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Fintech Firms Fight Friction To Disrupt Banks

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Who is the biggest mortgage lender in the U.S.? If you guessed Wells Fargo, JP Morgan Chase, or Bank of America, you’d be wrong. Late in 2017, Quicken Loans passed Wells Fargo (NYSE: WFC) to become the highest volume mortgage lender.

As the two firms continue to vie for the top spot, the difference between them is apparent. Wells Fargo is a traditional bank, tracing its roots to 1852 and today operating more than 8,000 branches. Quicken Loans dates only to 1985 and operates no branches.

What accounts for Quicken Loans surging ahead of traditional competitors and their long-established customer relationships? The explanation is, quite literally, simple. Quicken’s Rocket Mortgage operation took a complex, intimidating process and made it easy.

In my book Friction, I show how brands like Amazon and Uber, as well as smaller niche players, disrupted their competition by creating an effortless customer experience. This is the exact playbook used by Rocket.

Rocket Mortgage uses the slogan, "Push button. Get Mortgage." They claim a consumer can get approved in as little as eight minutes. (I’ve spent longer than that sitting in a branch waiting to speak to a manager.)

A key part of making things simple and fast is technology. Quicken Loans introduced online applications early in its history. They were among the first to have a mobile app that let customers apply for a mortgage on their phone. They further reduce effort by importing data and pre-filling forms whenever possible.

Quicken founder Dan Gilbert, quoted by Samantha Sharf, explains his firm’s strategy:

"Our product is sort of a commodity. There is not that much different between mortgages, but there is a difference in how that mortgage is delivered and that experience to the customer."

An Easy Customer Experience Win

One might thing that mobile apps, computers screens, and call centers might generate high volume but diminish customer experience. Don’t people prefer dealing with humans, like the friendly branch manager or helpful loan specialist at their neighborhood bank?

Apparently the value of human contact pales in comparison to minimizing the customer’s effort. For ten years, Quicken Loans has topped the J. D. Powers customer satisfaction survey for mortgage origination. The firm is not only the highest volume mortgage lender, they have the most satisfied customers.

Mortgage shoppers aren’t looking for delight. They don’t want to be “wowed” or even pleasantly surprised. They want to get through a confusing, often bureaucratic process as quickly and easily as possible.

Digital-First vs. Digital Afterthought

A few years ago, I consulted on a project for a large, traditional financial company. Their product was offered both by long-established competitors and fintech startups. I was struck by the difference in approach - the big firm’s website was hard to navigate, made compliance disclosures prominent enough to be frightening, and had never been optimized for conversion.

The fintech firm sites, in contrast, were uniformly intuitive and easy to use. They included legally required disclosures, but presented the information in a way that minimized their impact on the customer psyche. Their modern designs inspired trust. The next step in any process was always obvious.

When there is a huge contrast in customer experience, a trusted brand alone isn’t enough to win the customer’s business.

Counting Clicks

Banks have improved their digital offerings in recent years, but many still lag behind their fintech counterparts. UK-based user experience expert Peter Ramsey just published what happened when he opened accounts at a dozen different financial firms.

Unsurprisingly, Ramsey’s data showed that fintech firms, on average, make opening account far easier than their traditional brethren. Ramsey counted the number of clicks required to open an account and found they varied from a low of 24 for Revolut to an astounding 120 for first direct.

Clicks aren’t the only measure of user effort, of course. Ease of finding one’s way through the process, autocomplete functionality for forms, how forms are displayed, etc. all affect user experience. But, if one company requires five times as many clicks, the their process is almost certainly more effortful.

Ramsey notes, “I think measuring friction is less of a quantitative science, but more a broad way to understand how much effort something takes—and one of the best metrics to do this is with the number of interactions, or clicks.”

The Million-Dollar Click

Arguably, even ONE extra click is too many. Amazon (NASDAQ: AMZN) spent millions to defend their 1-Click patent, and Steve Jobs paid the firm $1 million to license it for Apple’s new music store.

What did Amazon and Apple gain? They forced competitors to add just one extra click.

For Bezos and Jobs, a one-click advantage was worth millions.

Waiting Friction: Don’t Make Me Wait!

Waiting doesn’t seem effortful, but it is still friction. Even a short wait may prevent a desired action. Waiting adds uncertainty and increases anxiety when the exact delay is unknown. Given an arrival window of “8AM to 4PM” for the cable repair person, how do you feel at 3PM when they have yet to arrive?

To evaluate waiting in the setup process, Ramsey measured how long it took until he was able to use his account at each institution. The disparity here was even bigger - the quickest firms had him up and running in just two days, while the longest took 36 days - more than a month!

Banking giant HSBC (NYSE: HSBC) had the unwelcome distinction of being the 36-day offender as well as the second highest click total, barely avoiding triple digits at 99.

Disruptor or Disrupted?

Not all traditional banks are ripe for disruption by more nimble and digital-savvy fintech companies. Barclays (NYSE: BCS) and Lloyds (NYSE: LYG) delivered active accounts in two and three days, respectively. Their click counts weren’t near the minimum, but were better than their brick and mortar competitors.

Combining a trusted brand with a minimum-friction process will fend off digital startups and steal market share from slow-moving traditional competitors.

These examples are from banking, but the same issues crop up in every industry. Digital-first upstarts capture market share by providing a simpler, easier customer experience.

It’s important to realize that customers aren’t measuring your experience against your competitors. Rather, they are comparing your customer experience to what they find at Amazon, Uber, and other low-friction pioneers. If your website doesn’t work as well as Amazon’s, or if your app isn’t as easy as Uber’s, your customers won’t be happy.

As Ramsey puts it,

“Every company, regardless of sector, should be obsessed with friction. It's simple really: reducing it makes things easier and having unnecessary friction makes things harder.”

96 Clicks, 34 Days

There’s a 96-click gap between the shortest and longest setup processes in the bank study. And , the longest wait to make the account usable was 34 days longer than the shortest.

In contrast, Steve Jobs paid a million dollars to reduce the number of clicks to buy music by just one click. With no wait time.

While setting up a financial account may never be quite as simple as buying the latest Taylor Swift song, surely it’s worth making the effort to take some friction out of the process.

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