Mortgage institutions continuously look for ways to create efficiencies and reach more borrowers in an increasingly digital world. As more business and social interactions happen online and through technology platforms, the industry is focused on technology enhancements and innovations that reduce operating costs and improve customer experience.

The ability to quickly and effectively identify, collaborate and leverage financial technology (fintech) companies is critical to address evolving business and borrower needs. Although many companies struggle to keep pace with the ever-changing emerging technology marketplace, capability scouting strategies can help organizations better navigate the landscape.

Increasing Need to Work with Fintech

Technology is reshaping the financial industry, and investors are taking notice. According to McKinsey & Company, global venture capital (VC) fintech investment by December 2018 had already reached $30.8 billion, up from $1.8 billion in 2011.

A recent PWC report concluded that 88% of legacy banking organizations fear losing revenue to fintech companies and 82% said they plan to increase collaboration with fintech companies in the next three to five years.

While many organizations acknowledge the need to scout and collaborate with emerging technology providers, navigating the ever-growing marketplace can be daunting for any organization. The never-ending whirlwind of conferences, incubators and cold calls make it difficult for even the most seasoned professional to determine which fintechs provide real value. Constantly shifting business and technology jargon requires continual re-education. If a potential relationship is identified between a start-up and incumbent organization, the path from scouting to delivery can be fraught with misaligned expectations around intellectual property, approaches to work and organizational culture.

Improving the Scouting Process

At Freddie Mac, emerging technology scouting is an important part of our incremental and disruptive innovation cycles.  In addition, we know it’s important not to limit ourselves to technology scouting only. Monitoring shifts in business and consumer trends highlight evolving business models and new ways of creating value in the existing system. For example, rising housing prices, the length of time to save for a down payment and lack of supply have delayed home ownership for many individuals. It’s important to consider these trends and focus our scouting and innovation efforts toward concepts and technologies that help meet the borrower and customer needs that emerge from these shifts. 

While organizations acknowledge scouting as an important and necessary activity, many struggle with where to start, how to show value and how to evolve the practice toward generating meaningful long-term partnerships. 

As an organization builds its scouting function, it’s important to consider the following:

Build your business case internally:  Scouting is new to many organizations.  Develop a compelling plan that explains how the benefits and outcomes of scouting connect with the organization’s broader strategy. 

Using metrics that make sense:  Scouting activity can require a softer skill set—for example, network building versus new product introduction. It is important to measure success using the right set of metrics.  In this case, looking at contact conversion to partnerships instead of return on investment (ROI) or direct revenue contribution, will provide a more relevant view of success.

Understand innovation targets:  Scouts need to create networks within the organization and ensure scouting targets are aligned with existing issues. It’s easy to be seduced by vendors’ promises and flashy new technology. However, if the capability is not relevant to an organization’s business partners, it will fall flat and the reputation of the scouting team can deteriorate. 

Consistently Communicate:  Don’t leave good information at a conference, team meeting or email.  Instead, find ways to share information; for example, start a blog or host a lunch and learn. Use tools and distribution channels to push fintech information and emerging trends across the organization. Making market knowledge accessible instead of a privilege is a quick win for any scouting team.

Invest in the right people:  A successful scout wears many hats, and often needs to understand:

  • Emerging technologies.
  • Shifting business models.
  • Industry and organizational challenges to be solved.
  • Partnership models.
  • Fintech strategy.
  • Ability to assess cultural alignment between companies. 

To get a better handle around these issues, organizations should hire where they can and supplement their team with high-potential employees that can fill gaps and learn quickly.

As the financial technology market continues to grow, scouting has become a catalyst in enabling partnerships and collaboration with emerging tech providers.  If you’re concerned your organization isn’t doing enough in this space or is being left out entirely, consider investing in your own scouting program. Learn more about Freddie Mac technology and solutions.

Jessica Fox is the Director of Innovation Lab, Emerging Capability Teams at Freddie Mac. She leverages fintech and strategic partner ecosystems to provide scouting, consulting and rapid prototyping services to the Single-Family division.