MReport August 2019

TheMReport — News and strategies for the evolving mortgage marketplace.

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28 | TH E M R EP O RT FEATURE investment, and other account service categories by integrating them into a single cohesive digital banking experience. In fact, one area of clear advantage banks have over fintechs revolves around the perception that they are inter- ested in pursuing comprehensive customer relationships. There is also a counter-perception among consumers that fintechs are more profit-driven and offer interest rates that are less attractive compared to traditional banks. Still, fintechs do appear to have an advantage over banks in ap- pealing to younger customers. One of the keys to capturing the next generation of borrowers revolves around the ability to attract the talent necessary for developing technological and service infra- structures that digital consumers are looking for. For banks, this is a tall order, because the fight for talent extends well beyond the fintechs. Silicon Valley, Seattle, and tech centers all around the world are competing with established fi- nancial institutions to capture and retain a workforce with precious digital engagement skill sets. How Technologies Contribute to Borrower Lifecycle T here is no shortage of tech- nologies—from artificial intel- ligence and machine learning to cybersecurity, workflow automa- tion, and more—that are leaving an indelible mark on the ability of lenders to connect with next gen- eration borrowers. However, at J.D. Power, we have concluded that the most important success factors are rooted less in deciding what tech- nologies to deploy and more on determining where to focus digital investments. Specifically, there are three critical areas that deserve high-priority executive attention: • Deploying technology that captures and addresses consum- ers during the research and shopping stage. • Ensuring that technology can make the application and fund- ing process as streamlined and intuitive as possible. • Focusing on how technology can be leveraged to enhance ongoing relationships as borrow- ers use the account and make payments. Understanding how technologies can be harnessed to engage with different demographics in a compel- ling manner is another important success factor. In this context, it is important to note that common ste- reotypes about consumer behaviors based on age can be misleading. While there are clear differences between the "under 40" and "over 40" crowds, some of their prefer- ences are surprising. For instance, even though older demographics are more likely than younger borrowers to take out HELOC loans, they actually report lower levels of customer satisfac- tion. The difference has less to do with actual dissatisfaction than with the fact that the experience is new and exciting for millennials. According to research by J.D. Power, baby boomers and Generation Xers enter HELOCs with higher levels of confidence because they have less anxiety over the downside of variable-rate contracts and are more accustomed to the process based on past expe- rience, and therefore have a better understanding of the tax-deduction benefits HELOCs can bring to the table. They also have tended to be in the instrument longer than their younger counterparts. More than two-thirds (70%) of borrowers over the age of 40 have been in their loan longer than two years, compared to a little over half (54%) of millennials. Getting into a HELOC for the first time appears to be a stress- inducing process for the younger demographic, who find the shopping and research phase for traditional offerings complicated and demanding. As a result, many tend to drop out of the process and pursue other paths to debt— such as unsecured term loans and credit cards. Once in a HELOC, however, millennials are thrilled to harvest the benefits of additional tax deductions when the proceeds are used for home improvements— a borrowing reason driving 52% of this segment of millennial borrow- ers, compared to 47% of their older counterparts. This is an important thing to note. In the fight for the hearts and minds of consumers, tra- ditional banks currently have the upper hand in the HELOC market. That is rapidly changing, however, as fintech players expand their presence in this segment. Quicken Loans has positioned its mortgage origination offering as a viable HELOC alternative by touting its streamlined application process. This year has also seen Prosper launch a HELOC product that promises to deliver funds in half the time of traditional banks. Meanwhile, Discover—the credit card company—is also throw- ing its hat in the HELOC ring. It is waiving application fees and appraisal costs and offering fixed rates for anywhere between 10 and 30 years. The Way of the Future C onsumers of all ages today are experiencing a golden era of choice when it comes to their personal borrowing options. They are bringing a level of expectation for digital convenience into their financial lives that is transforming the entire industry. Fintechs have made great strides in the market to meet these tech-driven requirements. This has caused many of the more established members of the lending community to respond aggres- sively in the technological arms race to identify, engage, and retain borrowers. No one is in a position to rest on their laurels. The constantly evolving demands of consum- ers—who are hyper-aware of their borrowing options—have created a complex and rapidly moving target. Institutions—including traditional banks and fintechs—that invest heavily in new talent, processes, and technological infrastructure to elevate the customer experience are the only ones who will be poised to establish a leadership position as we enter the next decade in the consumer lending space. JOHN CABELL is Director in the Wealth & Lending Intelligence practice at J.D. Power, where he partners with leading financial services companies in the U.S. and Canada to deliver strategic consumer lending solutions that improve customer experience and related business outcomes. In the fight for the hearts and minds of consumers, traditional banks currently have the upper hand in the HELOC market. That is rapidly changing, however, as fintech players expand their presence in this segment.

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