IDC Says Secondary Mortgage eMarketplaces Will be Challenged to Provide Value-Added Services
FRAMINGHAM, MA — OCTOBER 18, 2000 — The secondary mortgage emarketplace has the potential to become a transforming influence on the secondary mortgage market, but to do so, it will have to overcome fierce competition from existing offline brokerage firms with deep roots in the industry. According to IDC, government-sponsored entities such as Fannie Mae, through their dominance of the market, could limit the amount of opportunity for secondary mortgage emarketplaces.
"The secondary mortgage market is labor-intensive and paperbound, which creates enormous potential for a Web-based emarketplace to provide value through automation and integration," said Aaron McPherson, research manager for IDC's eLending program. "However, before the market can pick up momentum, the independent emarketplaces will have to put forth aggressive marketing efforts, partner with key service providers, and present a complete and compelling value proposition to customers. Otherwise, they are likely to lose business to online eprocurement sites run by the big buyers themselves."
If the independent emarketplaces can't create stronger value propositions, IDC warns, they will be relegated to providing pricing information rather than platforms for actual trading. Because customers are still comfortable with the traditional offline systems, IDC believes the emarketplaces will be challenged to provide enough value to induce traders to switch.
"Convenience is currently the main benefit, but it's not enough," McPherson said. "eMarketplaces will have to prove they can save costs, increase volumes, and enhance profitability. Doing this requires more value-added services, such as document handling, risk hedging, and settlement."
Unless the independent emarketplaces are able to overcome these challenges, IDC forecasts they will have only about 4% of the total secondary market for whole loans by 2004. In the mortgage-backed securities market, where the restraints are not as severe, IDC projects a 55% share.
IDC's new bulletin Mortgage Trading on the Internet: What Will It Need to Succeed? (IDC #B23188) analyzes the market opportunity for secondary mortgage emarketplaces and discusses what emarketplaces will need to do to capture market share from offline firms. It is valuable reading for any firm engaged in trading financial products over the Web. To purchase the bulletin, contact Demetra Georgakopoulos at 1-800-343-4952 extension 4496 or email@example.com.
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