In the fast-paced mortgage industry, building a reputation for a competency that is relevant and meaningful is crucial. Attributes like “fast,” “convenient,” and “expert” often define our identities. Now, there is a new sought-after positioning in the business-to-business (B2B) sphere—FinTech, short for Financial Technology. While it may not hold much sway in consumer markets, the FinTech label signifies a company that is tech-savvy, highly automated, and flexible. It is the kind of company others want to hire, partner with, or acquire.

What Defines a FinTech?

What exactly differentiates a FinTech from conventional businesses? Here are common traits I have observed in authentic FinTech companies.

The Technology Bear Hug

For many companies in the mortgage finance area, labor is the single largest expense. New players often enter the market with innovative technology, benefiting from the luxury of building their business models from scratch. Their labor costs are a fraction of conventional operations, and they often position themselves as low-cost providers. We call these new entrants “disrupters,” and their emergence is feared, their presence quickly felt.

More mature companies adopt modern technology incrementally, balancing automation with traditional processes to minimize internal disruption. Nonetheless, a technology journey is critical regardless of whether a business is established or emerging. The world is evolving much too quickly to ignore the technological tsunami sweeping the world.

A company seeking a true FinTech positioning has a technology mindset and continually seeks to modernize every aspect of its operation to accelerate, optimize, and deliver its products or services. In doing so, it creates barriers to entry enabled by a lower cost of production, time-to-market, and customer responsiveness. Its leaders have their vision focused on technology developments not just in their industry but in their lives. They ask of modern technology, “Could this improve my customer’s experience?”

Technology is Omnipresent

In a FinTech company, technology drives every function, from attracting talent to managing payables, collaborating with partners, and servicing customers. True FinTechs abhor paper; often, their entire operation can be managed via a handheld device from a remote location.

These businesses enjoy real-time visibility into their operations, including metrics on order volume, turn-times, and employee and financial performance. Coupled with knowledge of current technology developments, this information-rich environment enables managers to make quick decisions in their pursuit of market share.

Customer Satisfaction as the Driver for Technology Investment

Technology investments in FinTech are often driven by the desire to improve customer satisfaction. FinTech managers focus on enhancing client engagement to strengthen a market position. They understand that customer expectations are shaped by experiences both inside and outside of their business relationship. Digital marketing and streamlined customer onboarding ease barriers to switching, reducing customer inertia. This dynamic requires companies to strengthen customer loyalty by perfecting the customer experience in every transaction.

A satisfied and growing customer base can mitigate many problems, and today, technology is a key enabler. It drives down costs, improves customer communications, enhances product quality, and ultimately delivers a superior customer experience. Consider how automation in loan origination has facilitated customer self-service and convenience in a once-complex transaction.

Commitment to Investment

Becoming a FinTech and maintaining the position requires a significant investment commitment. The level of investment depends on a range of factors:

• Degree of Process Automation: Labor-driven operations require more investment. Aspiring FinTechs must have the discipline to replace traditional business practices with more automated ones while resisting the tendency to support both in the longer term.

• Knowledge-Driven Workflow Complexity: Operations that require an elevated level of expertise usually call for more advanced technology, often necessitating a larger investment over a longer period. This may involve the adoption of rules-based decision models or Artificial Intelligence, both of which need to be trained and monitored.

• State of the IT Infrastructure: Legacy IT platforms are often locally maintained and consist of years-old servers. Upgrading from a local data center to a cloud-based environment can reduce long-term technology infrastructure expenses while lowering the cost of adopting and maintaining new technology.

• Security Risk: With automation comes the need for robust cybersecurity protocols. Establishing and maintaining cybersecurity can be expensive but necessary to avoid breaches, reputation damage, and class-action lawsuits.

• Regulatory Compliance: Complying with the complex layer of Federal, state, and investor regulations and policies is burdensome in the mortgage finance industry. Building regulatory compliance protocols into processing technology adds a layer of marginal cost but pays dividends by removing manual compliance elements and fostering consistency.

What Should You Spend?

Recommendations for FinTech investment range from 3% to 20% of revenue, depending on the industry, its technology state, and the size of the company considering an investment strategy. Budgeting requires careful analysis of the factors described earlier, and the commitment should be long-term, reviewable every three years.

Is It Worth the Investment?

Ultimately, a true FinTech enjoys greater enterprise value than a traditional business in the same space. FinTechs usually have better cash flow, a more sustainable customer base, and higher growth potential, often leading to greater revenue and EBITDA multiples in business investment and acquisitions.

Benefits of Being a FinTech

1. Improved competitive position
2. Greater growth potential
3. Deeper customer relationships
4. Inoculation from security and privacy risk
5. Greater enterprise value

Real-World Examples of FinTech Success

• Chime is a mobile banking service that leverages technology to offer fee-free banking through partnerships with national banks.

• Stripe is a global payment software services provider known for its developer-friendly approach, enabling companies to easily embed financial services into their existing offerings.

• FiServ is a leading global FinTech company providing account processing, digital banking, card issuer processing, network services, payments, and e-commerce solutions.

• Intuit offers fiscal management solutions like TurboTax, QuickBooks, and Mint, and is integrating Artificial Intelligence into its services suite, including a Generative AI-powered financial assistant.

Ready to Start Your FinTech Journey?

While the decision to become a FinTech may begin with an operational focus, executives should strategically consider the broader impact. Earning the FinTech label involves a cultural transformation and adopting a technology-first mindset.

Are you ready to redefine your business and join the ranks of successful FinTechs? The first step is committing to the necessary investments in technology and culture. The key is to think strategically, not opportunistically.