
Ed McDonald – ‘Lead generator’
Despite the buzz that continues where e-commerce is concerned, the number of successful ventures into the Internet frontier by financial institutions to date is small. And even those businesses that have met with success on the Internet have encountered problems that a no-borders market like the World Wide Web presents.
How do institutions continue to serve their core markets while not ignoring the benefits of a nationwide customer pool? One Massachusetts bank believes it has found the answer.
Salem Five Cents Savings Bank was one of the first banks in the nation to realize the potential of the Internet, creating Directbanking.com six years ago. Last year it opened a physical virtual branch in Boston’s Financial District. Last week, the bank announced a partnership with HomeSide Lending of Jacksonville, Fla., to expand its online mortgage offerings outside New England.
“We’ve had a lot of success online with our Directbanking.com brand, raising deposits throughout New England and on a national basis as well. Because of the success, we do get requests for mortgage loans outside of New England,” said Ed McDonald, senior vice president of Salem Five Mortgage Corp., a subsidiary of Salem Five Cents Savings Bank.
In order to fulfill those requests, the company would have had to apply for individual licenses to operate in every state. Instead, it partnered with HomeSide. The company will handle all mortgage applications received from outside of New England.
“Our core market is Massachusetts and New England. If consumers and some of our national customers are willing to apply online, we want to have a vehicle where they can do that,” said McDonald.
“We’ve been out marketing these services to different partners since July, when we first announced the development of our online mortgage solution,” said D. Robert Davis, senior vice president of global e-business development with HomeSide. “Clearly there’s a lot of synergy between this product and what the online banks may offer. So, Directbanking.com was a good opportunity,” he said.
Nothing Simple
While offering an online mortgage option seems very straightforward – at one time it was predicted to take over the industry – research has shown only 3 percent of consumers surveyed by Mercer Management Consulting, which has offices in Boston, actually purchased a loan online.
“In New England, it’s a lead generator. People gather information online. Some do start the process that way. I can’t say that we fulfill a lot of [mortgages] online, though,” said McDonald.
“This is a core business of ours and we’re always going to try to make it more convenient for our consumers, but we’re not going to throw out a method of delivery and change exclusively to another method,” said McDonald of the online mortgage route. He compared it to the emergence of automated teller machines, saying that while they helped institutions reach customers, it didn’t become the only way to do business.
“We think that it [online mortgages] didn’t catch on and has not caught on primarily because the traditional mortgage process is too complicated, too paper intensive and requires the sharing of too much information over the Web. People are just not comfortable completing that transaction in an online environment,” said Davis.
“It’s not as simple as trading a stock or buying a book or a CD [compact disc]. So we spent the last year and a half really trying to streamline the mortgage application process by taking a lot of the extra data out and really only collecting the information that you truly need in order to approve a loan … [making the mortgage process] more friendly for consumers in an online environment,” said Davis.
The length of the process has been cut in half compared to information that is normally required, said Davis. The key is to pull information from central repositories such as credit bureaus rather than make the consumer obtain and divulge the information via the Internet, which makes some people skittish.
“It’s a very secure transaction. We worked hard on our Internet infrastructure to make sure that we protect that information,” said Davis.
The mortgage process is difficult for most consumers because of the plethora of choices of products and companies and the fact that they’re usually inexperienced. As a result, many want personal contact with loan officers to help them through the process, said McDonald. That may be another reason why the number of online mortgages has been few. But Davis believes his company has solved part of the problem.
“Typically in a mortgage process you have to tell them, ‘I want a fixed rate product, I want an ARM [adjustable rate mortgage] product, how many years I want to go.’ We don’t make the customer decide that up front. We actually allow them to come in, give us some of their personal information; we’ll come back and tell them what products they’re approved for,” he said.
Another facet of the service which may prove attractive to consumers is the approval time of 10 minutes.
“We think that as we continue to streamline the mortgage process, more customers will be comfortable conducting a mortgage transaction online,” said Davis.