Over the past seven years, the financial services industry has experienced significant change and upheaval. Despite this, one constant has remained; the use of outsourcing. So with all the transformation and turmoil, why is it that lenders still favour outsourcing?
One of the major drivers for outsourcing solutions could be the increasing amount of regulatory demands that lenders are being forced to keep up-to-date with. Lenders are being forced to re-think their propositions and business models in order to differentiate themselves from both established competition and more recently, new market entrants. Furthermore, they need to ensure that they have robust and flexible systems in place to deal with upcoming and existing risk and regulatory burdens, whilst at the same time, reduce operating costs and provide an efficient and effective customer experience.
Let’s take the example of the Mortgage Market Review (MMR), contributing to some of the biggest regulatory changes since 2004. The introduction of the MMR in April aimed to promote a more sustainable mortgage market, however it has inevitably caused an increase in administrative burdens for lenders, advisers and customers. In this context and many others, outsourcing can be seen as a cost effective way to manage necessary process changes.
Other benefits which have insured outsourcing’s continued popularity include the greater security a third party servicer can grant, as well the reduction in overhead costs outsourcing can help to achieve. For businesses moving into new product areas, partnering with an outsourcer can help to keep market entry costs low by reducing fixed expenditure in staff, IT systems and premises, along with investment in key servicing infrastructure. By employing servicing providers who are experienced in helping lenders meet these challenges by engaging in a strategic partnership, lenders can focus on their core business proposition. Effective outsourcing can remove operational barriers to growth while addressing the administrative and compliance challenges.
Keeping a competitive advantage
In addition to ensuring compliance and easing administration, outsourcing can also help lenders retain a competitive advantage. Third party administrators are in a position to undertake multiple roles dependent on the lender’s requirements, including acting as a partner for closed or originating portfolios, standby servicing, or managing defined processes in the customer lifecycle. By outsourcing these processes, management teams are free to focus on improving and diversifying propositions and driving business growth.
Outsourcing is by no means a new concept, but it is more relevant than ever in today’s market. Selecting an outsourcer with the right experience can enable lenders to access improved technology, enhanced processes, market insight and operational expertise. This results in good practice in lending so that lenders can focus on what they are there to do. Aside from the tangibles, it also comes with the assurance of predictable costs and leveraging a regulated servicer to deal with the ever shifting regulatory landscape.
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