BLOG VIEW: The financial industry is abuzz with talk of financial technology, better known as FinTech. Everywhere you look there is a group hosting a FinTech conference, holding a webinar on the topic, or touting their expertise in the area.
When FinTech was originally conceived, the idea was to use technology in innovative ways. Areas such as crowdfunding platforms, peer-to-peer lending, algorithmic asset management (robo advisors), blockchain/digital currencies and similar innovations were the flag bearers for the term FinTech.
The vision was futuristic business models using technology to make financial services smarter and more efficient. Silicon Valley led this initial wave and it was disruptive to traditional financial services models.
In the Oxford dictionary, the definition of “fintech” got diluted to “computer programs and other technology used to support or enable banking and financial services.” This makes every technology company that provides technology to the financial industry, including mortgage technology (MTech), a FinTech company.
The fact is, MTech is many years behind FinTech. And that is OK. In fact, that is right where it is supposed to be.
At the core of its definition, FinTech is supposed to push technology boundaries and give the financial industry something at which to aim. Take, for instance, country-less (no geographical boundary) digital currencies like bitcoin.
In the mortgage industry, the most popular product is the 30-year fixed rate mortgage. In addition, a majority of borrowers claim their home to be the single biggest investment of their life.
So, naturally, mortgage service providers are sensitive to this, as their livelihood is attached to their customers’ biggest asset. This now becomes a much greater responsibility. No wonder it attracts lot of oversight and legal scrutiny.
For example, if you look at the efforts of the Consumer Financial Protection Bureau (CFPB) since its inception, a majority of its rulmaking and enforcement actions have been focused on the mortgage industry. This underscores the great responsibility the mortgage industry has when it comes to being vigilant and accountable. It is expected to be able to deliver without failures.
It is no wonder, therefore, that one may be hard pressed to find mortgage CEOs and chief technology officers rushing into new technologies or technology decisions. Instead, they wait to understand the complete workings, to access any potential risks, and only then will they make a decision.
It may appear that they are slow decision makers, when it to comes to adopting new technologies. But in reality that’s OK.
The mortgage industry’s adoption of technology has been much slower compared with other industries, where adoption has often been more instantaneous.
But, one must remember that mortgage lenders are working with a consumer who is making quite possibly the largest investment in his or her life.
Also take into consideration that regulations for agencies such as the CFPB require a high level of checks and balances to ensure that consumers are educated and aware of what is taking place in the process.
The futuristic nature of FinTech nearly comes to a screeching halt in such an environment.
Do you recall the $530 million cryptocurrency heist at Coincheck cryptocurrency exchange that occurred in January in Japan? In addition to that, Mt. Gox, once known as one of the world’s largest bitcoin exchanges, lost $400 million worth of bitcoins four years ago.
And let’s not forget South Korean bitcoin exchange Youbit filed for bankruptcy after being targeted by cybercriminals twice in the space of few months.
These are just the few examples of how some of the latest technologies have yet to mature. All of the record-keeping duplications unfortunately could not help recover these humongous losses. There are similar examples of when algorithmic trading created havoc in market and the market started high trading. These trading algorithms accelerated a downward spin.
The very nature of the mortgage process requires technology in order to achieve efficiencies. But adoption of that technology does not need to come at lightening speed – thus possibly creating risk to involved assets. There is no tolerance for the loss of an asset when it comes to mortgage industry.
Therefore, MTech is responsible technology that protects consumers and investments and should not be included the FinTech wave. Responsible technology is not always ahead of bleeding edge technology, but will prevail in the long run.
Sanjeev Dahiwadkar is board chairman at IndiSoft, a global technology development firm that provides collaborative, real-time workflow solutions, customized for the entire financial services industry.