Top 5 reasons to outsource your Lender of Record

Michael O’Connor | Investment Client Director

Michael O’Connor is a highly successful Investment Client Director at Target Group with a strong record of setting, developing and delivering operational and commercial strategies. Michael brings a wealth of experience within financial services, including investments, lending and insurance at leading UK retail and outsourcing companies.

When market opportunities arise, they won’t be open for long. Change is accelerating, and lenders need to be ready to move quickly to be able to take advantage of the market.

Here I outline the top 5 reasons that lenders should outsource their Lender of Record (LOR).

1. Get to market quickly

New banks are flooding the market, taking advantage of lessening customer loyalty in the High Street banks. They’re using the latest technology and the lack of legacy systems to build a strong following – for current accounts at least. However, without a lending proposition, they’re unlikely to be profitable, and therefore sustainable.

Taking a loan or mortgage to market is very complex and time-consuming. The regulations in place, especially since 2008, are there to rightly protect consumers. But they also severely inhibit access to the market.

By outsourcing your Lender of Record to a reputable and experienced lender is a great way to take a new product to market quickly.

With all the permissions in place, and a solid understanding of what the regulators require, a Lender of Record can help you accelerate your plans, whilst also protecting your consumers.

2. Confidently scale up

Now that you’ve used an outsourced Lender of Record to get your product into the market, their support can help you to accelerate growth and scale up your business.

Their experience in the complexities of lending will allow you to maximise the opportunity. They can ably support further product launches, as well as handling the onboarding, servicing and redemption processes. The arrears and litigation section of this complex customer lifecycle can be very challenging for a new start to handle. This can be especially challenging when customer numbers escalate. Having expertise on hand, as well as robust and resilient infrastructure will enable any new lender to cope with the peaks and troughs in demand.

3. Increasing regulatory pressure

2020 taught us many things. One of which was the need for lenders to be able to adapt to change. Regulatory changes came thick and fast in the wake of the Covid-19 pandemic. While this was (hopefully) a once in a lifetime shock to the market, it’s highlighted the need for agility amongst lenders – especially when it comes to governance.

Monitoring and understanding the requirements of the regulator is vital to be able to keep abreast of what’s needed to keep consumers safe and ensure compliance. A Lender of Record will have a comprehensive road map in place covering all the relevant legislation and guidance that’s coming over the horizon. This enables new lenders to be confident that their borrowers are protected, and that they themselves are safe from the regulator.

An experienced LOR will take on the administration involved in dealing with the regulator. They’ll handle the many enquiries that the FCA and other bodies will make. But most importantly, the Lender of Record will take on the regulatory risk from your investment. You can be confident that your investment is safe, and that the portfolio customers are well looked after.

4. Remain focused

Outsourcing your Lender of Record not only accelerates your access to the market and subsequent growth, it also crucially lets you focus on what you do best. Most lenders, especially those who are involved in portfolio trades for investment purposes, will want to avoid the costly and complex nature of regulatory permissions. They are ultimately involved in trading and the complexity involved in that aspect of their business. Taking on even more complex processes and permissions will be a distraction from their core business.

Investing in the right people and infrastructure to safely handle a loan book, is a drain on the balance sheet that lenders don’t need. When lending isn’t your core business, it doesn’t pay to take on resource for what is a specialist and intricate service.

With an experienced LOR in place you don’t need to worry about the performance of the portfolio – it’s in the safe hands of the experts to maximise the collection of payments.

5. Treating Customers Fairly

To help keep your investment safe and secure, it’s important to look after your customers. They may be on a closed book and at the end of their loan term, but it’s still critical to keep service standards high. An experienced Lender of Record will ensure customers are treated fairly.

The LOR will be responsible for making sure vulnerable customers are ably supported, and that all customers received good outcomes. This may be by deploying robust forbearance processes. Whatever tools are in play, the LOR will be responsible for following the regulations – a good way to keep customer satisfaction levels high and protect your reputation in the market.