Fannie Mae: Application Programming Interfaces Reshaping Business Strategy
While many businesses increasingly use Application Programming Interfaces and other digital technologies to reduce errors and costs, speed up transactions and provide better customer service, the lending industry is (surprise) a tad behind the times.
Fannie Mae, Washington, D.C., in a survey of senior mortgage executives, found four in 10 lenders consider the pace of technology innovation in the mortgage industry is too slow. And while half of lenders surveyed have incorporated APIs into their mortgage process or used them on a trial basis, few lenders say their firm has looked into using Chatbots, a computer program which conducts a conversation via auditory or textual methods. Nearly 20 percent of lenders don’t plan to use APIs within the next two years.
Tracy Stephan, director of economic and strategic research, said over the past few years, companies such as Google Maps, PayPal, OpenTable and Netflix, have leveraged APIs to help deliver a seamless customer experience through easier collaboration. She warned that as lenders work with increasingly younger and tech-savvy customers, they risk perceived obsolescence.
“APIs are the key to transforming the mortgage experience, enabling lenders and technology service providers to meet demands in a fast, agile and scalable way,” Stephan wrote in a blog, APIs Are Reshaping Business Strategy (http://www.fanniemae.com/portal/research-insights/perspectives/apis-business-strategy-051817-stephan.html). “Lenders who do not expect to adopt APIs in the near future may well find themselves pushed to the sidelines.”
Stephan noted businesses are increasingly leveraging digital technologies such as APIs, Artificial Intelligence and distributed ledger technology (also known as “blockchain”). But while three out of five lenders surveyed said their firm is making the best use of data for their mortgage business, only one-third said their firm has a formal data strategy, including a dedicated internal data team. Nearly four in 10 lenders said they address data-related activities on an ad-hoc basis.
“The majority of lenders surveyed say they are technology followers, not early adopters,” Stephan said.
However, the news is not all bad. The survey said in light of tighter competition, lenders expect adoption of APIs to grow in the future state. Lenders who currently use APIs do so primarily to integrate information, such as appraisals and verifications, with their Loan Origination System and other services within their firm. Lenders see loan production (origination, processing, underwriting, and closing) as the greatest area of potential for APIs and Chatbots. Lenders also see the potential for using APIs in paying taxes and insurance from escrow accounts.
“Today’s consumers demand a simple and streamlined experience in all aspects of their life,” Stephan wrote. “However, mortgage transactions are complex, involve many interdependencies, and require extensive collaboration. In other industries, APIs have become a crucial element of business strategies to deliver a seamless customer experience because they make data-sharing easier.”
For example, a customer experience in planning a night out at a restaurant can use his/her mobile phone to search for a restaurant on a review site and make a reservation. The consumer then might click on the map to see where the restaurant is located and decide they’d like to order a car service to get there.
“Conveniently, there is a button to do just that,” Stephan said. That whole series of steps takes just a few minutes. Because the various providers make their functionality available to each other via APIs, the consumer has an integrated and efficient experience, and each of those businesses is able to benefit from the ‘connection.'”
APIs, Stephan said, are the key to transforming the mortgage experience so it is as simple as the restaurant example. “They allow lenders and technology service providers to meet demands in a fast, agile and scalable way,” she said. “APIs will reshape how work is done and how companies compete.”