Right people, right time - loan and mortgage book owners are turning to outsourcing. Can focussed experienced professionals reduce the cost of the credit crunch? asks Andrew Fairburn of Target Group
With the icy winds of the downturn beginning to bite everywhere, nowhere has felt as bleak this winter as the mortgage industry. Many players in the market have already gone to the wall and lenders are facing stark choices when it comes to budgets. One of the major challenges appears to be finding viable ways to manage those customers that find themselves falling into arrears, while also unearthing effective ways to reduce costs and maintain high levels of service. This is a difficult balancing act by anyone’s standards.
Most see the answer as controlling and reducing costs on their existing loan book and many would argue the best way to do this is through outsourcing. A recent report based on a survey of members of the British Bankers’ Association (BBA) and commissioned by the Management Consulting Association (MCA) has concluded that the credit crunch could in fact herald a new wave of outsourcing as we see an increased appetite for cost-effective yet high calibre services. Almost two-thirds of those BBA members surveyed felt that outsourcing made organisations more competitive in the current climate.
But outsourcing as a concept has not always enjoyed such positive press. Often it has been confused with another “O” word - offshoring. Although offshoring clearly has its benefits, it is difficult to escape the fact that many consumers have experienced a dip in their level of service when lenders have offshored. Such experiences have tainted views of outsourcing in the marketplace. But now in the current climate lenders should re-evaluate working with an outsourcer who not only has an in-depth understanding of borrower’s behaviour; but can also boast high calibre professionals and proven technology. Such a partnership can result in lower operating costs and excellent customer service for the lender.
New pressures, same answer
The fact remains that there are now unprecedented pressures on the UK mortgage industry as the financial crisis has resulted in huge funding and credit constraints ushering in a period of government intervention, social conscience and consequently greater regulation. It is clear that the most effective way for lenders to meet these challenges is to concentrate on their core operational expertise and therefore outsource non core activity and processes to expert providers.
There are several benefits to this approach including a more efficient, well managed and cost-effective service as well as the benefit of being able to tap into a rich vein of specialist talent. Great people are absolutely critical to outsourcing success stories. Put simply, outsourced processes still remain part of a lenders business. Lenders must therefore consider carefully the outsourcing partners they choose and ensure they are of the highest possible standard and able to work effectively with the team assigned to them. Therefore, it is absolutely critical that outsourcers regard themselves as an extension of the lenders business working with them to ensure that the integration is seamless.
Leading edge technology is also critical to ensuring a successful outsourcing partnership. Though vitally important in helping to deliver an efficient service, technology should be regarded as an enabler which equips experienced people to perform to their utmost potential. By combining the proven technology of a leading outsourcer with its high quality personnel, lenders give themselves the best possible opportunity to deliver market-leading results. Added to this is the comfort of knowing that the stresses of managing peaks and troughs in activity, as well as system changes will be the responsibility of the outsourcer – again this all combines to offer lenders reductions in their fixed cost base.
It is a harsh reality that as the economic conditions continue to deteriorate increasing numbers of borrowers will fall behind on their repayments. An accurate picture of the status of loan books and intelligence on those who are likely to fall into trouble is crucial to help minimise defaults. Outsourcers can help overcome this challenge by applying technology, business intelligence and also through building effective relationships with borrowers in order to correctly identify and rehabilitate those accounts that may be showing signs of ‘stress’. Such a ‘hands on’ and delicate approach to managing relationships with the borrower is even more important when you consider that no two sets of circumstances are likely to be the same and will require a dedicated and tailored approach to meet the needs of all involved. It’s no use taking out your driver when you’re trying to hole a two foot putt. It’s this level of tailored relationship management that will become more and more prevalent throughout 2009. The government’s plan to champion the cause of social conscience and its decision to apply pressure to lenders to make repossession the last resort will in the long term help move the customer towards rehabilitation.
Breathing life into lending
There will of course be other challenges and opportunities that will present themselves to lenders in 2009 that an agile outsourcing partner will be able to help overcome. We have already alluded to increasing government pressure to avoid repossession wherever possible; on the flip side the government is eager to breathe new life into lending.
There is still a demand for credit, much of it from worthy applicants. However, the circumstances that led to the collapse of the credit markets will inevitably lead to heightened regulation; ensuring credit is offered in a more controlled responsible manner. The days of self certification and excessive income multipliers are surely consigned to the dustbin and using these tools alone will not be sufficient to reveal all the potential hidden dangers.
In the same way that borrower intelligence, technology and the cultivating of customer relationships will be used to manage arrears in a sophisticated and informed manner, similar principles will need to be applied to new business leads in order to build a detailed picture of any prospective borrower. This could incorporate attitudes toward credit and the ability to pay, as well as basic fiscal concerns. The importance of knowing your customer cannot be overstated. By proactively managing relationships and regularly reviewing customer databases for potential opportunities or issues a highly effective customer retention and new business programme can be achieved. Partnering with an outsourcer can help to implement this and also offer a more agile and detailed service by utilising proven technology and a skilled experienced team. This provides lenders with the opportunity to refine lending rules quickly and efficiently on an ongoing basis as market conditions vary. New flexible credit scoring and underwriting process will have to be put in place to embrace the post credit crunch lending environment. This is vital to ensure borrowing will stand up to enquiries from governing bodies and customers alike, creating a transparent process and audit trail.
As economic conditions eventually improve as well as helping lenders gain competitive advantage via the operational efficiencies outlined above, outsourcing will provide a low cost and low risk opportunity to test new ideas quickly – new product innovation will be key, with outsourcing offering lenders a low cost solution to launch new products. The current economic climate places extra demands on lenders to manage arrears and control costs making top end technology and efficient processes a pre-requisite. However, rather than being regarded as simply a cost-cutting exercise, outsourcing offers an opportunity to access market leading experience. Combining this experience, with great people and great technology will provide lenders with the competitive advantage needed in this tough climate.
Andrew Fairburn is a business consultant at Target Group
Date: 2nd, March, 2009
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