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Financial Transparency is Inevitable – Your Bank Needs to Go First

May 19, 2015

Four months ago the Consumer Financial Protection Bureau released a new interactive tool to help consumers understand the mortgage rate disparity in any given market.

Here’s what it looks like conceptually and in real life usage on my iPhone:

PHONE VIEW:

This tool prompted a lot of backlash among mortgage originators about how this doesn’t account for the complexity of different loan types and how the tool can actually mislead the public.

But let’s look at the problem the CFPB is trying to solve: 47% of homebuyers don’t compare rates1.

If that’s the problem, then I believe the tool does a great job of showing the user that there isn’t parity within any market. The end result of using the tool, the user should understand that seeking multiple loan bids will save them money.

When we first walked down the path to forming Hip Pocket, we took a similar approach. We asked anyone in the Lincoln, Nebraska market to tell us where their current mortgage stood (rate, amount, home value, and remaining term) and we’d show them where they stood vs. their peers. We’d also then shop the market for them if they wanted and show them their best options as well as the disparity within the market.

Here’s a bit about what that looked like:

With only two out of 17 banks and credit unions in our market offering a 3.5% mortgage at the time, a shopper’s chances of finding both of the lowest APR loans with just two phone calls or online inquiries was 1.38%.

Now this isn’t a race to the bottom on price within banking! That could be done but I’d advocate for bankers and credit union executives to consider this a wide open race to the top.

At the top is the ability to create and promote transparency in the marketplace so your customers and prospects can see that they can trust you to look after their financial well-being. When you do this, Gallup shows that you will win more engagement, confidence, accounts, and longer tenure2.

Competing on “relationships” is another way of saying that you don’t have the tools, rates, and products to compete out in the open. Eventually the CPFB or other entities (read here or here) will force transparency to the forefront.

Only one bank or credit union can choose to lead this effort in any given market. I’d rather be the leader in transparency instead of lumped into the group of “followers” when this happens.

And it will happen. Soon. We’re actually betting on it!

If your bank or credit union is leading the transparency evolution in your market, please let us know with a comment!

1http://www.consumerfinance.gov/blog/nearly-half-of-mortgage-borrowers-dont-shop-around-when-they-buy-a-home/

2http://www.gallup.com/opinion/gallup/176534/looking-customers-financial-table-stakes-banks.aspx

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