WHILE THE TOP TEN LENDERS HAVE BEEN outsourcing for years, it’s only recently that midtier lenders and servicers have begun partnering with business process outsourcing or business process management firms. Medium-sized mortgage firms are more and more turning to outsourcing business processes for a number of reasons: to cut costs, increase their flexibility and to focus on their core businesses. In other words, they are outsourcing for the same reasons the bigger lenders do.
Midsized lenders contemplating outsourcing are finding a much greater choice in BPO firms than previously, when the business was confined to only the very largest players. And what works for the top-tier lenders doesn’t necessarily work for the midtier companies.
Instead we’re seeing the emergence of midtier BPOs, outsourcers that focus specifically on midsized and community lenders. The midtier BPOs realize that medium-sized lenders likely have fewer resources to manage the outsourcing relationship than their larger peers, and may be looking to test the waters without investing a lot of money and resources upfront. For those lenders, there are several advantages to working with a midtier BPO:
Flexibility
With today’s volatile mortgage market, it just makes sense to work with a vendor who can start as small or as big as your company would like, something which mid-tier BPOs specialize in. They are flexible in scaling the outsourcing relationship up or down based on your business requirements. Midtier BPOs are agile and are looking to engage closely with midsized organizations. Larger BPOs require larger scale because of higher overheads, and may not be as flexible.
Variable cost structures
Managing fixed costs is particularly important in a cyclical business like mortgage lending. Midtier BPOs, if you have chosen the correct partner, are able to offer variable cost structures, also called pay-as-you-go or transactional pricing. This not only reduces your fixed costs, but also allows you to scale up quickly as your business grows, or alternatively, scale down as needed. It transfers the risk to the service provider. We have found that midtier BPOs are far more likely to offer variable pricing than larger providers.
More handholding
As you move to outsourced operations, it is important that your BPO partner ensures that the transition of your business processes is seamless and does not disrupt operations. This requires not just a close relationship between the two parties, but also a deep commitment on the part of the BPO to make sure the transition is smooth. Midtier BPOs tend to use more senior level executives to nurture the relationship, and offer a good deal more handholding to ensure that your transition is a success.
All of these benefits point to the fact that midtier BPOs are typically more flexible than the larger outsourcers. They will customize their offerings to meet each client’s needs, and to drive the lender’s return on investment from the outsourcing relationship.
Things to look for in a BPO
What should midlevel lenders look for when considering a BPO firm? It’s important to make sure your BPO vendor is on top of the latest changes in regulations and compliance matters. Choosing the wrong vendor can be a costly mistake in today’s mortgage market. A good midtier BPO firm will have the knowledge, expertise, and the right technology to keep track of all the latest regulatory and compliance changes, and will have built a readily accessible knowledge base.
Look for a BPO who is willing to be flexible, and customize its offerings to meet your company’s specific needs. Make sure you will have easy access to your BPO provider’s senior management, not just lower-level employees.
See what the BPO vendor offers in terms of pricing. If your company is concerned about market volatility and fluctuating volumes, it’s probably best to go with a BPO provider that offers pricing by volume or by transaction. That cost structure will help buffer the ups and downs of the mortgage business.
Ask about the transition of business process from your firm to the BPO firm. What will they do to ensure the transition is smooth, and seamless to customers? How quickly can the BPO transfer your business processes to their shop and get things up and running?
While the immediate focus is to replicate your business process through the BPO, find out what value the BPO can provide in terms of process improvement and your overall business transformation initiatives.
All of these factors play an important role in ensuring a successful partnership with a BPO, one that will make your company more nimble and help increase your ROI.