A recent survey has honed in on what is becoming an increasingly crowded UK lending market, owing largely to the advent of a vast array of financial disruptors.
Target Group’s latest “UK Lending: The Drivers of Change” white paper was conducted in July 2015, and surveyed 100 senior finance professionals from the UK’s banks, building societies, peer-to-peer platforms and credit unions. 90% of respondents agreed that the UK lending market is caught in the middle of a price war – owing to a rising number of combatants. 84% of banks attribute falling lending rates to the emergence of new market participants. Close to half of the lenders surveyed believe that the wave of new challengers has given rise to greater product innovation across the space.
Surprisingly, Target’s report would suggest that the big banks are more heavily reliant on technology than the disruptors when it comes to powering credit decisions. We’re skeptical on this front, but Target’s numbers show that 95% of bank respondents regard big data as pivotal to underwriting lending decisions, versus just 74% of building societies and P2P lenders.
But whether the banks consider big data to be a matter of vital import or not, the simple fact of the matter is that they’re leagues behind the alternative players in effectively leveraging that kind of data. The legacy issues faced by the banks mean that adopting the most innovative kinds of credit assessment software is often architecturally implausible. Such tools cannot simply be slotted seamlessly into the age-old bank branch networks.
Perhaps more bizarrely, the survey concluded that 65% of bankers regard technology as a very important means of customer engagement, as opposed to just 4% of P2P lenders. The result smacks of an anomaly. Marketplace lending platforms across the world enjoy Net Promoter Scores high enough to turn the banks green with envy, and intuitive technology interfaces play an important part in creating that disparity. Could it be that the survey reveals a desire on the part of traditional lenders to be a little more “platform-like”? Perhaps. What’s crystal clear, however, is the inescapable importance of technology in the lending landscape heading forwards.
Ian Larkin, Co-Group CEO at Target Group, offered his take:
“Whilst the vast majority of traditional lenders say that technology is important when it comes to customer engagement, many face a challenge in adapting their legacy systems. On the other hand, new entrants have the advantage of having no legacy, creating technology platforms with greater flexibility and agility. However, these players do not have access to the same degree of historical customer data, a valuable tool to provide insight into customer behaviour and credit risk.”