The lending market looks to have entered another cycle over the past few years. From an initial lack of supply, we now seem to be moving into the start of another rotation that is witnessing increased competition as challenger banks, Peer-to-Peer (P2P) lenders and other disrupters look to carve out their own share of the sector and challenge established players head on. While traditional lenders continue to predominate, there is no doubt that the new entrants are now making a bigger impression on the sector.
As a result, competition is heating up, particularly when it comes to products and services. More discerning, demanding and better informed borrowers are raising the bar and with it, expectations. Demands on products, flexibility, convenience and customer service are higher than they once were and these are all over and above the obvious point of difference, price. Consequently, the need for financial services organisations to review their approach to gain a competitive advantage is hard to ignore. There is an increasing awareness of how technology and innovation is helping underpin commercial success and a great deal of strategic thinking is now dedicated to interacting with clients and structuring organisations effectively to gain a tangible advantage.
The latest figures by the Council of Mortgage Lenders (CML) indicate that gross mortgage lending reached £25.7bn in March 2016. That’s 43% higher than February 2016 (£18 billion), and 59% higher than March 2015 (£16.2 billion), and the highest March figure since 2007 when gross lending reached £30.9 billion. This recent spike seems to have been due to increased demand in traditionally niche areas of the market such as buy-to-let and equity release. Whilst the rush to beat the new stamp duty surcharge in buy-to-let in particular may have created a short-term distortion in figures, there is no doubt that borrowing is back.
So how to take advantage of these market opportunities? Many lenders concerned with getting to market quickly and efficiently, either as a new entrant or as part of a diversification strategy, look at outsourcing certain parts of their value chain in order to increase speed to market. It’s a trend that isn’t exclusive to the mortgage industry. Many other financial services institutions and indeed larger global businesses such as Apple and BMW, are very aware that speed is crucial and are using outsourcing as a highly effective enabler and point of difference.
Who can blame them? Working with the right outsourcer can be transformational, enabling lenders access to progressive technology, smart processes, predictable costs, market insight along with operational and regulatory expertise and the ability to rapidly bring new products and propositions to market.
The pressure is on for lenders. They are being forced to re-think their propositions and business models in order to differentiate themselves from both established competition and the rising challengers. Furthermore, they need robust and flexible systems and processes in place to counter risk and regulatory burdens, whilst at the same time reducing operating costs and driving an efficient and effective customer experience. Achieving scale is critical and this is where third party service providers come into their own.
For challengers and established lenders launching or moving into new product areas, partnering with an outsourcer can keep market entry costs low by reducing fixed cost overheads such as staff, technology and premises along with investment in key servicing infrastructure. By working closely with clients from inception the outsourcer gets to understand the DNA of their client’s business.
Understandably lenders want to maintain ownership of key elements of their customer lifecycle. One proven approach here is to deploy a shared service model utilising the same processing platform. This hybrid strategy provides all with consistent and current data, business intelligence support enabling informed decisions, process efficiencies and seamless hand-offs between the outsource partner, the lender and back again.
From the initial on-boarding of portfolios to the servicing platform itself, the need for an efficient and proven software platform enabling experienced people to perform at their best will become even more critical for ensuring a successful partnership. In our highly regulated and customer focussed environment, the old adage of a single view of your customer assists in reducing risk, identifies cross-sell opportunities, aids process efficiencies, and enables effective and intelligent customer service.
The agility of the outsourcer will be key to any successful partnership, demonstrating the ability to adapt to the evolving needs of lenders to diversify, innovate, meet regulatory demands and retain their competitive edge. They must have flexibility and not be afraid of wearing multiple hats – be it launching a new lender or product, providing a standby servicer agreement, outsourcing specific elements of the process, or providing a full end to end outsource service, all will be of equal importance to the lender and could be a crucial difference between success of failure in an increasingly competitive and heavily regulated market.