Challenges and opportunities for 2018
Neil Williams is Managing Director of LendingMetrics, the first mainstream UK credit reference agency to secure authorisation from the FCA in 2016.
Neil and his team have been creating solutions for secured and unsecured lenders for over 15 years and he has been instrumental in helping more than 140 of them to design end deploy their customer origination and credit decisioning approach. But where Neil differs from most is in his dual role as a credit risk advisor as well as being highly experienced IT professional “implementer”. This gives him a rare perspective of how the entrepreneurial credit risk ideas can be put into operational use in the real world of lending.
Neil shares his thoughts with us on what he sees as the key challenges and opportunities as we prepare to head into 2018.
Neil, tell us about the diverse types of lenders you have helped over the past 15 years?
“Early in my career I worked mainly in the secured loan and mortgage sector and saw a great deal of the agressive lending practices in the years running up to the financial crisis in 2008/09. I then spent a number of years focussing on the HCSTC sector working with many of the major on-line lenders. In recent years I have seen more diversity emerge and have been extensively involved in guarantor, peer2peer, auto and business lending models.”
What is it exactly that your involvement brings to the project for each lender?
“There’s a common challenge that I have witnessed in many cases whereby the entrepreneurs within the business want to see their ideas come to life, but they are frustrated by the IT challenges placed in their way. Having worked with so many lenders to implement their origination and underwriting strategies I can fully relate to the aims they have set out for the business. But as an experienced IT professional I am often also able to bridge the disconnect that can exist between the two sides. My role therefore is to share ideas and experience to help formulate the origination and underwriting strategy, document that strategy in such a way that the operational and technical teams are clear on the desired outcome, and then help with ongoing guidance and troubleshooting during implementation.”
What are the most common mistakes that you see lenders making?
“that’s easy, there are 3 things I regularly witness
- Over complicating! I am usually involved with businesses at a time when change Is happening (or in the case of a new start-up, when ambitions are being formulated) All too often I see scenarios where the sheer scale of the project, whether it be the simultaneous launch of multiple products or multiple decision engines and complex scores with multiple CRAs, ends up bogging down progress. Change should be gradual, manageable and measured. Too much change at once makes it difficult to achieve and even more difficult for the business to identify which aspects of the change delivered improved outcomes. Good credit decisioning software is essential.
- Overcommitting! Time and time again I have seen businesses placing themselves under tremendous pressure by making commitments based upon target aspirations. They sign huge volume commitments with credit reference agencies, they “staff-up” and they sign hideously expensive service contracts for things like software platforms or professional services.
- False economies! With change comes risk. As every experienced credit provider will attest, it’s a risky business. Regulations continue to evolve, fraudsters continue to innovate and the macroeconomic picture remains uncertain. It is therefore essential to invest the right amount of time and money in the right risk-mitigation measures. Take time to research your target market, use the right anti-fraud tools and get professional regulatory and credit risk advice.”
So how much should a business look to spend on these measures?
“It’s all relative to the size of the business of course. But just take a modest £10m loan book for example. By reducing bad debt by a modest 3%, that’s potentially a £300,000 saving per annum, each and every year. Plus the fact, it can be built and improved upon in subsequent years”
What do you see as the major opportunities for 2018?
“That’s an easy one too. There are two major opportunities in 2018.
The first is the enormous, and I would say “once in a generation” introduction of Open Banking PSD2. If you grant credit of any type, this affects you and your business. Open banking will open up bank transaction data at a granular level, giving you access to arguably the most powerful source of underwriting intelligence available from a single avenue. Lenders will instantly be able to access detailed bank statement level data showing a consumer’s income, credit commitments, overdraft behaviour and general expenditure. This data will be instantly retrieved directly from the consumer’s bank and will be a real-time view of their financial behaviour. I have been working intensively with such data for almost 5 years (see http://www.lendingmetrics.com/bankvision.aspx) and I can assure you this will change credit assessments for ever.
The second is the anticipated boom in secured lending in 2018. As the macroeconomic picture shifts to take account of the potential consequences of Brexit, unsecured lending is likely to plateau or even fall, in fact some indications show this already happening. Couple that fact with current housing market conditions whereby more people are deciding to improve rather than move, and we have a perfect recipe for secured lending to consolidate debt and fund improvements.”
And finally, what do you see as the number 1 challenge for 2018?
“Whether you are in favour of the UK being in or out of the EU the current political farce is amplifying uncertainty in the business community and this in turn is stifling investment. If this leads to a slowdown in economic activity we will certainly see an uptick in bad debt. Credit providers therefore need to ensure more than ever that they are well placed to take advantage of the opportunities whilst at the same time running a nimble and cost sensitive operation.”
If you would like to ask Neil any follow up questions, please email him at email@example.com