They say imitation is the sincerest form of flattery. Challenger banks are doing what their name suggests, and research indicates they are gaining ground. For established lenders, replicating the characteristics of their smaller, more agile competitors, will help them defend their position. Outsourcing is the key, argues Sarah Jackson, Director, Equiniti Credit Services.
The market for lenders is buoyant. Consumer borrowing leapt by 10.3% in the 12 months to May 2017, according to The Bank of England[1]. There is a tussle going on between established and alternative lenders as both vie to grow their market share. Established lenders are built on decades of customer loyalty and trust. But resting on their laurels is dangerous. Alternative lenders are lean and agile, and produce disruptive offerings that turn heads. For the borrower price is the deciding factor, evidenced in many ways, by the prolific use of comparison sites. This is creating a level playing field and there is all to play for.
The tide is turning
Alternative lenders currently own around a quarter of the borrowing market according to research from ‘Great Expectations: The Demanding Market for Credit’, a report examining consumer credit attitudes published last month by Equiniti Credit Services[2]. The winds of change, however, are blowing. 47% of the study’s respondents indicated that they would borrow from an unfamiliar lender in future.
Across the board, brand loyalty has given way to price. Customers are now divided into two camps – those who will only borrow from an established lender but are price-conscious and those who shop on price alone, irrespective of the provider.
Low rates rule the roost
Research indicates low interest rates are fundamental in borrower’s loan selection criteria followed by low repayments. This is no surprise, with interest rate rises announced recently, consumers are searching for new ways to make their money work harder.
With price the deciding factor, the use of comparison sites is making it easier than ever for savvy customers to shop around. Research reported that 86% of respondents would use a price comparison site to compare loan rates, with 78% believing that they would get a cheaper loan from online lenders. The established lenders have an opportunity here, and investment in technology will be key to maintaining market share.
The same study indicated that transparency and clarity in a product’s terms and conditions are just as important. Here, the ability to demonstrate responsible lending practices and conduct appropriate affordability checks will strengthen consumer confidence and satisfy the Financial Conduct Authority, at the same time.
What can established lenders do to defend their market position?
The age of uncontested brand loyalty is over. Price should be considered as equally important as service for lenders looking to create differentiation in their offering. For many, agile technology can drive down the cost of operations, enabling them to protect their margins and pass the saving on to the customer through lower-rate products. Outsourcing facilitates this by reducing time-to-revenue for new loan products allowing lenders to refocus internal resources on innovation, product development and market differentiation. Established lenders can replicate the agility of alternative lenders by outsourcing their loan management portfolio, allowing them to compete head on and maintain market share.
The outsourcing market is evolving to meet the needs of established lenders. A new breed of specialist organisations is offering tailored solutions that combine their own proprietary loan management technology, with expert customer service staff and auditable, best-in-class processes. With this model, established lenders can mount their own challenge and take on the new competitors at their own game.
[1] https://www.theguardian.com/money/2017/jun/29/uk-credit-pay-squeeze-bank-of-england-interest-rate
[2] http://www.nostrumgroup.com/insights/white-papers/equiniti-credit-services-consumer-attitudes-digital-finance-2017/
