By Ben Teerlink, CEO of Mobility Market Intelligence (MMI). MMI were shortlisted for the ‘Best Data-Driven SaaS Product‘, and ‘Best SaaS Product for Financial Services‘ awards at The 2024 SaaS Awards.
It’s no coincidence that the person who dreamed up plans for the first digital programmable computer also compiled the first reliable actuarial tables.
Charles Babbage (1791–1871) understood better than most that technology is only as good as the data it uses.
It’s also not surprising to us today—although it was crushing to Babbage at the time—that he failed to get his computer built due to the limited understanding of the very people he’d designed his “difference engines” for: Most couldn’t see how the technology would help them and resented the British government’s enormous expenditure on its development.
Eventually, lacking champions amidst public outcry over what had come to be seen as wasted money, Babbage’s project died.
Sound familiar?
It’s a cautionary tale for CFOs, CIOs, and CTOs everywhere, and nowhere more so than in the mortgage industry where tech stacks of unused or underused software languish whilst purchases are made for tech that duplicates the function of existing apps.
The solution is a tech stack audit, the perfect revenue-building activity as lenders prepare for more rate changes.
As loan applications slowed in Q2 2024, many lenders seeking a new route to profitability returned to the familiar questions surrounding technology. The industry as a whole is prone to view software as a discretionary expense, an approach that will have long-term and expensive results for the lender and borrower. Faced with a torpid market, savvier fintech leaders pondered whether better and newer technology would capture more revenue-producing data.
Some no doubt realized they needed to know more about what they had before moving forward with new purchases.
Subsequent rate cuts didn’t change that line of inquiry but have instead obviated it as the field has awakened. No one wants to be the CTO quietly acknowledging to a board that you don’t know what you’ve got until it’s gone as opportunities bloom.
What have you got?
A tech stack audit aims to consolidate, optimize and replace unnecessary tech. To do that, it’s crucial to determine
- the need being met by the tech;
- operational errors;
- utilization;
- system functionality; and
- vendor deficiency.
This helps reduce software duplication, streamline processes, optimize integration values, decrease billing issues, minimize the need for additional employees, and maximize data flow.
Freddie Mac’s 2024 Cost to Originate Study: How Technology Impacts Savings, Cycle Time and Revenue asserts that “effective use of technology tools can help lending institutions process loans faster, which can, in turn, reduce the cost of hedging and carrying funds.” Basing its estimates on the latest annual assessment of mortgage cycle time data, Freddie Mac claims its own “digital offerings can produce up to 8 days of savings in closing cycle time…which translates into cost savings of nearly $190 per loan.”
The federal agency’s study emphasizes “managing ‘leakage’ in costs and ensuring investment in technologies that bring the most value and efficiency. That’s why they are on the lookout for systems that better integrate tools and data from different parts of the process, with connection points along the way that talk to each other, creating a smooth and seamless digital experience for both employees and customers.”
Lenders are aware that some tools are more desirable than others, as are borrowers. According to the 2024 ICE Borrower Insights Survey, “offering convenient, time-saving digital technology that streamlines the mortgage process can help lenders gain a competitive edge. Nearly six out of ten (62%) borrowers say an option for an online application influenced their decision in choosing a lender and 60% say the same of an online portal for uploading documents.” Forty-two percent were swayed by a lender’s online signing and notarizing functions.
ICE identifies “data-powered borrower engagement” as a critical factor reshaping the competitive mortgage market. “Lenders can leverage data and automation to personalize every lending experience based on each borrower’s attributes and their communication preferences,” according to findings from the 2024 survey.
How to audit your tech stack
While a tech stack audit can sound overwhelming to firms that have built onto legacy systems and adopted an array of plugins and new software, the basic steps of the assessment are similar across the lending industry:
1) Compile a list. The carpenter’s maxim, “Measure twice, cut once,” applies here. Know precisely what you’ve got before ruling out or adding new tech inventory. Check this list against expenditures to verify that nothing is missed.
2) Refine the data. This is an excellent time for lenders to survey their employees and partners about the software they use. Potential survey questions might include
- Who is using the software?
- What kind of software is it?
- What are its features and functions?
- What is its annual cost?
- How does it integrate with other systems?
Respondents’ answers will help narrow the shopping list or highlight under-utilized tech already in the deck.
Classify software on a scale from “can’t live without it” to “really nice to have” to “good
but not necessary.” This will reveal overlaps between software functions, pointing the way to removal from your tech stack. You can figure out the actual adoption and usage of the tools by identifying active users for each software and noting how often and for how long active users are accessing the tool.
However, don’t assume that a dearth of users means the software should be jettisoned.
When evaluating a SaaS tool, for example, it’s essential to consider that it could be underused or underperforming due to a lack of training among employees or loan officers (LOs). Underestimating the training needs of a SaaS system could lead to unnecessary expenses as perfectly adequate tools are abandoned and others are acquired.
In 2021, well over a third of organizations using a SaaS solution said that 20% of the license spend was thrown away on unused or underused software—money that could have been recouped with a better understanding of the technology.
While focusing on honing software use, think more broadly about areas of tech that might not have been top-of-mind previously. How’s your cloud? Could it be made to serve your organization’s technology better? As noted in 2022 by Microsoft researcher Aravind Nuthalapati, “The combination of cloud computing with big data and machine learning not only optimizes the performance of risk management systems but also reduces operational costs and enhances the agility of financial institutions in responding to market changes.”
3) Use the per-loan pre-tax net-production income metric to determine the impact of technology on ROI per transaction.
This involves identifying production volume in both dollars and units—when there are more loans the number decreases, while a slump in the market will pile on expenses per loan.
A more efficient tech stack should show greater ROI quickly over the billing cycle. Among the savings are those associated with greater security that comes from minimizing software entry points, passwords and data access.
4) Utilize change management as the driving concept of the adoption process.
Be aware that respondents’ answers to the survey mentioned in Step 2 above may reflect some resistance to change. As I’ve mentioned in other forums, there is a considerable “If it’s not broke, don’t fix it” mentality to overcome among technologists who previously may not have tackled the challenge of a tech stack audit. After all, it’s hard to know what is and isn’t “broken” if an organization has not accounted for all its software and then balanced what it does against what it is supposed to do.
Also, don’t underestimate this part of the process—it is both the hardest and the most important. Just as lack of buy-in sank the development of Babbage’s difference engine, under-enthused LOs can sink plans to change technology.
Adequate change management is crucial.
Change management and successful tech stack auditing
When telling the story of Babbage’s difference engine, no one fails to mention his stormy relationship with his talented chief engineer, Joseph Clement. Ironically, Clement understood the big picture—he knew what Babbage was trying to build and how it would help a variety of industries achieve more accurate predictive data. What he didn’t understand was Babbage’s dismissive attitude toward him in making plans for how the technology would be developed.
Babbage expected Clement to move his workshop and family to Babbage’s property, an adjustment that cost Clement clients on other projects. When Babbage refused to reimburse him for the lost income, Clement quit. The line used most often is “downed tools”—Clement threw down his gear and left. As Doron Swade writes in The Difference Engine: Charles Babbage and the Quest to Build the First Computer, “The breach with Clement was final. Work on the engine stopped, never to be resumed.”[1]
From today’s perspective, this chapter in tech history is one of abysmal change management.
Babbage’s failure to request and respect Clement’s input is similar to today’s failure of technology: leaders don’t ask the people who use it for their ideas on its future development.
Word of a tech stack audit can similarly generate anxiety. LOs worry that their personal favorites will be tossed on the rubbish heap and that newer, more challenging software will be introduced. The worry alone can prompt survey respondents to skew their answers.
In 2020, researcher S. L. Albrecht ranked “change engagement” ahead of openness to change, readiness to change, or commitment to change” to predict positive attitudes toward change in the workplace. Albrecht defined change engagement as “an enduring and positive work-related psychological state characterized by a genuine enthusiasm and willingness to support, adopt and promote organizational change.”
The questions described in this article’s second step of tech stack auditing could be answered by the software itself, but seeking those answers from the humans who use the technology being assessed offers the added value of change engagement.
Numerous studies have found that when leaders sponsor changes and when goals are communicated clearly to those employees and clients who will be affected by change, those transitions tend to go more smoothly, so make communication a central part of any tech stack audit plan.
A tech stack audit handled responsibly supports project completion without anyone throwing down their tools and walking away, ultimately leading to an optimized tech stack and happier, more engaged employees.
[1] Swade, Doron, The Difference Engine: Charles Babbage and the Quest to Build the First Computer, First Edition, New York, NY, Penguin Group at Penguin Putnam Inc., 2001, pp 65–68
About the Author: Ben Teerlink
