Alt-Branch Banking: Be the Home for the Homeowner (or Renter)

the_wallThe writing is on the wall. The bank branch wall that is. In a world of ubiquitous smartphones, bank branch ROI continues to plummet. That leaves many financial institutions wondering how to replace the branch’s historic role as the center of customer acquisition.

There are many strategies:

  • Substantial digital marketing and sales efforts
  • Relationships with major local employers
  • Lending, and banking, small businesses
  • Leadership in K-12 financial education
  • Affinity programs with local retailers
  • Social media and PR champion

None of those are particularly novel. But one you may not have tried recently is becoming the go-to financial institution in your area for homeowners and apartment renters. Being the local bank that helps people meet one of their top priorities in life, having a roof over their head, puts you in an enviable position.

Again, this is a strategy that goes back decades (e.g., Savings & Loans in the United States, Building Societies in the United Kingdom), but digital technologies open up new avenues of integrating partner services into a cohesive “Home for Homes” strategy:

  • Finding a home/apartment: Integrations with Zillow, Redfin, newcomer Faira (which “wrapped” the Seattle Time Sunday paper this past weekend in 3-full-pages ad)
  • Traditional home financing: Standard and jumbo mortgages, purchase and refi
  • Alt-financing home/apartment (note 1): Rehab loans, crowdfunding integrations, rental-deposit loans, and so on
  • Home/apartment repair loans: Smaller loans, potentially more of “emergency” type
  • Traditional home equity lending: Installment loans, lines of credit, and so on
  • Realtor support: While there is no shortage of independent mortgage brokers working with real estate agents, many (most?) can’t provide a flow of inbound leads to the agents; this is where established FI brands can leverage their standing in the community (within RESPA guidelines, naturally)

After you find a new home buyer/renter/refinancer, the hard part begins. How to convince them you are the long-term home for their home? A novel approach, but one fraught with regulatory/risk/ROI concerns, is the lifetime mortgage, e.g., a mortgage preapproval that moves with you from home to home provided you continue to meet down payment and income requirements (NOT the UK meaning, a reverse mortgage).

While reprising the Third Federal Mortgage Passport might not be possible in the current regulatory environment, there are ways to incent customers to move their other bank accounts (though, thanks to Wells Fargo, you better be super careful with sales incentives).

CFCU Community Credit Union's "First Home Club"
CFCU Community Credit Union’s First Home Club, a down-payment assistance program from the Federal Home Loan Bank of New York.

Here’s a list of perks to offer new homebuyers/renters:

  • Homeowners club with content, discounts and offers
  • Systematic savings program to save for down payment or rental deposits
  • Card rewards geared towards home expenditures
  • Significant interest-rate kicker and/or bonuses on the first few thousand in savings (see CFCU Community Credit Union at right)
  • Simple refi process (see PenFed’s program powered by Mortgage Harmony for example)
  • Reward-point bonuses for home-related purchases on your credit/debit card
  • Homeowner/rental insurance
  • Homeowner repair services with financing discounts (integrate with Thumbtack, Angie’s List, etc.)
  • Energy-conservation services with financing discounts
  • AirBnB integration for renting out home/apartment

Bottom line: No matter how well your branches are doing today, most financial institutions need to pursue viable new-account generation alternatives to make up for falling branch traffic.

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Notes:

  1. findevr-sv16Apartment financing is a relatively new need (see previous post). And the magnitude of it might surprise anyone who hasn’t checked out the urban rental market in recent years.
  2. Looking for more inspiration for your technology stack? Don’t miss our third annual FinDEVr Silicon Valley next week (18/19 Oct).

Giving Customers Credit

declined_plateOne of the most frustrating aspects of modern day borrowing, especially in the heavily securitized U.S. home loan market, is the price you pay for not being “normal.”  I faced this for more than two decades as a business owner. Even with a 20-year track record in business and great personal credit scores, without that regular paycheck and W-2 documentation, it was maddeningly hard to get a new mortgage, refi, or even a car loan or credit card sometimes.

But having worked on the other side, I understand that certain groups, such as small business owners, pose higher risk. So it’s understandable that underwriting, pricing, and documentation requirements for new customers are more onerous. The extra paperwork may be frustrating, but business owners understand risk vs. return, and can come to terms with it.

However, there is another situation that makes customers pull out their hair, rant on social media, and tell their friends to avoid that bank. It’s when you’ve been a customer for years, even decades, but your lender decides you should be in a higher-risk group, even though you’ve done nothing risky. There is a classic example of this in the Wall Street Journal today. It tells the tale of a Seattle couple who are renting a cottage behind their primary residence in a completely legal and transparent way. And when they mentioned this seemingly great $30,000 improvement to their income in a home-equity loan-refi app, their bank, one of the largest in the United States, promptly turned them away saying it didn’t offer home-equity loans on properties with home-based businesses.

Certainly, the bank can make the business decision not to lend to any category where it doesn’t like the overall risk vs. return. But their underwriting should be flexible enough to look at an existing loan that’s in good standing, and realize that if the borrower is pulling in an extra $30,000 from AirBnB, the default risk on that loan has been lowered.

umpqua logoThe bank isn’t commenting on this particular loan application, so we don’t know if there are other extenuating circumstances. Perhaps the couple had a debt go into collection or other credit problems. But since I’ve personally run into similar problems while maintaining excellent credit, I believe the couple’s story is probably accurate.

Bottom line: One bank’s loss is often another’s gain. This story had a happy ending as the couple was able to refinance through super community bank Umpqua. Now that its win has been immortalized by the national press, expect Umpqua to feature this story throughout its market.

How it Works: Real Estate Crowdfunding at Patch of Land

patch of land la jolla

While everyone else was playing Pokemon Go last month, I was doing something more appropriate for someone my age, crowdfunding a house flip in La Jolla. Amazingly, I was able to view the property and public records (Google Streetview, Bing, Zillow, Redfin, Trulia); check out the construction-cost estimates; review the revised floor plan; and check out the actual appraisal for the as-built value against four comps in detail, all from the comfort of my home.

Ever since a brief stint in the early 1990s at a mortgage bank, I’ve known there was great demand, and tidy profits, in financing major home rehabs. I never thought I’d have the guts to flip a house myself, and I still don’t, but I can do the next best thing: loan money to real estate rehabbers through crowdfunding sites such as Realty Mogul, Patch of Land, RealtyShares and the like.

For my first try, I chose Patch of Land because they are a Finovate alum (see note 1), but mostly because their email showcasing a new rehab investment opportunity in La Jolla, California (where I honeymooned) caught my attention (see investment page above). The developer bought a 3-bedroom, 3-bath house in May for $1.3 million and is putting $500,000 into a major remodel, creating a 4-bedroom, 2-bath (which the appraiser objected to by the way). The work has already begun, but Patch of Land was still looking to fund the final 10% of the loan. The startup prefunds the projects with its own money, then resells them to investors. This particular house will pay 10.5% interest for the 11 months remaining on the original 1-year term; however, it is likely to be paid off early if all goes well and the house is sold before the end of the 12-month period.

The real estate crowdfunding industry is already bigger than I expected. I haven’t found reliable stats for 2015, but the market was estimated at $1 billion in funding in 2014. Patch of Land has done $150 million since inception, and Realty Mogul, more than $200 million. According to (an undated post) in the Real-Estate Crowdfunding Review, more than 100 such sites exist. They rated eight as all-stars, including two Finovate alums: Realty Mogul ($200 million in cumulative originations) and Patch of Land ($100 million in originations as of March 2016), along with Acquire Real Estate, LendingHome, Peer Street ($75 million in originations), Real Crowd, Realty Shares ($130 million through Feb 2016) and Roofstock.

Bottom line: If you are looking for alternative investments to recommend to clients, consider working with a major crowdfunder to white-label or co-brand the service.

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Note: If anyone wants to talk real estate crowdfunding, or anything else, at Finovate NYC in two weeks, drop me a line (jim@finovate.com).

The Art of Mobile Banking Engagement

Customer engagement word cloudIt’s been fascinating to watch mobile banking take hold. The path has been much the same as online (desktop) banking a decade earlier, but at about double the pace (at least in the parts of the world that are highly banked).

Modern online banking started 21 years ago this month, when Wells Fargo began web banking in May 1995. It took 12 years before Mint came along and made it all look good and introduced the masses to more advanced concepts such as account aggregation, goal-oriented online budgeting, and expense tracking.

Mobile banking, which got its start in the post-iPhone App Store era (2008), took only about five years before it was “Minted” by Simple and then others. And in fewer than eight years mobile banking is already far better than desktop by almost every measure. From touchID access, to location awareness, to that very useful camera for depositing checks, there is just no way desktop online banking can compete.

But we have just barely scratched the surface of its biggest advantage: the always-on, always-with-you benefits. Account and transaction security is one of the first features having huge impact both on consumers (peace of mind, less hassle) and financial institutions (fewer false negatives, lower fraud costs, less customer-service expense).

Another area where huge benefits exist? Proactive communications about finances. Simple, Moven and Capital One’s Level Money are on the forefront with tools that help mobile customers know where they stand BEFORE they drop another $12 for a fancy cocktail or $35 on Uber.

And while monitoring spending in real-time has big theoretical benefits, it’s universally loathed by most consumers as the ultimate buzz-kill, kind of like having your parents hovering over you at point of sale. A more exciting always-on benefit is guidance to achieve bigger aspirations, like replacing your aging vehicle, trading up from your dinky apartment, or buying a house.

Take home buying. Many of our readers have been through this multiple times. But do you remember how little you knew about it back in the day? It’s a daunting task today even forHip_Pocket_Art0 the financially savvy.

That’s why I love tools that help people understand all aspects of the home-buying process: the mortgage, the purchase, and dealing with all of the ancillary expenses. We’ve seen a number of companies working on various aspects of the mortgage process. And next week at FinovateSpring, you’ll be treated to demos by two of the new breed of mortgage startups: Blend Labs which powers mortgage processing on the back-end and Roostify which helps consumers through the process.

And as luck would have it, last week Mark Zmarzly from Hip Pocket visited Seattle to present at a CU event, and was able to spare a few minutes to meet me for coffee. Mark wowed the crowd when he demo’d at FinovateSpring last year. Hip Pocket’s first product is a mobile app that allows anyone to input mortgage rate and monthly payment to see how their company stacks up against its peers (see inset).

The Hip Pocket mortgage app is a compelling value-prop for users, and potentially a great lead-gen tool for banks and credit unions. While Hip Pocket has had some great traction since then, it is still looking for additional seed funding to build more tools and fine-tune its customer-acquisition model. Hip Pocket is in a sweet part of the market—mobile mortgage (MoMo)—and is at a point in their company arc where relatively small dollars can make a big impact. They are a great candidate for “bank strategic seed funding.”

Calling All Startups: Reinvent the Mortgage Process (Please)

mortgage_treeI’ve been a mortgage customer for almost 30 years. And unlike most financial products, the mortgage process has gotten more convoluted in those three decades. There are good reasons for many of the added hassles, but the overall experience leaves a lot to be desired, especially if you are not a standard W2 wage earner. The poster-child for bad UX was last year’s denial of a mortgage to previous Fed chairman, Ben Bernanke. I had similar trouble last Fall, despite almost 20 years in the same home and job. There is still much to be done.

So I’m always on the lookout for startups working on improving the mortgage process. Despite a mortgage innovator, M&I Bank spinoff MortgageBot, winning Best of Show at the very first Finovate, we’ve had only five companies demo mortgage-specific process-improvement during the ensuing seven years (and we’ve had a number of mortgage calculators and rate-search plays including Credit Sesame, Google Advisor, Lending Tree, MortgageHippo, ReadyForZero):

That’s not nearly the amount of change I expected in this vital area, but the re-regulation of the mortgage industry, thanks to the housing debacle of 2008 to 2012, has taken a toll on innovations. But things are beginning to change. First, we have a three companies at next week’s FinovateSpring taking on various aspects of the mortgage process:

And there is also some early stage startups forming with stated missions to improve various parts of the mortgage experience, including:

  • Ethos Lending: Raised $8.2 million in April 2014
  • Expedite Financial: San Francisco-based startup founded in 2013
  • Floify: Boulder, Colorado, company founded in 2012
  • HomeTrackr: Aiming to be the “Carfax of homes”
  • Lenda: Raised $1.5 million in Sep 2014
  • LendingHome: Raised $70 million Series C in March 2015
  • Sindeo: Raised $5 million Series A in Feb 2015

Finally, many of the big so-called P2P lending platforms such as Lending Club and SoFi have talked about moving into the mortgage arena.

Treating Loan Applicants with Respect

image I’ve been denied credit twice.

The first time, I understood. Sort of. I was starting my first job and had little, if any, credit history. But still, it hurt that my Fortune-50-employer’s credit union wouldn’t give even a $500 credit line to a freshly minted engineer. Luckily, the first big bank I tried had no such qualms and promptly sent me a MasterCard with a $2,000 credit line.  

The second time, 25 years later, made zero sense. I’d received something like 100 direct mail preapproved offers from this issuer before I finally said yes to one. Yet, I was rejected online when I went to accept it and again when I called to appeal. They wouldn’t say why, but it was likely related to that curse of the loan applicant, self-employment (see note 1). 

So, as a consumer and especially as a small biz owner, I’ve always had a bit of a love-hate relationship with banking credit departments (note 2). Having worked in credit/loan product management, I am sympathetic to the tricky underwriting concerns behind the scenes. Granting credit is like being a parent. You have to learn to say “no” a lot.

But also like a parent, you must say it tactfully and respectfully to maintain a healthy relationship. And that’s where many financial institutions lose points.

The reason I bring this up is that I’m in the middle of a refi with a top-10 bank. I originally chose them for my home loan five years ago because of its world-class online mortgage application process and great reputation. But that original note comes due in February, so I must refi once again. I’ve been happy with this company, so I decided to stay with them, even though they weren’t the lowest rate. I hoped that being a long-time customer (14 years) with three deposit accounts, a business credit card (4 years), a personal credit card (3.5 years), and a mortgage (4.5 years) would ease the process.

And maybe it has. But they can sure make me feel like an idiot along the way. The mortgage process began two months ago, via a phone application. And trust me, it could not have been a more cookie-cutter deal in terms of LTV, debt-to-income ratios, credit scores and such. The only complicating factor, underwriting wise, and I guess it’s a huge one, is that I own a substantial stake in a small business.

During the past two months I’ve uploaded 23 documents including explanatory letters, tax returns, and so forth. But here I am at day 66, and I still have no idea if the refi will go through, especially given that it’s past the original lock expiration, a situation they’ve been “looking into” for 4 days (note 3).

Not once has the bank reached out through email to apologize for the delays, or to thank me for continuing through the maze of documentation, or even to provide a simple loan status report (note 4). I have gotten a couple voicemails from the original sales rep asking me for more info, and generally he’s done a good job of being upbeat.

I understand the documentation rules for conforming loans are onerous these days and the bank is not making the rules, only enforcing them. But I feel completely disrespected at this point. And even if this one eventually goes through (note 5), I would be highly unlikely to do another loan with them, nor would I recommend them to someone else. And this is a company that I’ve lavished praise on both in private and in public for a decade and a half.

It doesn’t have to be that way. Here’s how to be a good partner when your customers ask you for money:

1. Educate

Declining someone’s loan application can create huge relationship problems. I’ve never seen the research, but I think it’s safe to say the attrition rate of declined customers is higher than approved ones. So the best way to save declined customers from leaving is to stop them from applying for the loans in the first place (note 3). Good consumer education, including specific information on the applicant’s credit score and likelihood of being approved, is important. 

2. Say thanks

Even though customers are asking you for money, this is actually what keeps the lights on at most banks, so THANK CUSTOMERS profusely in multiple channels.

3. Keep in touch

No one asks for a loan just for the fun of it. And in most cases, time is of the essence. If you have to say no, do it fast. If you are saying, yes, then help them understand the process, deadlines, and expected closing date at every step of the way. If you can swing it cost-wise, maintain real-time status online AND , even more important, communicate every business day as to where the loan stands. It costs approximately ZERO to email your customers. Why would you not?

 4. Offer alternatives

If you have to say no, offer alternatives. When my credit union turned down 22-year-old me for a credit card, they could have retained my business if they had offered a co-signed card option and/or a secured imagecard with a migration plan to unsecured credit. If there are no reasonable alternatives within your product set, send them to others who may be able to help.

5. Be empathetic

Applying for a loan is a humbling activity. No matter who you are, you can still be rejected (see Ben Bernanke’s recent experience). Sure, it may not be your fault. The secondary market investors, having been burned in 2008/2009, are MUCH stricter on the documentation front. And it’s understandably frustrating for banks and their mortgage employees. But don’t pass that irritation on to your customers. You are the trusted advisor. Act that way.

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Picture credit: eBay

Notes:
1. Along the same lines, our company has been stonewalled when seeking commercial lines several times. The bank doesn’t outright say no, they just keep asking for more documentation until we finally lose interest.

2. That said, I don’t want to sound completely ungrateful. The mortgages, home equity loans and so forth, have allowed us to purchase a home that has appreciated nicely and to drive cars that don’t need repairing. So overall, I’m grateful to the credit grantors that have taken us under their wings.

3. Because the bank has been so slow in making underwriting decisions, the original 60-day lock has expired and they want an extra $1200 for a lock extension, even though I’ve met every paperwork requirement on schedule. It’s 100% their fault for taking so long. My request for a waiver of this penalty was “sent to management” a few days ago, but naturally I’ve heard nothing.

4. They do have an online mortgage system that helps track
what’s going on, but it doesn’t appear to be accurately reflecting the real status. Several of my doc uploads show a big “rejected” flag, but no one has asked me about them.

5. WARNING: This is a regulatory minefield. You have to be super careful not to show any bias in the application process, especially when discouraging a consumer from applying.

Launching: Allre Will Help You Sell Your House for Zero Commission

imageSo far, the U.S. real estate industry has maintained its 6% standard commission despite mass adoption of the Internet for researching available properties. And the run-up in housing prices in many areas has made real-dollar commissions much larger than they were in 1995. Certainly Redfin and others rebating commissions on the buyer’s side have made inroads. But if the seller’s agent is still taking 3% the total commission remains stubbornly high.

Enter Allre.com, a San Diego-based startup that debuted at TechCrunch Disrupt today (demo video). Taking a page from Zenefits model (free payroll services if you buy your healthcare through them), Allre will do the real estate transaction for free. That would save the average California seller $24,000 in commissions.

The catch? Buyers use the Allre platform to buy their title insurance, homeowner’s insurance, mortgage and other closing services. Allre is able to book these ancillary commissions because as a free service it does not come under RESPA regulations forbidding such arrangements.

Allre said it will work with multiple vendors in each category; however, for now its exclusive mortgage provider in its first market is Prime Lending.

Real estate is a business with huge network effects, which is why the various MLS services around the country continue to maintain a tight grip on real estate marketing, and commissions. So the challenge for Allre, or anyone who wants to take on the local commissioned base, is to get a large cross-section of homes listed on its site. The company has some ideas on how to do that (see the Q&A session that follows the TC demo, specifically, the question at the 7:06 mark), but no one has really cracked that nut yet.  

Relevance for Netbankers: Home ownership, and the financial services surrounding it, is an area that holds significant profit potential for banks and credit unions. Working with Allre or other real estate disrupters could be an effective way to find new mortgage (and banking) customers. 

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Allre homepage (8 Sep 2014)

image

Allre transaction dashboard

image

Umpqua Bank Launches Mortgage Sales Tool: Home Hunter

image Ever since I saw CEO Ray Davis speak at BAI in the mid-1990s, I’ve been a huge Umpqua Bank fan. But most of the bank’s notoriety is around its fresh take on the brick-and-mortar experience. But that’s not my thing, at all, so I don’t get a chance to write about them often.

However, today I was delighted to see a new mobile app appear in the iOS store called Umpqua Home Hunter. It’s a simple tool for house hunting. When a home buyer runs across a home of interest when out and about, they can open up the Home Hunter and automatically document the address (via GPS), then add comments, pictures, and a 1-to-5 star rating (see screenshots below).

There is also clever integration to Umpqua lenders. Users can forward the house to the lender of their choice to start the mortgage prequalification process (see third screenshot). 

Bottom line: While the app is pretty basic, lacking integration to home value databases such as Zillow, or MLS/Realtor services such as Redfin, it could recoup its development costs with a couple incremental mortgages every month. And even if it fails to do that, it’s a novel mobile service that helps position Umpqua as an innovator in digital, like they’ve long been in branch banking. 

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Users add a home details                    ….pictures, comments, rating

image       image     

Below left: Users have the option to send homes over to their Umpqua
loan officer to get the mortgage process started

umpqua_mtg_app.jpg

image   

 

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Note: For more on mobile banking and/or online lending, see our Online Banking Report archives (subscription).

Google Launches More Financial Product Comparison Pages: Savings Accounts, Checking, CDs, and Mortgages

image Today, I ran into Google’s new savings-account comparison chart for the first time (see notes 1, 2 and screenshot below, link). The search giant now offers separate pages with financial product comparisons for mortgages, credit cards, CDs, checking, and savings accounts. And the comparison matrices are at times positioned prominently on searches potentially reducing traffic to top advertisers and to organic results as well (see screenshot below).

Savings account search results
Let’s look at an example search today for “savings accounts.” The results include a blue-chip lineup of paid advertisers. Following is a list of the top 10 paid results compared to their position on the Google comparison page (note 3):

1. American Express (#1)
2. ING Direct (#7)
3. US Bank (#24, 30, 32, 33)
4. BECU (local advertiser)
5. Citibank (#19, 25, 26 )
6. Capital One (#10, 15, 31)
7. Navy Federal CU
8. TD Ameritrade
9. Zions Bank (#4, 5, 22, 23, 27)
10. Discover Bank (#2, 11)

Analysis
I still don’t understand why Google would risk antagonizing its financial advertisers by drawing traffic away from their ads and into the Google-powered comparison matrix. The company says its focus is on the user experience. So I guess they believe that long-term this approach will generate more traffic, more searches and ultimately more revenue, possibly from commissions for actual accounts generated, rather than just pay-per-click.

But in its current beta stage, there are some odd results. How would you feel if you are US Bank, bidding high enough to be number three on the search results page, but not shown until page three of the savings-account comparison page? Worse, three top-10 advertisers, BECU, Navy Federal CU, and TD Ameritrade aren’t even listed on the savings comparison page.

Which brings up a bigger question. How does Google determine which FIs are listed? The savings-product comparison indexes only 17 banks, of which five aren’t even playing the rate game at this point with rates of 0.25% or less (note 4). Furthermore, there’s not a single credit union and just one smaller bank (Bank of Internet) listed. 

I understand this is just a trial balloon from Google and that product comparisons could make it easier for users to find the best rate. But right now it’s unfair to any financial institution not in the chosen 17, and it doesn’t allow users to easily choose from criteria other than rate, monthly fee, and whether a branch is nearby.

It also looks like the system could be gamed. What’s to prevent one of these banks from launching ten, or 20 or 30 different savings accounts, all with temporary teaser rates, to soak up more space in the matrix?

Sure, Google will eventually build algorithms to prevent that, but that will take time. Meanwhile, it’s an odd transition time for the search engine and its financial advertisers. But if you rely at all on Google to deliver new customers, you better pay close attention to developments with its product-comparison pages.

Google search for “savings accounts” (12 Jan. 2011, 4:00 PM Pacific, Seattle IP address)

Google search for "savings accounts" showing new product comparison ad

Google’s “savings” comparison page

Google's "savings" comparison page

Offer details page for American Express High-Yield Savings

Offer details page for American Express High-Yield Savings

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Notes:
1. According to MyBankTracker.com, Google started running the deposit-account comparisons in late December 2010 in the U.S. market.
2. We wrote about Google’s credit card comparison matrix in November.
3. Google’s savings-account matrix listed a total of 44 results, from 17 unique banks, displayed 10 per page
4. 14 of the 44 results, almost one-third of the matrix, were accounts paying 10 basis points or less.