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In the lead

October 2007

Say the words ‘lead generation’ to somebody in the mortgage industry and it is likely you will get a strong opinion, and in many cases the opinion will be a negative one.

The lead generation industry has come in for some heavy criticism over recent months, and it seems everybody in the mortgage sector has something to say on the matter. The problem is that most people (including those with the strong opinions) don’t really understand what online lead generation really is, and herein lies the problem.

As with many new business models, online lead generation has its origins in the US where it is an established industry. The top lead generators earn hundreds of millions of dollars in revenue and generate billions of dollars in business for their clients. However, in the UK the industry is really only a few years old and this would help explain why not much is known or understood about it.

Whichever way you look at it, lead generation is a marketing exercise where success and failure should be measured in terms of return on investment (ROI). This simple fact has often been omitted from the way the lead generators promote themselves to prospective customers, which has caused a number of problems. Lead buyers have had bad experiences in the UK as the expectations set by some of the initial companies in the UK lead generation industry have been far too high. Buying internet-generated leads should not be a replacement for other marketing activities, and it won’t turn a bad broker into a good one. It is merely a way of sourcing new business.

In some respects the initial experiences – good or bad – are almost irrelevant, as online lead generation is here to stay. In a recent study, the Interactive Advertising Bureau reported that online lead generation was the fastest growing area of internet advertising. The fact is that most consumers today use the internet to research and buy financial products and services. To ignore the internet is to ignore a huge slice of your potential customer base. Online lead generation connects businesses expert at selling financial products and services with businesses that are internet marketing experts and can drive traffic to websites

US roots

LeadPoint is one of the pioneers of lead generation and in a young industry is a relative old-timer. LeadPoint is a lead exchange marketplace that brings lead buyers and sellers together in a secure and efficient environment. It was founded in 2004 in the US by technology industry veterans Marc Diana and Per Pettersen who made their names with LowerMyBills.com and Commission Junction respectively.

In America LeadPoint is a market leader and counts some of the biggest names in the lending industry as customers including US Bank, Quicken and HSBC. In the US it has already traded almost three million leads and generated billions of

dollars of business since 2004. In the summer of 2006 LeadPoint launched in the UK to bring its trading platform across the Atlantic. In just over a year LeadPoint UK has grown rapidly and has expanded into multiple lead types with mortgages remaining the key focus of the UK operation.

While the lead exchange marketplace is essentially the same in the UK as it is in the US there are a number of key differences in the respective mortgage markets that has led to a radically different picture on each side of the Atlantic. The main difference is the type of client that is using online lead generation. In the US the big volume lead buyers are often the lenders themselves who buy thousands of leads at a time and have dedicated call centres to work the leads.

UK leads

In the UK the buyers are mortgage brokers or financial intermediaries and range in size from one-man bands to national brokerages with 50 or more brokers. The buyers often do not have the time or resources to run effective marketing campaigns. Online lead generation allows them to go from nothing to generating new business in a matter of minutes. The technology enables them to receive leads in real time (within three seconds of a consumer registering a request for mortgage advice) and they can reach their target market by filtering by postal area, loan size, credit grade and loan-to-value. There aren’t many other industries with such an available ‘plug and play’ marketing resource.

After the leads are sold, the success of the lead buying activities is more often than not down to the skill of the broker. Two brokers given the same 20 leads may have wildly different success rates. Brokers need to be educated not only on what lead generation is but also on how to maximise the performance of the leads they buy.

US lenders

In the US they don’t really have the same issue, as lenders are buying leads in large volumes. They have their cost per acquisition (CPA) targets calculated to the nearest dollar and they know exactly what to expect from the leads they buy and what they need to achieve. For example, a lender may buy 1,000 leads a month for $10,000 and know it needs to convert 5 per cent to make a decent ROI given their CPA targets. Lenders will typically have dedicated call centres that have well defined processes to work each lead. This will include such things as calling each lead at least four times a day for at least a whole week. They will also work each lead for longer as they are buying in volume. They don’t need to convert each lead in such a short period, as they will typically look at their ROI over a longer period.

Another big difference between the US and the UK, which stems from the fact that lenders are buying leads, is that in the US it is standard practice for a lead to be sold multiple times to up to four buyers. The result is that leads are cheaper and the sales process has to be much more aggressive, as each buyer is competing to turn every lead into business. In the UK leads are typically sold exclusively to only one buyer.

Regulation

There are also regulatory issues that set the UK apart from the US. In the UK there is no requirement for lead generation companies to be authorised by the Financial Services Authority. But without FSA authorisation a lead generator is only allowed to pass customer details to an FSA-authorised adviser who provides either a ‘whole of market’ offering or is independent. Technically, this would exclude a lender from buying leads.

However, with FSA authorisation (which is happening very soon at LeadPoint) there is no reason why leads can’t be sold directly to UK lenders. Opponents of such a move claim that this would compromise the impartiality of advice, as lenders will only offer their own products so the consumer will not get the best deal. This is a false argument as even ‘whole of market’ or independent brokers have in reality only a certain limited number of

products they can offer. A lender may have a similar range of products except they will obviously be branded under the same name. And more importantly the consumer may end up getting a better deal. In addition, whether broker or lender, it is the responsibility of the adviser to stipulate the scope of advice they offer at the start of any conversation.

UK lenders buying leads?

The question is then: with no regulatory obstacles, should UK lenders use online lead generation to source business? The answer is most definitely yes. A big lender will have a multi-million-pound marketing budget, which they will spend on a variety of different marketing activities.

What online lead generation offers is not a replacement for all current marketing activities but a useful marketing resource that is both controllable and measurable. Most lenders will already be running internet marketing campaigns and no doubt buying clicks on Google. However, if a consumer clicks on a sponsored link then the lender is paying for the consumer to see their website with no guarantee of any useful interaction. In this case the lender is taking all the risk in their marketing. Online lead generation removes this risk as it allows the lender to buy potential customers who have explicitly made a request for mortgage advice.

Online lead generation allows you to filter down to the specific consumers you want, and probably the biggest advantage is the measurability of the marketing spend. A lender can buy a volume of a certain type of lead at a specified price, and once the leads have been worked they can calculate their ROI and determine the effectiveness of their marketing spend.

Branding

Another potentially important issue is one of branding. A big mortgage lender will often have a presence in a variety of areas such as personal banking, business banking, etc. Therefore, consumers that already use the services of a rival may be impervious or harder to reach from traditional marketing messages. However, through lead generation lenders can reach these consumers as they will be leaving their details and requesting information on a website which has no branding at all. Therefore, lenders can potentially reach a broader audience.

The next few years will be an interesting time for the whole lead generation industry as it starts to become increasingly central to the marketing activities of companies in the mortgage industry from small brokers to big lenders. As the mortgage industry continues to evolve to the demands of the internet age, lead generation will be right at the centre of these changes.

Justin Rees is head of marketing at LeadPoint