With the second quarter closing in and COVID-19 moving to the rearview — we think — we’re finding ourselves in a dazzling new connected economy. Expectations are accelerating faster than the digital shift itself, and folks now want finance to be as easy as a food-ordering app.
People want to know that their banks know them: They want their needs anticipated when it comes to mortgage refinance, car loans or credit cards, and they want to establish trust.
All financial institutions (FIs) and FinTechs are vying to be that trusted financial brand to millions of digital-first consumers, knowing how to push out the perfect offer at the ideal moment. That means providing what Blend founder and head Nima Ghamsari calls “proactive finance.” Over the next three years, give or take, it could make (or break) many players.
“Banks and FinTechs are all racing towards this end goal of being the central financial provider of financial wellness to consumers,” Ghamsari told PYMNTS.
“As a new consumer coming into the ecosystem, I’m starting to ask, ‘Who can serve me in the most proactive way? Who can serve me in a way that makes sense for my specific financial situation? Over time, who can serve me across my needs when it is time to buy a home?’ If I have to go to a different financial institution to buy that home, it’s likely that I’ll transfer all my assets there. It’s likely that I’ll start doing more business with that other financial institution.”
PYMNTS research consistently finds that consumers are more willing than ever to change FIs to get the smart, seamless flows that only happen when financial data is used to its best purpose.
Offering an example, he said, “Suppose I’m revolving on credit card debt. If I could be approved for a personal loan and they know enough about me to know that I would be approved, why would they make me go and apply for that and do all that heavy lifting myself?”
Instead, the FI should be on top of it, ideally knowing you need something before you do.
“They could tell me, ‘You can save $58 a month on payments by clicking here,’” Ghamsari said. “That’s a simple example that could save consumers money. It’s not the best thing necessarily for the revenue of a bank if that credit card is with them, but it’s the right thing to do by the consumer.”
As Ghamsari said, “The best organizations in the world are consumer-first.”
See also: Digital Lending Platform Blend Labs to Raise $360M in IPO
The Right Thing at the Right Time
Proactive finance applies to mortgage, refinancing, auto loans, home equity loans for renovations — all of it. It means the bank or FI where a customer’s deposit account resides can know what the customer may need and how much they qualify for, and can make a great offer before they’ve done months of web searching.
“The way that those things are done today, consumers go do a bunch of research, they aggregate a bunch of data and documents, they go and apply, they wait 48 hours or even longer, and then the bank or FinTech gets back to them,” Ghamsari said.
The competition is partly about who owns the deposit account — insights from that account allow banks or FinTechs to be a proactive finance partner, along with basic money in/money out utility.
As in other areas, data siloes interfere. Lenders need full visibility into the consumer’s data profile to understand what products might make the best sense, Ghamsari said, but all of that information lives in different systems.
Using real estate to illustrate, he said if the average bank or FI today wants to lend for home renovation, “That’s three product lines — personal loans, home equity loans and a mortgage cash-out refinance — that are currently in three different systems run by three different teams, three different P&L owners … three different data models, meaning three different ways that you model the consumer’s financial record.”
That’s unlikely to move a lot of loans, let alone impress borrowers with the experience.
“People appreciate when you do things for them that maybe they didn’t think about,” Ghamsari said. “There are things that I didn’t know about my financial situation that people have told me. That is such a great moment ‘aha moment’ for me as a consumer that I want to go back.”
Read more: Blend CEO: Why Mortgage Lending Needs More Data, Not More Documents
Tradewinds of 2022
As much progress as digital banking and the connected economy are making, Ghamsari told PYMNTS that the mortgage and refinance boom saw some FIs put off digital data initiatives.
“The industry had record profits, but [it wasn’t] really implementing net new technologies,” he said.
“We were implementing tons of new things to help our customers do mortgages and other product lines more efficiently, more proactively,” Ghamsari added. “But our customers were like, ‘I’m too busy right now. Let’s talk when these interest rates rise, and things slow down.’ It was a bit of a tailwind in some ways and a headwind in other ways.
“2022 is a year that those technologies go from, ‘We’re too busy,’ to, ‘We need them to survive.’”
He’s already seeing more of it in the early going as banks, FIs and FinTech institutions “rally around this concept of having a single platform for their consumer.”
“People are doing it out of necessity because of headwinds in the economy, and they’re doing it because they believe it’s the right thing to do by their customer,” Ghamsari said. “When people start to realize that that’s an important part of their mission, it becomes ingrained that these things make a lot of sense to do, and in an expedient way.”
With mortgage volumes coming down and interest rates set to rise by 25 basis points, proactive finance is looking more like a win for consumers as well as the entities they bank with.
Related: Blend Adds to Mix of Banking Services With Title365 Acquisition
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