved to another position. Within a large organization, much can happen without direct communication, so keeping these lines open increases the likelihood you will begin to hear murmurs and can make plans, prior to announcements being fully communicated or distributed.
- Networking: It is more important than ever to keep your connections alive. These can include other users of the platform, or people who developed or supported the product. It is always good to have someone to share stories with, and ensure things are progressing in similar patterns for everyone. Working in concert with other users can help to influence the vendor towards a particular direction or implement needed enhancements. Knowing the people who really “know” the system, provides a possible back door to address critical issues that the current support organization may be struggling with.
- Awareness of where the organization is making investments: If the consolidated company claims four LOS’ within their portfolio, it is extremely unlikely that each LOS is receiving similar investments for future improvements. Identify which product and/or customer segment has the focus, and determine the implications for support of your solution when it is not the focal product.
- Be modular: It is more important than ever to retain your flexibility when it comes to the ability to switch products. Vendors being acquired and the direction new owners take a product are outside your control. What is within the control, is the level of effort and ability to switch vendors when needed. Within the mortgage industry, MISMO for services was lauded as a tool lenders can use to more easily switch between providers. Similarly, the recommendation is to standardize the requirements for any feeds to your systems via a connector-based process. Products would feed/receive data to/from the connector, rather than directly into the internal system. This allows the system on either side to be exchanged, without a direct impact on the other system or the resources supporting it. This reduces the risk and effort when replacing systems, as they only need to connect to the connector; the programming which directly impacts that system is unaffected. In addition, should the vendor make a change that could impact your systems without realizing it, the data would be likely stopped at the connector and not impact your internal systems. Today, much of the integration is directly system to system, requiring a full re-development every time either system changes. The connector approach reduces the level of effort needed and resulting testing that will need to be completed. The connectors also offer re-usability for different purposes. Internal resources to develop and support the connectors are needed, but in most instances the long term peace of mind and time savings will balance that investment.
- Be Diligent: A vendor with a wide portfolio has a lot to offer, but it is important that additional offerings are approached wisely. With a lot of growth coming from consolidation and not organic expansion, it is important to complete a thorough due diligence of all offerings. Do not assume anything! Do not assume that because the same vendor offers both products, the products are tightly integrated. Growth through acquisition results in potentially disparate solutions carrying the product name. Don’t assume because products have same or complementary names, they are connected. Product name changes are marketing ploys to create the feel of a suite of offerings, whether the connectivity between products is in place or not. Do not assume that because your product is well supported, that any additional platform has similar support. Each product may have separate support staffs, with different levels of competencies and knowledge. Do your homework and complete a due diligence exercise extending into the marketplace with competing solutions to determine if the vendor solution represents the best solution for your organization.
There can be significant benefit to you through acquisition of your vendor by a larger organization, or not. It is a matter of what that organization’s plans are, how they are managed and where their investment is being placed. Stay informed and be proactive is the best advice.
CC Pace uses the Organizational Component Model as a framework for ensuring optimal results are achieved in our projects. The model highlights the inter-dependencies of process, technology, and organizational roles and responsibilities, and how that interaction is critical for optimizing the benefits of change within the enterprise.
Ideally, these three components work in harmony to support achievement of the strategic plan and in reaction to the business environment. The critical point of viewing business structure in terms of these three components is the realization that you can’t introduce change in one component without affecting the others. Importantly, the realization of the intended positive benefits of introducing change into any aspect of the business can in fact only be realized by considering the resulting effects on the three components and adjusting each to embrace the change. A brief discussion of the individual pieces of the model is helpful to understanding this paradigm.
A company’s business environment is best understood as those external influences whose very existence requires the company to operate in a certain way to succeed. Unable to change or control the environment in which it operates, a company must find ways to operate within its parameters. This is typically done in the context of a Strategic Plan, the documented direction and goals of the firm that take into consideration both the corporate vision and the effects of the environment within which it operates.
The operational processes the company employs serve to establish an effective and efficient means to accomplish the operating needs expressed in the plan. These processes are typically designed by analyzing inputs and desired outputs, and mapping out the process logic and business rules, initially with only limited consideration of supporting technologies or the people in the organization.
With the optimal operational structure documented, the next consideration—the second component of the model—is to develop suitable technological solutions that serve to enable the operating processes. The objective of this component is typically to automate those processes that rely on a “do” mentality (versus a human “think” mentality). In some cases, companies can utilize existing technology solutions already in place to accomplish this objective. In other instances, technology solutions need to be developed and implemented over time to enable achievement of the desired operational results.
The final component of the model is the company’s organizational structure, along with the roles and responsibilities of management and staff. Bringing the operation to “life” depends on creating the necessary structure and hiring and training the right people to make the organization run effectively.
Successfully effecting operational change of any magnitude requires that companies understand the inter-dependencies intrinsic in this model. Attempting to introduce meaningful change by revising only one of the components is too often viewed as an easy means to an end, but this approach more often yields a high level of disappointment or outright failure. Understanding that all the components need to work together to support change, and taking the appropriate steps to address the needs of each, increases an organization’s chances of being successful.
This model provides the framework for a rational and effective approach to change. By understanding the company’s environment and desired strategic direction, the interlocking components of Operations, Technology and Organization can be developed to work effectively together to accomplish the corporate objectives.
During the last thirty three years CC Pace has served our clients in a wide range of business and technology projects. While clients generally bring us in at the beginning of a project, others find a need for our expertise mid-stream. At times we have also been called into a project after considerable amounts of time and dollars have already been invested, only for the client to find the project nearing collapse and help is needed to try to turn the project around and salvage their hopes for ROI.
In the following article in the Harvard Business Review Donald Sull, Rebecca Homkes and Charles Sull have done an exceptional job of debunking the common myths behind why projects fail and the reality of what is required in order to ensure effective execution. Based on our experience, the Harvard Business Review has done a great job summarizing the key to project execution: successful coordination.
Grounded in how it’s always been done while continuing to live on razor-thin margins?
Perhaps it is time to take a chapter out of the airline industry’s book of survival and profitability.
Sitting on the tarmac of Denver International, I reflect for a moment and begin to quantify the amount of changes I’ve endured as a top-tier frequent flyer the last twenty years (most obviously, gone are the days of blankets, pillows and peanuts). Subtly here to stay is a culture of continuous change for the airlines that carefully balances increased consumer satisfaction while driving operating costs down.
During the last twenty years, the airline industry has successfully adopted and deployed paperless tickets, on-line check in, self-service kiosks, and texting customers to provide flight updates and gate changes. Less successful has been shifting from cloth seats to some unrefined and uncomfortable blend of plastic and leather while slowly changing seat backs from solid pockets to nets (where my ear buds are continually snagged). So why all the changes? The airline industry is simply leveraging all aspects of technology and process reengineering to reduce operating expenses. The airline industry has effectively reduced cleaning times for planes to increase on-time departure rates. They have trimmed call center volumes and customer complaints while successfully driving a self-service customer model, a self-service freedom that fliers like myself embrace as it helps off-set other cost-saving features that are often difficult to digest. For instance, smaller seats and lower arm rests or having to fly a small and cramped regional jet for flights over two hours (a plane historically reserved for shorter flights). Not to mention the highly publicized baggage fees. While baggage fees are painful, it’s genius if a company wants to force consumers to reengineer packing habits in order to help reduce baggage load time and employee disability claims.
These gains in efficiency have certainly come with some trial and error risk, such as the famed boarding of window seats first and then aisle, but risks were taken and ROI was eventually achieved with the projects that succeeded. Simply said, the airline industry lives in a perpetual state of change. Change is never easy for either employees or customers, however it is ultimately required to ensure the long-term success of any organization. The airline industry has successfully adopted a culture of continual improvement that strikes a careful balance between convenience and inconvenience in order to lower operating expenses while increasing customer satisfaction.
In order to develop a culture of continual process improvement, organizations first have to take a ‘philosophical’ stance that this is the direction they will be moving in. Second, the organization needs to design and implement a ‘strategy’ to achieve and maintain a culture of continuous process improvement. Finally, it’s all about ‘execution’. My dad always told me that nothing is worth thinking, complaining or talking about unless you’re going to do something about it. Carefully plot out and define what improvements in process, technology or tools will be implemented year over year to achieve increased customer satisfaction, lower operating expenses while potentially risking a little customer inconvenience. Now execute!
In today’s new banking reality, a commitment to increasing productivity, service and profitability while reducing cost will be imperative to a firm reaching its destination of long-term success. Does your organization need to take a hard look at itself and ask if it is truly paperless or allows customers to boldly self-serve? Is the organization providing tools or changes in process that require consumers to reengineer the way they operate in order to help lower costs and reduce disability claims? What perpetual state is your organization living in? More poignantly, what is your organization going to do to develop and drive a culture of continuous change and improvement? Is your organization ready to take the bold step and board a non-stop flight to efficiency and ongoing process improvement?
During a recent family driving expedition, my teenagers were surprised at a rest stop along I-95 when an attendant began filling our gas tank. “Why is that guy pumping our gas?” After providing the short answer (“New Jersey is a rare state that prohibits consumers from servicing their own vehicles”), I reminisced about “the good old days” when gas station attendants not only filled your tank, but checked the oil level, put air in your tires and washed your windshield—all at no additional cost! “Why would they do that?” “Customer service. That’s how they competed for your business.” Those days really do seem so far away, don’t they?
In the early 1990s I did a project for Richmond, VA-based Crestar Mortgage (pre-SunTrust merger). I was helping to define the business requirements critical to replacing their loan origination software and a question that came up early in the discussions with their executive team was “why don’t mortgage systems interact with the bank’s customer information file?” That was a good question then, as it still is today. Most consumer banking systems are predicated on a customer information file (CIF) to connect all the various banking products and services the customer might use. Consumer banking systems are generally customer centric, thanks to that CIF, which is critical to good customer service and, not coincidentally, cross-selling and retention. Marc Smith, CEO of Crestar Mortgage at the time, promoted customer focus as a key aspect of company culture, so much so that his organizational chart was inverted—his role was at the bottom of an up-side-down pyramid, supporting the management team, who supported the staff, who served the customer. In short, Marc felt that everyone should act as if they worked for the customer.
Mortgage systems, unlike their consumer lending brethren, and for reasons I still cannot understand, are loan-centric by nature. Sure, they deal with borrower and property data, but at their core, they are all about the loan. They deal with the details of this one loan, no matter how many times the property has been bought and sold, how many times this particular borrower has refinanced the same property, or what other banking services they may use. Is it any wonder that customers have such limited sense of loyalty to their lenders or servicers when there is no reciprocation?
It was a great pleasure to be back in the Richmond area a few years ago (nearly twenty years after my Crestar engagement) working with Jeff Coward, SVP of Mortgage Lending at Virginia Credit Union, and his management team on an LOS selection. While defining the business requirements for crafting an RFP for our vendors, Jeff made one thing very clear: “Whatever system we implement has to allow us to pull member information from the CIF into the loan app. They are members; we can’t sit there and ask them to tell us information we should already know.” No commercial system provided that capability out of the box, so Jeff paid dearly for customizations to make it happen. For a state-chartered credit union, customer loyalty—or member loyalty, more accurately—was paramount. Accepting anything short of respecting that relationship was simply out of the question. The real question is why haven’t more lenders pushed their system vendors to do the same?
More recently I’ve been working with the Export-Import Bank of the United States to help find opportunities for making business processes more effective. Improving the customer experience is one of Ex-Im Bank’s strategic goals, so we are continually looking for opportunities to improve both process efficiency and customer experience. Ex-Im Bank takes this goal seriously, so much so that they have a Vice President of Customer Experience, Stephanie Thum, who I often have the pleasure of working with. Stephanie’s efforts include significant amounts of customer interaction, directly and through focus groups, to gather input on their experiences in working with Ex-Im Bank, their impressions on the levels of effort required to transact with the Bank, and ideas they have for making the process a better one.
Creating a senior management role focused directly on the customer and the experience they have with doing business with your organization is a very powerful statement, and an effective means to measure your success in meeting your customers’ expectations. More companies need to take that step like Ex-Im Bank, insist that technology systems support the customer relationship like Virginia Credit Union, or simply challenge conventional modes of operation by the symbolic gesture of inverting the org chart like Crestar.
Sometimes we should just wash a few windshields. It could serve to remind us who we really work for.