Housing Wire reported last week that Amazon is hiring for a newly formed Mortgage Division. It did not take long for the news to spread throughout the industry and mortgage practitioners to comment. When I saw this news pop up in my social media streams, the first question I had was “Why”?
Don’t get me wrong, I love this industry which is why I have been a part of it for over 30 years from origination to operations, compliance, and technology. The “Why” question comes from the strategic part of my brain as companies of this size and stature do not just decide to enter a business without careful thought and strategy.
So I put on my Fintech hat this weekend and formulated what I believe is a logical explanation of “Why”. Amazon started out selling books and DVDs and then branched into all sorts of other products. They have perfected the model of delivering products fast and at a price point better or comparable to the retail giants, while simultaneously making shopping easy for millions of us. They offered a “sales” platform for small entrepreneurs to sell their wares. They even added Alexa which means owners of that device can do even less to get more. In some parts of the country, they are using Drones to deliver items to you within hours vs. the one-day delivery Prime users have become so accustomed to.
Now we hear talk of Amazon adding service products such as healthcare, pharmacy, and mortgages. All of these industries are complex, bound by massive amounts of regulation and have not used technology well.
Why mortgages? Profit margins are tight, underwriting is more complicated than rocket science and regulations are complex. Therefore, if one is a business genius as Jeff Bezos arguably is, then why wouldn’t he choose to go into other business sectors that make more money, have less risk, adapt more easily to technology and have less regulation?
I believe the “why” is a four-letter word; Data! Fintech companies are all about “Data” right now. How much more can companies like Amazon, learn about consumers to sell more product if they offer mortgages? Well, when you apply for a mortgage the lender collects virtually every piece of financial data on a consumer. Where they bank, account numbers, where they shop by debit card transactions, amount of assets, cars that they own, 401ks, where they work, their position, their income, credit scores and every little detail about their home through the appraisal. There is so much data about a consumer in just one mortgage application, it is simultaneously mind-boggling and scary. Traditional mortgage lenders have not used this data very well with the exception of those who “stay in touch” for a referral or refinance opportunity.
If a company that has multiple business verticals can position and sell based on this data then that company does not need to worry as much about profit margins because the “loss leader price” resulted in a vast amount of data that they accrued for their other business units. Banks have tried and not done very well in their cross-selling opportunities, because they think more like bankers than a tech company. Tech companies look at the world much differently and know how to manipulate the data to uncover your wants and needs as consumers. Then they position those desires and curiosities in front of you over and over until you naturally and statistically follow their lead. Creepy, yes. Effective? Also, yes.
Sure there will always be room for originators who offer a more ‘hands-on’ service. However, one must be realistic that if our industry does not get tech-savvy fast, use data well, and evolve faster, our market share will erode over time and be scooped up by the tech companies that do understand what a consumer really desires.