As we close out another calendar year, a time-honored holiday tradition is the writing of either a top ten list from the year gone by or a forecast for the coming year. Forecasts are more fun because you get to look back a year later and either revel in correctness or figure out how things went so far in the opposite direction.
Lending technology lends itself to forecasting because it’s tightly coupled to macro-economic factors, technology trends, and social interactions.
The macro trend in economics that will affect most businesses in almost any lending segment is the expectation that interest rates will rise. Last week’s rosy jobs report, record stock prices, rising home values, and several other very positive indicators of general economic strength are likely to lead to the long-predicted end of the U.S. government’s ongoing bond buying to keep rates at record lows. We had a few false alarms on that in 2013, but unless things swing quickly, Quantitative Easing should wind down in 2014.
2014 isn’t likely to see any radical new technologies that affect lenders, but it is likely to see serious acceleration in the technology trends that are moving from early-adopter phase to mainstream and mandatory. For example, a year ago, mobile payments were nice, but maybe not required. In 2014 and beyond, mobile payments will be required for any credible lender.
The key sociological trend is that technology is affecting a very high percentage of social interactions, fundamentally altering the way people act and communicate. Information is everywhere, communication is instant, and the baseline expectation is now that every person and every business is always online.
Distilling those macro trends down and mixing in a year’s worth of talking to hundreds of lenders in every vertical, here’s what we see:
- Rising rates will squeeze lender profitability. Lenders must operate more efficiently to maintain margins. Higher volume can offset loss of some margin, but rising volume must be accompanied by lower operational costs per loan.
- Transaction velocity will increase. Speed is everything in the always-on society and the pressure is on lenders to keep pace. Loan decisions must be turned around in seconds, electronic documents should be signed instantly online, funding is instant to a bank account or payee, and payments are made from a cell phone anywhere in the world.
The practical implications for lenders don’t require an MBA – get efficient, get faster. Lenders are notorious for staying behind the technology curve, because change looks risky and managing risk is everything in the lending business. The good news in technology is that the risk curve has flattened. The early lessons have been learned and there is quantifiable ROI in every lending technology investment.
The risk/value equation for lending technology has changed. I am able to report that, “If it ain’t broke, don’t fix it,” doesn’t apply in lending technology in 2014. If a lender isn’t actively “fixing” their technology to keep it current and capable, the technology is already “broken.” Standing still on lending technology in 2014 is equal to going backwards.
Opportunities for increasing efficiency and velocity are everywhere in a lending business. The trend for the most successful lenders in 2014 will be to really dig into every process, every dollar, and every customer interaction to improve the value of every part of the business.