Frederick Townes of NestReady on Artificial Intelligence

Frederick Townes is the CTO and co-founder of NestReady, New Castle, Del., a one-stop digital real estate technology firm that builds innovative tools in the real estate market.

MBA INSIGHTS: What is the differentiator in AI offerings?

FREDERICK TOWNES, NESTREADY: Our differentiator is using the technology to empower and enable loan officers and realtors early in the loan origination process. Specifically, we use homebuyer behavioral data and real estate data to improve the performance of the tools that professionals use and also direct the actions of professionals.

In contrast, typically what you find are more tools that are new mousetraps (iterations) of back-office tools that professionals use. There's nothing wrong with that, but the best innovations are not iterative; they are evolutionary. Our solution is not steroids; it's bionic. Furthermore, we create a marketplace where we enable professionals to deliver best-in-class service; however, we also ensure that homebuyers are engaged in order to start the flywheel.

INSIGHTS: What are some of the obstacles in the adoption of AI in the mortgage industry? How can companies move past them?

TOWNES: Broadly speaking, financial institutions' focus has been on innovation. I've always advocated that FIs instead focus on improving their infrastructure. Then they can adopt innovations in the short term from "without" (externally) more quickly than from "within" (internally) in the short term. This strategy enables FIs to bring innovations to market faster and learn faster like today's best software companies. The reason for this is simply because the older an industry is the more challenging it is for it to be agile in using technology to meet consumer expectations. In industries with high market fragmentation (no single or couple dominant players), the result is that all of the competitors respectively reinvent the wheel and ultimately consumers suffer because innovation comes slowly or not at all. And in aggregate, dollars are wasted as well.

INSIGHTS: How has home buying changed, and where it will end up in this Internet age?

TOWNES: Everyone agrees that the homebuyer journey begins online. The local branch office is not where millennials want to spend their time. Data show that more than 60% of them rather go to the dentist than see their banker.

The shift that's occurring now is around the service experience. By that, I mean how the homebuyer collaborates with their loan officer and realtor. Today, the experience is transactional, but technology is finally able to deliver the personalized experience that consumers get from other industries. In other words, homebuyers today feel like they are just a number.

Now that the tools they use can be enabled by AI, the race has begun to see who can deliver the best in class experience at scale to dominate the market. What's more is homeowners are forgotten, and the data shows that today's homeowners know less about homeownership than past generations. This means there are numerous missed opportunities on the part of the financial industry to engage and support the borrower throughout their numerous life events.

INSIGHTS: How can lenders change the way they approach selecting technology?

TOWNES: Lenders need to first identify what is negatively affecting their growth or profit margins. Is it brand awareness? Is it unit economics on loan originations? Is it driving repeat business from a large portfolio? Depending on the growth opportunity, different strategies for technological deployment become relevant.

Generally speaking, we use technology to identify the commonalities between the challenges above, which allows us to deploy our software suite for any number of use cases. Breaking down marketing and sales into three sales processes around capturing new borrowers, developing relationships with them and then converting them into repeat customers requires simplifying processes and implementing technology that scales to address personal needs. Historically, lenders have invested tens of millions into acquiring users or rebuilding their web apps, but their initiatives struggle or fail because the infrastructure they build on is the primary reason for the high costs and lower than expected ROI.

INSIGHTS: What can lending institutions do to appeal to their customers and build brand loyalty?

TOWNES: Brand loyalty is driven by quality of service. I think many institutions are already working hard to improve customer service experiences, but borrower interactions need to be on their terms (digital) and behave in an intuitive way (self-service). Providing accessible borrower education and response time are also critical factors in cultivating positive interactions; the shorter the better; the more helpful, even better.

INSIGHTS: How can lenders create a truly different, easier home buying process?

TOWNES: They would need to work backward from customers' respective goals in order to demonstrate empathy and alignment rather than be perceived as transactional or not adding value. To become a trusted advisor, financial institutions need better infrastructure that allows personalization to be added to the consumer-facing tools they offer. Leveraging real estate market data to provide faster responses to queries generated from home search portals cannot provide the same results as the collaboration between a loan officer and a realtor, which is still a very important team dynamic.

INSIGHTS: As Millennials start the home buying process and expect a customer experience, how can lenders prepare to meet their needs?

TOWNES: Fifty-three percent of Millennials believe that their bank does not offer anything different relative to others. Experiences with the brand are the key to changing the dynamic. Those experiences must be aligned with the media, entertainment, etc. in order to be relevant--inside and outside of the branch.

Millennials have so much debt that financial institutions need to learn how to be trusted advisors who demonstrate empathy and guidance at a personalized level in order to build a long-term relationship. Make education easier and make it human because the way consumers learn today has changed. High-quality, accessible educational content is a key component. Millennials also value a sense of belonging (community), so not harnessing that is a missed opportunity that I see in the market for all brands right now. The lenders who will win will also have the best self-service mobile experiences, moving more of the process to digital is obvious, but a simple mobile experience is worth the effort.

INSIGHTS: What can the mortgage industry do to provide the same level of customer experience that other retail industries provide?

TOWNES: The key is in the successful deployment of new technologies at scale. More specifically, tools already used today need to become more intelligent (from a borrower's perspective) for a brand itself to be personified in delightful digital experiences. I don't think the retail experience is the model, but hands-on, direct attention and compelling experiences are what resonate with millennials. That aside, interacting with the brand in ways that are unexpected and valued means engaging with borrowers in places they wouldn't normally expect, but value, nonetheless.

INSIGHTS: How will lower interest rates affect the adoption of technology? Refi run?

TOWNES: If marketing is effective--personalized at scale--lenders who can offer the lowest rates based on the personal goals of their customers will be able to maximize their margins on originated loans by marketing to their existing customers. Or financial institutions can demonstrate more value to existing homeowners--because only 6% of homeowners do not shop based on interest rates primarily, that means they shop for service experience. So, if lenders are marketing affectively, they can capitalize on the refinance demand and also grow their brands through the additional borrower interactions.

INSIGHTS: What are three things lenders should know about AI and machine learning?

TOWNES: a) Implement an AI/ML preparedness plan by focusing on infrastructure innovation internally or externally can be deployed faster with a higher likelihood of success or ROI. This would be the foundation that reduces risk and creates leverage in research and development across the board.

b) AI and ML are a long-term strategy--they are the tools that make the race to grab more market share possible to win. Once the preparedness plan is complete, focus various research and development experiments to generate an ROI in the shortest time possible. Those projects will likely come from partnerships with startups.

c) Ensure that every experiment incentivizes feedback from consumers to provide training to the algorithms and develop ongoing learning about borrower behavior, concerns and objectives. This would mean that the lifecycle of the software development process is designed around today's borrower, with the newfound ability to be agile. The degree of agility of a financial institution will be the difference between closing its doors--or dominating the marketplace.

(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA Insights welcomes your submissions. Inquiries can be sent to Mike Sorohan, editor, at msorohan@mba.org; or Michael Tucker, editorial manager, at mtucker@mba.org.)