E-commerce has written its own rules for interacting successfully with consumers Financial service providers, including mortgage lenders, still have a lot to learn about the new medium and the right message.
The singular strategic question facing senior mortgage bank management today is how best to tie in customers by selecting and controlling channels of product and service delivery. Questions about pricing and funding will be less urgent than deciding on which customer marketing channel will hold greatest advantage.
A mortgage has always been a "shopping good." As a consumer product, a mortgage is complex in its construction. It is a big-ticket item, one for which consumers are advised to shop for the best deal. As the mortgage business turns to electronic delivery (e.g., over the Internet), a medium over which a large number of lenders can electronically display their wares to a broad audience, the mortgage will tend to become a convenience product. Easy access to information and execution will sway a consumer's purchase decisions. Effective and low-cost distribution then becomes the key element in marketing the mortgage as a convenience product. In this environment, channel selection and management become the primary concerns for mortgage bank managers.
To see how the industry is responding to the issue of channel selection, we will try to answer a number of related questions: How important is the Internet to the future of lenders' businesses? Will physical branches continue to play a critical role when electronic product delivery is employed? How might a lender enhance customer marketing through all of the available channels? What technologies will be crucial in the choice of delivery channels?
How lenders are dealing with distribution
MORTECH 98, published by SSP/RES Research, Washington, D.C., produced a stunning result. More than one-half of lenders (55.2 percent) will expand their system of branches to build their origination businesses [ILLUSTRATION FOR FIGURE 1 OMITTED]. In 1996 and 1997, about one-third of lenders focused their expansion plans around investments in physical distribution (branches). Other lenders are looking to improve their distribution capacity by linking electronically with Realtors (14.3 percent) or with brokers/correspondents. With the rapid ascent of electronic marketing alternatives, what is the significance of the industry's focus on branching?
There appears to be a correlation between the need to have a convenient location and lenders' concentrating on closing new accounts. Coincident with the added investment in branches comes a significantly greater investment in new accounts. Regardless of the source of business - the Internet or the Realtor - there is a growing emphasis on providing new customers with a satisfying experience while closing their business. When asked who was the primary target of new technology expenditures, the single greatest response was "new customers."
Data from MORTECH 98 substantiates the industry trend toward investment in technology that helps lenders reach out to their customers. New technology is being used to make the lending experience more satisfactory for new customers and to enable loan officers be more effective in their dealings with borrowers. They are taking care of the business that comes through their front doors. In doing so, lenders are adhering to the lesson of an old retail adage: It doesn't matter how long the distribution channel is - it's only the last five feet that count.
While building out their branches, mortgage lenders are pressing the case for electronic distribution. After a period of exploring and promoting electronic data interchange (EDI) and building a foundation of standardizing data sets, the industry is cautiously implementing the Internet as a channel to distribute information and to interact with their customers and suppliers.
Figure 2 shows that almost half of lenders have established a Web site. Yet the number of new sites did not grow in the past 12 months (more on this later). With almost 80 percent of these implementations concentrating on publishing company and product information, lenders are ambivalent about the value of their Web investments. In MORTECH 98, lenders were asked to rate the importance of the Internet to the future of their businesses. On a scale of 1 to 5, with 1 being very important, the average response hovered around a very neutral 3.
There is reason to believe that the neutral ranking both stems from and is caused by lenders not taking full advantage of Internet technology in their marketing.
Supporting that conclusion, a recent survey of the top 120 financial institutions in North America, Europe and Asia-Pacific, by Meridien Research, Needham, Massachusetts, found that 60 percent of respondents implemented static Web pages, while only 33 percent offered online transactions. According to the survey responses, more capability will be added as virtually all (90 percent) of North America's biggest financial institutions will be offering transactions over the Internet by the year...