Cut investment at your peril

Investing in technology now will ensure lenders are in a position to benefit when the market recovers - and those that don\'t face dire consequences, says Neil Warman, finance and commercial director at HML

The lending market was just starting to look at outsourcing as a value creator rather than a cost reduction exercise, then the credit crunch hit. Now, in the view of many, it’s all about cost again.

But as lenders become more sure of their survival over the next year or so, long-term value creation and competitive strategies will once again come to the fore.

Investment in technology is one area that lenders and outsourcing providers should keep firmly on their radar.

There is an obvious temptation in the current environment for firms in the financial services industry to shelve expenditure on technology and other value-adding initiatives, as budgets are slashed and corporate finances come under pressure. With lower business revenues, investment spend is subject to an increasingly challenging sign-off process.

But this approach is misguided, especially in the case of businesses that live or die according to the quality of the service they provide.

Of course, this depends on the talent, motivation and training of the staff who deliver the service but also on the technology they have at their disposal.

Companies that plan to survive during the downturn and come out the other side flourishing must ensure they continue to invest in vital elements of their business.

With the increase in arrears, mortgage servicers – whether inhouse or outsourced – need to be able to offer soph- isticated technology-led solutions that are backed up with outstanding customer service to help lenders cope with the inevitable surge they can expect in overdue payments and accounts moving to repossession.

But this should not be a knee-jerk reaction in response to a fresh set of circumstances. Rather it must be a long-term commitment to continuous im- provement whereby each and every product and service is analysed, stress tested and remodelled to ensure it is as good as it can be.

Just as Rome was not built in a day, it is clear that every upgrade cannot be achieved in one fell swoop. For any business there will be one or two areas where immediate remedial action is necessary but the process of continual improvement must not be satisfied too easily.

After all, it’s not just a matter of being as good as your competition but moving forward to become a leader – even redefining industry expectations.

Clearly, employees have a big part to play in the continuous improvement process as they have the most in-depth knowledge of the businesses in which they work.

Continuous improvement is a vital aspect of many tools that are being adopted by the outsourcing industry, such as lean management. These are also of growing interest to lenders and other financial services firms. Given the lead times to implement major projects, the technology initiatives of a couple of years ago are now bearing fruit. One example of this in our industry is the introduction of systems designed to upgrade credit management workflow offering increased automation, detailed audit trails, greater control, superior functionality and compli- ance with the regulatory Treating Customers Fairly initiative.

An immediate benefit of these technological solutions is that they make workflow more efficient and transparent so staff have more time to devote to tasks where the human brain can add genuine value.

With the elimination of manual intervention where appropriate, an outsourced servicer can guarantee greater adherence to client strategies when it comes to managing their assets.

This helps to remove the type of errors that can arise from manual intervention and ensure consistency and accuracy, ensuring that all borrowers are treated in accordance with customers’ strategies and within a strict TCF framework.

Reduction of manual intervention also means improved compliance so strategies and processing are both effective and in accordance with regulations. Lenders benefit from better credit management, with the objective of getting pre-litigation accounts back to the point at which there are no arrears.

Automation also leaves a servicer’s consultants more time to liaise with customers and field counsellors.

Technology helps servicers model and automate the credit management strategies of each client. This process potentially involves scores of strategies, a large number of data attributes and hundreds of business rules. In this way, the credit management process can be streamlined and placed at the fingertips of consultants.

Enhancements such as this pave the way for business techniques such as payment by results – one that we are pioneering. The implication of this is that clients are paid by accounts resolved rather than activity levels. In effect, rather than paying on the number of accounts in arrears, lenders pay for the number of arrears accounts that become performing again.

Of course, there is always scope for further improvements in technology and in all other aspects of service delivery but one thing is certain – companies that slash investment budgets and hunker down to use outdated technology and deliver sub-standard service now may survive the recession but they won’t be in any position to compete in the exciting new marketplace when business conditions get better.

Invest to stay ahead of the game. Invest to ensure your employees have the best tools available to them to allow them to deliver top class service to customers. And invest to guarantee a place on the winners’ rostrum when the recession lifts. Businesses that forget to plan for the future will find they do so at their peril.