Having been in finance all his adult life James Snow, chief executive officer of Target Loan Servicing, knows a thing or two about markets.During his time at the company annual turnover has increased 10-fold and Snow believes that thanks to its durable model it will see continuing growth in 2010 and beyond.
Q: Can you explain what Target Group is?
A: We like to think we are quite unique in that we’ve kept our profile reasonably low. We’ve stayed focussed across various lending markets.
We started by developing mortgage administration systems in the 1980s. When the first wave of specialist lenders came into the market all those years ago our company was providing loan administration systems to them.
Then in the early 1990s the firm diversified into other lending markets. One of our features is that we can provide software solutions and services across pretty much all lending markets, both consumer and commercial. This is unusual for a software services firm.
Effectively, what we have built because of that is a strong and resilient model – while some markets may be suffering others could be doing well.
The strategy was to develop solutions for all areas of the process so originations, administration and debt management are three key engines.
The focus is on the administration side and debt collection at the moment, although I can see origination becoming more important as the market recovers and volumes start to increase again.
We are a private business that has developed a model based on recurring revenue through long-term contracts with clients. About a dozen clients have been with us for well over five years.
We were one of the first to market with a service whereby we can host clients’ systems, so we can provide data centre and hosting services for their software applications to a high level as well as providing them with software.
Q: What does the group consist of?
A: The group has a software business in lending and general insurance. We also have a services division. I run the servicing side, made up of an IT services unit and a full outsourcing unit.
When we devised the strategy it was about understanding that clients needed choice, transparency, control and governance. We saw a need not just for good software but for IT hosting too.
I don’t know of another company that can provide software applications if companies want to run them themselves, a hosting service and also an outsourcing model. If you look at other firms they’re either software providers or full outsourcing organisations.
So we have competition in individual markets but when you look at the choice we provide it’s about core competencies. In short, we’re there to make life easier for our clients.
Growth has recently been primarily in servicing and providing lenders with a full administrative service.
Q: When did you join the firm?
A: In 1995 – yes, I’ve been here for quite a while. I joined as sales and marketing director when we were turning over about £2m a year. This year we will turn over just under £23m.
Anyway, I ran the sales and marketing show for about 10 years, then headed up strategy for the group.
When we set up the lending solutions arm in early 2007 I became chief operating officer and then chief executive officer when we started getting to scale.
Of course, I was in the financial market before joining the firm, providing lease and asset finance to businesses. I’ve been in finance almost all my life.
Q: What has your growth been down to?
A: A robust strategy of diversification in lending markets. Also, providing choice in terms of software services contracts with recurring revenue which has given us tremendous stability and good forward earnings.
We’ve invested a significant amount of money in getting to a level of capability that is resilient in tough times.
Q: So did you get into the financial services sector straight after school?
A:Yes. I went from school into foreign exchange and foreign currency, then into leasing. I worked in the City for a few years, then around the country selling finance. What I enjoyed about the job was that it took me into so many sectors.
And that’s where I met Target. I provided lease finance to help it fund projects and IT requirements. Then the firm head- hunted me and I moved out of London and decided to start a family.
Q: How important is it for companies to outsource, and is there a demand?
A: There is increasing demand. We provide services to seven of the top 10 banks, both investment and retail players.
We’ve also got a proud history of helping start-up businesses. What’s great about the finance business is that it’s still possible to launch new businesses. We know of a number of firms coming into the market – some are lenders and some are more in the public eye at the moment than others. One or two will come to market in the first half of 2010.
The demand for outsourcing is increasing by about 8% a year and there are various drivers for this. This year is going to be challenging and companies want to drive their operating cost down so that’s one reason for firms to outsource.
Q: Are you finding that firms didn’t know enough about outsourcing until they found themselves struggling with costs?
A: Companies that are under pressure are looking at various strategies to cut their costs – it’s never the best reason but it’s usually the one that interests the finance director.
But we also highlight ways to process business faster. That is a driver for many lenders, so it’s not all about cost savings. We have a team of process experts that look to make improvements on clients’ business models. Alternatively, if they are launching a new business we’ll take them through our processes so they can start from the best position.
Before we take on a client we look at its business plan to ensure we can deliver on our promises.
Q: How important is technology going to be in the new world?
A: I’m a big believer in technology, particularly in financial services as it underpins the management of customers and products.
We are a BACS agency for many clients and process more than £250m in transactions every year on their behalf. So our system has to have high integrity and get everything absolutely right.
We drive out guessing – it’s a precise world we live in. If our service doesn’t match up we face penalties. In that way, our technology is mission-critical for our clients.
Of course, many of our customers operate seven days a week. Some retail credit clients have demanding hours as a matter of course so technology has to be precise and intuitive. Without that certainty it’s difficult to build a large-scale lending operation.
Without the requisite software systems and support, some of our customers could not manage the volume of clients they have who are facing challenges. Debt management is a good example of this.
Q: How was 2009 for the group?
A: We had a year of growth because of the strong countercyclical model we have developed.
Our servicing business grew strongly, as I have said. We are now providing servicing in most lending markets rather than simply software. The two divisions reinforce one another.
In 2009 we were going to market with our servicing proposition underpinned by software. We were offering a strong servicing proposal but at the same time driving a lot of modification through to the software business.
We’ve had a serious programme in place since 2007 in terms of developing the servicing platform which has to manage multiple clients and products. We are a private company and still invest a huge amount in development.
And we have an insurance division too, with some huge clients including NFU Mutual. In fact, we’ve got more than 300 people in the group now. In the servicing division alone, in 2007 we had five people and now we have more than 150.
Q: So what’s the plan for 2010?
A: Continuing growth. We see ourselves as a broad financial services outsourcing business.
On the servicing side we’ve just won a contract to manage a big investment bank’s saving and deposit portfolios. It’s a tremendous contract – we’ll manage about £1.5bn in savings and deposits from more than 200,000 customers.
And we plan more diversification so we can apply further economies to scale and deliver more value to our clients.
The software business is cash-strong and continues to make progress, although not as fast as the servicing side. But it has provided important support to the servicing business as we’ve funded all our expansion internally.
We want to concentrate on providing a good service to our clients and tending our own garden rather than worrying too much about economic cycles and regulatory issues. We want to concentrate on making sure clients can rely on us to get the job done.
Q: When do you predict a recovery for the lending industry?
A: I don’t think recovery will be an event but more of a slow process. I imagine there will be a few setbacks along the way but generally speaking there will be a recovery over the next 18 months.
The lending market should make progress this year but I don’t think we’ll get back to the sort of levels we used to know any time soon. I reckon we’re in for a long and painful hangover.
If interest rates start picking up there will be challenges – customers will be under pressure.
Meanwhile, I think increased regulation is a good thing for the lending market. My view is that we’ll see secured loans coming back, although they will be regulated, probably by Financial Services Authority but that remains to be seen. And a good thing too as a secured loan is a product that should be treated the same as a first mortgage.