How much of a threat are online lenders?

by 23 Apr 2015
The term ‘digital disruption’ has become the latest buzzword surrounding financial services. It refers to changes brought about by technology that fundamentally shift established ways of thinking and doing business. Digital disruptors vow to make the consumer experience cheaper, quicker and more convenient. 

When it comes to the financial services industry, one of the biggest digital disruptors is the online lender – lenders who operate solely online and distribute direct to the consumer. Online lenders may not offer the personalized service that an originator can, but they can pass their savings on overhead costs onto consumers in the form of much cheaper rates – and can offer it all from the comfort and convenience of the consumer’s couch. So how can originators protect their value proposition in an online world?

Room for two?

Kim Cannon, founder and managing director of both a traditional lender and an online-only lender, says there is room in the market for both brokers and online lending.

“The biggest thing I find is that [originators] don’t understand what online is or where it is heading,” he told MPA. “It really comes down to the customer and what their level of comfort is. The type of customer we’re seeing in the online space is, 99% of the time, not the same customer that originators see. When we started our online business the average age of our customer was between 40 to 50 years old. They were in affluent suburbs and had had a loan before. They had been there and done that, so they wanted to keep it simple.

“Whereas, consumers will go to an originator for education and information. Consumers use originators to gain knowledge and to have someone hold their hand through the process. Those types of consumers will always be around and will always need somewhere to go to.”

While Cannon says originators will always hold an undisputed role in the market, he also believes online lenders do too – by aiding competition and challenging the major banks. “There is a lot of competition out there, but the big banks are still getting the majority of the business,” he said. “If anything, the big bogeyman that is coming is the major lenders spending millions on online facilities to catch the client, then cutting every other lender out while they have the client in front of them.There is significant digital disruption, which is just a fact of life. The new generations want greater flexibility, accessibility and control of their decision making – whether that be travel, retail or financial services.”

Sink or swim

As the market continues to forge a place for both online lenders and traditional originators, the savvy originator should acknowledge these changes and learn to adapt if they want to survive. “There will come a time where originators will have to make a decision not to fight over online lenders, but essentially look to share the customer. There will always be a segment of the home buying community who will have a clear preference for their channel of choice.”


  • by Cheryl M | 4/23/2015 3:20:48 PM

    I don't feel sorry for the broker, just the customer. The online origination does not always cut the job and those 40 to 50yr consumers are telling friends and family about their awful online experiences. God knows I've heard a lot of them. Then someone tells them about the "broker" or "mortgage banker" next door....He/She is your neighbor...why did you go online when their right next door? "Hands on" or "Come on in" or "I'll stop by" in many cases today, with all the talk of "fraud" this and "fraud" that, consumer today are becoming more and more hesitant to let their fingers do the walking when it comes to their private finances, money, etc...

  • by Brad | 4/24/2015 9:21:29 AM

    Totally agreed Cheryl. This article was obviously written by people making their paychecks from online lending.
    Online lending:
    - 50% of applications will go through without a glitch
    - 25% of applications will go through with major issues on the file, the borrowers pulling their hair out trying to make heads/tails out of the issues with shotty customer service along the way.
    - the other 25% will be straight declines or not fund altogether because there is no mortgage officer to pull the mortgage through.

    It is almost as if this article was written by some jackass manager who doesn't/hasn't originated mortgages in the modern era or doesn't care about issuing declines. No accountability, no customer/borrower starring them in the face when the mortgage doesn't fund.

    A disservice to the public and a disservice to the industry.

  • by Griff | 4/24/2015 11:42:04 AM

    I'll be watching the online originating progress. I am doing a good amount of business from those who found me online, but they and I are mostly local.

    I don't hear good things from the real online originations. One buyer took over six months to close. I just had a buyer contact me because he was doing a rural housing mortgage from someone in Texas, we're in Kentucky. He was not trusting the originator because they wanted money from him and the seller was paying all his costs. The originator was not able to explain why they wanted money.

    I feel the only mortgages that make sense for the consumer online are the ones with great credit, big down payments and low dti's. If you don't have this scenario, then who is dogging the consumer to get all the documents? Whereas a lot of folks have the ability to scan and email today many are not good at it. I would not think there would be enough margin to pay someone to do all the paper shoving I do on the majority of the files if they are undercutting rates.


Is TILA-RESPA a good or bad thing long term?