Often, we hear about a new technology company that is going to eat banks’ lunch.

Just a few years, for example, after Mike Cagney co-founded Social Finance Inc., he was already talking about how his new venture was going to “kill banks.”

Startups work their way into entrenched financial service businesses like student loans, wealth management, insurances, credit cards and even mortgages, thinking they will quickly disrupt the status quo. However, what we are starting to see as new entrants, and their frat-house cultures and questionable business practices come to light, it’s not so easy!

Don’t get me wrong, I believe large institutions should be disrupted and there are a few examples of this, but this isn’t the norm. New competition is a necessary evil and needed to hold corporations accountable to better serve the current and future needs of consumers. Because better serving customers should be the ultimate goal. However, knowing past performance is not a guarantee of future success, banks are the ones that will be delivering on those unmet promises, not startups. In fact, more information is coming out about how fintech companies aren’t disrupting banks, they are partnering with them or banks are disrupting themselves.

Let’s expand on this concept a little more.

The next generation of mortgage companies will not be popularized fintech companies. Thanks in part to the political and regulatory environment, the barriers remain high. The next generation of mortgage companies will be the incumbents that transform themselves by developing a better process for implementing change faster and better, by continued progress toward an automated mortgage experience for the borrower, and the pursuit of decreasing the cost to produce a mortgage, according to American Banker.

Banks have a big lead as higher levels of sophistication in data analytics and customer segmentation, while their deep and more generalized knowledge of loan products and underwriting criteria will be leveraged. Not to mention, these are attributes investors will continue to see as less risky investments perpetuating the cycle. But even with investor confidence, how can large banks maintain confidence in consumers, while also capturing new generations of customers? By starting to think differently! By not only leveraging their own platforms, but partnering with other platforms, acquiring new technology, or even developing non-mortgage products.

American Banker goes on to say retail mortgage banking firms that already engage directly with borrowers will have a competitive edge in connecting customers with other types of loans and how they do that is leveraging their distributed sales force, i.e. mortgage loan officers. Essentially, local, licensed, and trusted loan officers will be a go-to resource of their customer’s needs. And given that the retail loan officer will have become intimately involved in the customer’s financial life, it is an easy transition for that person to be trusted with directing the customer to other appropriate products. This rewiring of retail mortgage banking will result in mortgage loan officers eventually becoming generalized “lending officers.”

Failed startup disruption, corporate innovation, high barriers to entry and competitive advantages give banks a large head start when it comes to transforming not just the mortgage business, but the entire financial services industry. Incumbents have the luxury of huge customer sets, a mature process for evaluating products and resources to develop the future. With their deep knowledge of the industry and improved implementation of innovation methodologies I expect incumbents to bridge the gap between exploiting existing business or “making the process better,” and exploring new opportunities or “creating new products” more successfully than startups can.

Speaking of disruption in the mortgage banking industry, you probably see me talk quite a bit about Scrappy Labs, and you may still be wondering what it is.

Scrappy Labs is an Innovation Division within American Pacific Mortgage. Its main goal is to institutionalize innovation and new ways of thinking throughout the organization. We intend to seek out problems in the mortgage industry and provide solutions to consumer needs with original tools and resources for the benefit of our branch managers and loan officers.

Essentially, we are making the process better and exploring new opportunities by creating new products and services.


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