The role of aggregators in real estate and mortgage financing
More Millennials are buying homes earlier in their careers, due to rises in disposable income and the generous appreciation on real estate investments.
This has led to tremendous growth in mortgage volumes on which traditional lenders have capitalized—but now a new age ecosystem in the mortgage industry is causing significant disruption:
- Aggregators utilize social media, online channel partner websites, optimized searches and real estate forums as touchpoints to catch Millennials early in their borrowing journey, during the search and assess phase. For example: Morovus Ltd. offers an online platform for businesses to communicate with their audience and walk them through various processes using owned and external media.2
- Aggregator platforms play a prominent role in shortening the loan application lifecycle by facilitating end-to-end customer journeys and anchoring numerous service providers. Prospective buyers get to search, compare, even choose properties in real time from their devices, with accurate pricing. The US-based property aggregator Redfin, for example, claims their estimates for active homes on the market have a current median error rate of just 1.77%, and off-market homes are within 6.64%.3
- Most aggregators partner with leading realtors, which consider data of prospective buyers’ activity on these platforms valuable for generating leads. Hence, aggregators are able to provide better offers and rates to online customers than may be available to the walkin customers, creating a win-win model for both buyer and the seller in the home buying ecosystem while disrupting the sales of the traditional players. Leading property aggregators Rightmove, Zoopla and Realtor.com each have partnerships with the most prominent realtors.
What does this growth of aggregators mean to banks?
The growth of aggregators means opportunities for both banks and platform providers to catch the customer early and lure them with exciting offers to increase sales revenue. Though it is logical to assume that these aggregators are helping banks scale up their loan business, there is a flipside to this relationship which banks need to consider before setting up their campaigns and offers on aggregator platforms.
Transition of the customer base
Today, the major advantage that traditional banks have over younger fintech companies is the customer base and data insights they have built over the years. But as usage grows, aggregators will gradually create a customer base that is significant enough to drive revenue independently. At that time, aggregators can start operating as independent lenders, which will cause a major impact to the sales of the traditional lenders and banks.
For instance, the US-based Zillow has been one of the foremost real estate aggregators for mortgage lending. In April 2019, Zillow officially launched their home loans arm, solidifying their place at virtually every touchpoint in the home-buying and selling process, while their original loan suppliers became competitors on their platform.
But the landscape is changing. Banks continue to go digital. More and more centralized credit information is available online. This provides greater access to granular customer data, enables automated decision-making, and more bespoke lending with lower cost. Eventually, digitalization will enable banks to match the best offers from independent aggregators.
Revenue leakage to competitors
For banks to leverage underwriting algorithms and customer behavioral data, the underlying technology requires a lot of data exchanges. Aggregators are also able to retrieve critical customer financial information through these interfaces, and are able to create target cross-sell campaigns for competing banks on a commissionsharing model, leading to revenue leakage for the banks. To prevent this, banks need to adopt encryption and data-masking features, and set up third-party interfaces with partner platforms to protect sensitive customer data.
Considering the changing customer mindset, growth and scalability of the digital lending ecosystem requires collaborative models between banks and aggregators.
In the lending market, the key parameters for customers are:
- Brand recognition
- Competitive pricing
- Superior customer service
- Customer experience
Traditional legacy banks have an advantage with the first three parameters, but they struggle to match the superior customer experience and ease of interactions offered by alternate lenders. Aggregators can help traditional banks incorporate digital solutions throughout their credit journeys, improving their customer experience from end to end, and increasing the agility of their underwriting processes.
Aggregators are helping banks define the best approach for their needs, and providing the blueprints to build a digital-ready enterprise, emphasizing technology capabilities to reshape the future of lending.