Adaptability is the New Efficiency
Although Charles Darwin adopted the term “Survival of the Fittest” from Herbert Spencer to describe his theory of evolution, it is easy to misunderstand if you don’t have context for what “fittest” means. Darwin’s theory of natural selection showed how, in the long run, organisms that could adapt to changes in their environment out-survived organisms that were highly efficient in the current environment but rigid, and slow to adapt.
How is this relevant to loan origination? Few industries exist in an environment that changes as frequently as that of mortgage banking.
Many lenders with what they believe to be a highly-efficient process seek to memorialize that process in their loan origination systems (LOS) through customization – only to find that when they need to upgrade their systems, doing so is time-consuming and difficult.
Too frequently lenders look at the newest release from their LOS vendor and think “how do I get there from here?” How should lenders be thinking about bringing their customizations forward into their new release?
“This porridge is too hot. This Porridge is too cold.” – Goldilocks
Previously, many lenders defined the ideal LOS as one that was customized to their way of doing business – what was the most efficient at the time. However, the combination of FinTech, new POS technology, the new ULRA, and the constant pace of change are forcing many lenders to take major system upgrades, and to re-think their LOS customization strategy.
Even with some (temporary) regulatory relief, the overall pace of change is speeding up. Many LOS and POS vendors now expect to make a significant release each year, and to continue on that pace, with the requirement that lenders adopt the new releases faster. But that is OK, because the business case for their adoption is growing stronger. Being able to take new releases quickly and easily is the new efficiency.
The best strategy is to make your organization (process, technology and people) as adaptable as possible. How does a lender do that? Although here at CC Pace we help lenders with all three aspects, for the sake of this blog, we will focus on just one: the technology, in this case the LOS.
Typically, the hardest part of taking an upgrade is making sure the customizations survive the transition and associated regression testing.
Therefore, before doing an upgrade, organizations should look at their customizations and determine “given what I know now, and how the package operates out of the box in the latest release, would I make this customization again?”
“Ahhh, this porridge is just right” – Goldilocks
Some Valid Reasons for Customization
- Internal interfaces
- Something particular to your business that is not handled in the package, e.g., a custom funding module
- Support for a different regulatory interpretation (But work hard to see if the vendor’s interpretation isn’t actually acceptable.)
Some Invalid Reasons for Customization
- Low-level users on the project demand a change without regard for the long-term business case (that includes the cost of making and then maintaining the customization). Sometimes even if the change is better, it might not be worth it.
- Exception processing – a mature system (which is typically the type being replaced) will likely have grown to handle exceptions. However, I have seen too many cases where people forget that they are processing exceptions – and let “the rules” pass them by. Focus on getting the straight through process to work.
There is a continuum between a strict “No Customization” policy at one end, and the previous “We bought this system to be able to customize it, let’s do it” at the other.
An organization should strive for “Goldilocks,” that sweet spot where you implement important customizations, but the rational for the change is made by management, after detailed discussions with the vendor, and performed in a way as to have lower maintenance costs.
If you are one of these lenders with highly customized systems, what is your upgrade strategy?
We only have to take a look around to know that while great strides have been made providing technology and applications to help customers with their everyday lives, there is still a long way to go. I don’t mean until life is fully automated, it is more about the refinement needed to what is in use to fully serve its purpose and the public.
Issues customers encounter can be anything from a bifurcated process still needing a combination of personal touch and automation, to technology geared toward some but not all customers, to a limited-scope solution that only addresses part of the customer’s needs (and wants). While the assumption is that it is always quicker to do something online, there are times where that is a fallacy.
Many organizations are realizing there is a gap in their offerings and some have created customer experience (CXP) officers or departments to specifically address the customer experience. The goal for CXP is specifically to “delight” the customer by designing interactions that places the customer’s needs first.
These CXP departments are still nascent in many organizations, but the concept has gained a foothold and momentum. Their focus goes beyond customer service or application usability, they are looking at any and every interaction the customer may have with the organization, across channels, technology and throughout the entire process for their various customer categories using journey maps as a way of mapping out the interactions. In a recent American Banker article ‘Where is everyone going’, Rebecca Wooters, managing director and head of global cards customer experience digital and journey strategy at Citigroup, was quoted saying “Each journey has a starting point or multiple starting points and an intended outcome… What is everything happening in between those two spots, and are we doing what we need to do for the customer to provide a seamless, frictionless experience?”
Allowing a customer to begin a process at the branch, transition to a mobile application to enter their information, and then reach out to the customer support line to continue the process without having to explain their entire situation, re-enter data, or any other duplicative effort would be a nirvana of sort for many organizations. That seamless experience is what organizations strive for but have yet to achieve in the vast majority of cases. That is a world where the tools and information the customer wants and needs are provided, how they want it and when they need it. This foundation will very likely encourage customers to be more independent through self-service transactions, as they will have confidence that they get the answers they need or support they want without wasting time and effort needing duplicative explanations or repetitive data entry.
Does your company have a Customer Experience Division? What changes have been introduced due to this group’s activities? We would love to hear from you!
“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.