Aaron Hughes, Managing Director of Equiniti Riskfactor, shares his expertise on the UK receivables finance market, the impact technology is having on lenders and their customers, and the new challenges the market must address.
The receivables finance market is rapidly evolving. From working with over 90 per cent of the UK market, Equiniti Riskfactor has seen a number of challenges arise due to the industry becoming more competitive as its environment continues to change.
In particular, the UK market has lots of new entrants (now in excess of 100 providers) but the number of clients seems to be static at about 40,000-45,000. In order to remain competitive, lenders are required to compete on price and terms, which increases their risk and often reduces their return.
In response to this, many lenders are looking to technology to support their products and offerings. In the UK, lenders are seeking technology-enabled solutions that increase back-office efficiency and optimise operating models to improve income ratios. Lenders are beginning to acknowledge that they can’t do things the way they have done in the past.
Traditional players are adapting their processes to facilitate large and complex receivables finance transactions. Where there is a chance of losing smaller scale clients to competitors, banks are looking to oversee cross-border transactions that can become complicated and carry higher risk.
Customers also have more choice in the market, in that they have access to working capital both from banks and alternative lenders such as peer-to-peer (P2P) platforms. Consumers are becoming increasingly aware of the non-traditional players in the market that are harnessing technology. The new generation of borrowers is more tech-savvy and more comfortable embracing P2P capabilities, which makes new players more attractive.
The P2P market is still fairly immature, and we have yet to see how it plays out an economic downturn. At the moment, a lot of banks – which are established and experienced – are either partnering with lending platforms or creating their own platforms.
Post-Global Financial Crisis, banks are focusing more heavily on improving customer experience and maintaining good relationships and technology is considered a major factor in supporting this strategy.
In tandem with many aspects of financial services, the receivables finance industry has become incredibly reliant on technology to provide good customer service. As a technology-enabled generation enters the market, customers are expecting more from receivables finance solutions. Ultimately, a client’s relationship depends upon the technology as much as the people, so a reliable technology solution is key.
Looking to the future, what does the market hold?
The receivables financing/ABL industry is likely to go through a period of rapid change. This transition will harness technology to ensure players remain competitive in a crowded space without compromising on risk. At the same time, it will significantly improve customer experience. Equiniti Riskfactor is currently harnessing blockchain technology and testing a prototype which will demonstrate the key role technology will play in shaping the future of the industry.
Watch this space!