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The Financial Services Compensation Scheme (FSCS), the requirement to recapitalise
balance sheets and the diminishing remortgage market are all squeezing lender profits.
Once upon a time lenders could repair the damage done to their earnings by growing
their way out of trouble. But in the current economic environment, that's not an
option. They are currently unable to lend more due to the lack of an accessible
securitisation market and the ongoing requirement to recapitalise their balance
sheet both resulting in less funds being available.
Even if they could, the economy's not set for growth. The latest official UK unemployment
figure has risen once again. Unemployment increased 88,000 to 2.5 million in the
three months to August. The jobless rate has now risen to 7.9% from 7.6%. The number
of people claiming unemployment benefit grew in September by 20,800 to 1.63 million.
It doesn't bode well for our fragile economic recovery. Most commentators think
the recession is W-shaped and that means we've got bad news to come. Any number
of events could stifle our budding recovery. If another big player went under or
if house prices dropped again – on the back of the relentless rise in joblessness
- the coy positivity of the last few months would be crushed.
All that means that lenders can't rely on growth to increase profits any more. They've
only got one other option and that's to manage costs down. If they can lower costs,
they can increase their profitability – despite the dire economic backdrop.
How should lenders go about managing their costs down? The simplest way is to streamline
the workforce, cutting down man-hours. But businesses that have relied on manual
processes will not necessarily have the technology in place to cope with this. This
is particularly important for lenders using out-dated legacy systems. They are seeing
their profits squeezed by the costs associated with the extra management time and
man-hours needed for manual calculations and processes caused by the downturn.
The obvious course of action is to undertake a complete systems overhaul. But lenders
don't want to dent their profits by offloading a barrow load of cash in up front
payments to an IT provider. Fortunately, there's another way. A good software provider
can tailor make a system to bolt onto existing technology - without the need for
a massive systems overhaul. A good provider will have flexible software meaning
lenders don't have to change their business to fit in with the software. They'll
be able to create bespoke upgrades and add-ons to suit lenders existing systems.
Secondly, lenders don't have to accept enormous upfront costs. A good software provider
will rent lenders its software, charging a percentage of the book value. That's
what we do. Lenders pay an implementation fee, a support fee, based on a percentage
of their book, and service costs providing a helpdesk and guaranteeing turnaround
times. That means you can make massive efficiencies while avoiding making boreholes
in your bottom line. |
