For most people, purchasing a home is the largest and most important purchase decision they will make in their life. These are long, highly considered purchase processes where various constituents of the value chain (e.g., real estate agents, lawyers, loan officers, mortgage underwriters, appraisers, inspectors, closing agents) are involved and earn fees for their services.
Many pieces of the process have been digitalized to increase efficiencies and reduce the overall cost to serve customers. Think of how far the process of simply searching for houses has come thanks to the innovation by Zillow/Trulia and the like. The mortgage process (graphic below) , however, is still behind the times, largely due to the complex and manual closing process (steps 7 & 8). Why has the closing process not been digitalized? Can digitalization make the home buying experience easier and more efficient for consumers? Is digitalization in the best interest of lenders?
It’s hard to understate how massive the home mortgage market is. Total mortgage originations in the United States are estimated to have reached $1.9 trillion in 2016. Wells Fargo is the current leader with approximately 13% market share, or roughly $250 billion of originations in 2016 .
There have been talks for a long time of “eMortgages” and “eClosings,” where the process could be fully digitalized from start to finish, but this vision has not come to fruition… until recently. The first-ever fully digital mortgage closing took place on July 28, 2017 . This was made possible based on the digitalization of the arcane yet essential act of notarization. “A notary’s duty is to screen the signers of important documents for their true identity, their willingness to sign without duress or intimidation, and their awareness of the contents of the document or transaction.” 
The purpose of the notarization process is to deter fraud. In the past, notaries were required to be physically present in the room at the closing. Many lenders, including Wells Fargo, actually elect to pay for notarization on their customers’ behalves, to mitigate risk and reduce the friction customers face in an already complex and expensive process. When you’re doing millions of mortgage originations each year, you can imagine this being a material cost center for Wells Fargo.
Given recent technological innovations and regulatory changes, a notary is no longer required to be physically present at the time of closing. Notarize, a Boston-based start-up, has brought an innovative product to market to finally deliver on the vision of fully digital closings. Notarize’s mobile application enables people in all 50 states to have a document legally notarized from their smartphone or tablet via webcam, 24 hours per day, seven days per week. 
This was made possible due to a change in the regulatory landscape. On July 1, 2012, Virginia became the first state in the U.S. to authorize remote online notarization, which officially allows a signer in one location to have his or her signature notarized electronically from another location. Since then, four additional states (e.g., Ohio, Texas, Nevada, Montana) have also authorized webcam notarization, with many other states in the process of consideration. 
The digitalization of the notarization process is an extremely important innovation for mortgage lenders and borrowers alike. With many waves of technological innovation, an opportunity for market leaders (like Wells Fargo) to be disrupted by smaller, more nimble competitors is also created. Lenders who can offer modern, digital processes to reduce friction and provide an overall more efficient closing experience will have a significant competitive advantage over others who cannot. This of course also provides a more streamlined experience for the lenders who are now able to save on costs and time, which has a direct impact on their top and bottom lines. 
Wells Fargo has yet to adopt this technology into their processes. As the market leader, Wells Fargo should not only adopt but lead the transformation in this space, which will improve their financial performance and ensure their competitive moats are maintained longer-term. Furthermore, the benefits of digitalizing the notarization process extend far beyond mortgages. More than 1.25 billion documents are notarized each year in the United States, affecting lenders, title companies, law firms, private wealth firms, virtual mail providers, among many others.  Given Wells Fargo’s broad product portfolio, their investment in digitalizing this part of the contract process could have an extensive effect on their business. However, given these advancements are still relatively new to market, how should Wells Fargo’s management think about implementation with respect to risk mitigation and the varying nature of consumer comfortability using technology?
- “How to Get a Mortgage.” How to Get a Mortgage, NerdWallet, 10 Aug. 2017.
- MBA Mortgage Finance Forecast. Mortgage Bankers Association, 2017, MBA Mortgage Finance Forecast.
- “The First-Ever All-Digital Mortgage Closing.” Wall Street Journal, 11 Aug. 2017.
- What Is a Notary Public? National Notary Association, www.nationalnotary.org/knowledge-center/about-notaries.
- Notarize – Bringing Notary into the 21st Century. 4 Feb. 2016, notarize.com/blog/notarize-bringing-notary-into-the-21st-century/.
- Another State Says Yes To Webcam Notarizations. National Notary Association, 21 June 2017, www.nationalnotary.org/notary-bulletin/blog/2017/06/two-states-approve-webcam-notarization.
- EClosings Fact Sheet. Fannie Mae, www.fanniemae.com/content/fact_sheet/eclosings-overview.
- Putting Trust Back into Notarization. Notarize, 9 June 2016, notarize.com/blog/putting-trust-back-into-notarization/.