2016 was a busy year for the UK lending industry. The Financial Conduct Authority (FCA) continued to tighten regulation, while consumer credit grew at its fastest rate since before the financial crash. As we start a new year, Sarah Jackson, Director, Equiniti Pancredit, looks ahead at the trends and technologies that will shape the lending industry in 2017.
1.Outsourcing will get smarter
Deloitte’s Global Outsourcing Survey revealed that not only is the use of outsourcing increasing, but attitudes among banks about how they engage with outsourcers is also on the move. Outsourcing was once seen as merely a cost-cutting approach – and make no mistake, this remains a significant motivator. However, in recent years, service providers have widened their offerings to provide end-to-end solutions that offer a far greater depth of service support than before. More than ever before, outsourcers are becoming key business enablers that actively promote innovation. This is a key trend that will continue to shape the increasingly collaborative loan industry in 2017.
2.The adoption of biometrics will be case of not ‘if’, but ‘which?’
Biometrics as a form of authentication has been gathering steam for several years – the more accurate authentication processes are, the less vulnerable the lender is to fraud. Given the speed and convenience of these solutions, biometrics hold a special place in the authentication debate; banks in particular are perpetually seeking ways to enhance their mobile user experience without compromising on security. As these technologies become more practical and cost effective to implement, which biometric modality to implement will become an important decision in 2017.
While fingerprint sensors are the most prevalent in consumer devices, many fintechs are leaning towards voice and face recognition as potentially more accurate alternatives. This demonstrates a disconnect between the public and industry that will need to be addressed by banks and loan providers, as British consumers overwhelmingly believe that fingerprint biometrics are the most secure. Behavioural and document recognition would have immense value for lending providers too. These technologies will be an area of major focus in the year ahead.
3.The move to mobile
The migration of financial services from branch to desktop to mobile device has transformed the landscape almost beyond recognition. Recent research by Equiniti, conducted with a nationally representative sample, revealed banking on a smartphone or tablet to be the most popular method, with 48% of respondents using a mobile banking application. Perhaps more telling is the fact that more than a third of respondents currently use that app at least once a week. This indicates that mobile banking isn’t just a useful tool for consumers to use when it isn’t feasible to visit a branch or make a phone call. It is a facility that is beginning to replace those activities altogether. As such, in 2017 the lending industry will need to make sure that its mobile offering matches that of its phone, branch and online services.
Additionally, while the survey found a significant appetite among consumers for financial services, there remains widespread concern about security. The lending industry, and financial service providers in general, will need to invest in effective security for their apps and mobile-optimised websites and communicate this to the public.
The economic atmosphere of uncertainty, thrown into the spotlight by the UK referendum result and the American Presidential Election, to name just two recent surprises, presents a challenge to lenders. This climate affects key factors impacting lenders’ forecasting, such as interest rates and consumer borrowing behaviour. In order to mitigate the financial risks associated with unpredictable economic behaviour, lenders will need to maximise their capabilities and improve the accuracy of their forecasting. The best way to do this will be to employ intelligent software with smart - and often predictive - analytics, thereby eliminating human bias and error.
5. Heightened regulatory environment
It’s news to no-one that the FCA has focused attention on ethical behaviour among lenders in 2016. Next year, this ever-increasing scrutiny, and consequential emphasis on compliance, will push lenders to look for innovative, end-to-end, technological solutions. In a nutshell, solutions that effectively hardwire compliance and responsible lending policies into their systems.
‘Regtech’, the new and much-vaunted term to describe technologies designed to simplify compliance with regulation, will continue to grow swiftly. As the regulatory burden increases, and more organisations are pushed to update entire systems and processes and drastically improve their data management provisions, more lenders will zero-in on their primary offering and seek to contract out their compliance, together with other business functions, to specialist financial managed service providers. We predict that this will be the biggest transformation of the loan industry’s back office since the initial explosion in outsourcing.
With such change afoot, the next 12 months present challenges and opportunities for us all. The loan industry has been slower than other financial services to embrace the benefits that technological advancement can bring, but we predict that 2017 will be the year that lenders embrace the streamlined and more secure systems that tools such as biometrics and regtech can bring.