METRICS MONTHLY The Holy Grail for lending
Q2 /22 30 Jun 2022
Brace for impact Second charge market boost Open Banking gains momentum
Commercial Director David Wylie considers the challenges lenders face with a multi-bureau approach to assessing affordability, and one potentially game-changing solution.
NEW PRODUCT LAUNCH! LendingMetrics launches brand new SaaS innovation DeeJoop
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Welcome to your second quarter's edition of Metrics Monthly Summer 2022 has, for some time now, been earmarked as the return of the holiday-fuelled, pub garden driven, ice cream drenched season that we used to know.
Call us +44 (0) 2394 211010 Email us firstname.lastname@example.org Visit our website www.lendingmetrics.com
The Queen's Platinum Jubilee cele- brations were welcomed by many this quarter, and not just because it gave us an extra bank holiday. The coun- try-wide festivities allowed us to take a break from stressing over the rising cost of living alongside ever-increasing inflation and higher interest rates. The high fuel prices are affecting many, but not just consumers, as Commer- cial Director David Wylie considers in 'Brace for Impact'. Find out how the high-and-rising energy costs are going to impact borrowers and lenders alike on page 14. This issue, we're also pleased to unveil our brand new customer story video, which sees lender Loans 2 Go reflect - ing on 5 years of success with Lend- ingMetrics' Auto Decision Platform (ADP). Watch the video to find out, first hand, why Loans 2 Go chose to work with us and the multiple bene- fits they're seeing from implenting the assisted decisioning platform. With summer holidays around the corner, and plenty planned for Lending- Metrics in the coming months, I hope you have a great next quarter and look forward to catching up in our Septem- ber issue of Metrics Monthly. Until then, you'll find me spending my eve - nings in the nearest pub garden, enjoy- ing a long-awaited ice cream sundae.
Two years since the first national lock - down, which left us never wanting to attend another family Zoom quiz ever again, and it's safe to say that the typical British summer is back in all of it's knickerbocker glory. At LendingMetrics, we're celebrating the homecoming of summer with the exciting launch of a brand new product: the innovative SaaS solution DeeJoop. Read all about how the new platform solves the problem of 'double counting' consumer credit files with multi-bureau data on page 08 . With the return of sporadic British heatwaves - which make you think you're in the Med one day and some- where in the Arctic circle the next - comes the re-emergence of concerns from the FCA regarding vulnerable customers who, much like at the start of the pandemic, are now struggling with the cost of living crisis. You can read about what the FCA is doing as a result of these worries, and other current newsworthy stories, in our 'in the news' section.
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Georgia Pullen Design and Communications Executive
Metrics Monthly | 03
In this issue
03 Editor's letter 04 In this issue 06 In the news
The latest news that you may have missed this quarter, including the FCA expressing concerns for customers struggling with the cost of living and the Bank of England warning inflation will hit 11%
08 New product launch
The problem of ‘double counting’ consumer credit files when using data from more than one bureau has been solved thanks to the introduction of a new solution from LendingMetrics
10 The Holy Grail for lending
David Wylie considers the challenges lenders face with a multi-bureau approach to affordability, and one potentially game-changing solution
12 Loans 2 Go: Five years on
Lender Loans 2 Go reflects on 5 years of success with ADP in a brand new video
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Q2 | 2022
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14 Brace for impact
LendingMetrics' Commercial Director looks at how high-and-rising energy costs plus retail price inflation is going to impact borrowers
16 Second charge market boost
Rising interest rates and mortgage costs are leading to the growth in second charge mortgages, providing a new opportunity for lenders
17 Into the den
Chief Technology Officer Neil Williams presented a Dragon's Den-style pitch at the Asset Finance Connect UK Conference
18 Open Banking gains momentum
Neil Williams says that Open Banking’s time has finally arrived
20 Customer stories
Commercial lender Shire Leasing made their underwriting agile with “no code” automated decisioning
22 Lenders are ready
Find out how, unlike previous times of economic uncertainty, most providers of finance are well prepared for the impact of higher interest rates and cost-of-living increases
Metrics Monthly | 05
In the news
FCA expresses concerns for customers struggling with the cost of living
Claire Januszczak, Head of Sales
This quarter we are celebrating Claire's 10 year anniversary at LendingMetrics. Claire joined the company in June 2012 as an Accounts Manager and quickly progressed to Partner- ship and Business Development Manager. Since then, she has played a pivotal part in the company's success over the years, and now manages a small team as Head of Sales. She has attended countless con- ferences and awards, including the 2020 Credit Summit, which saw her record a 5-minute "power pitch presentation" for an audience of delegates from the industry, and helped grow our impressive client base to where it is today.
The Financial Conduct Authority (FCA) wrote to 3,500 lenders in June to remind them to provide appropriate support to borrowers struggling with the cost of living. The letters were sent to mostly con- sumer credit firms, retail banks and unauthorised Buy Now Pay Later pro- viders, and urged the firms to provide customers with the proper care and support in the wake of the cost of living crisis. This includes the recommenda- tion to only charge fees which are fair and cover the firm's costs. The FCA suggests these firms have better conversations with their custom- ers to fully understand the individuals' circumstances, and therefore be able to provide the most appropriate tailored support. The concerns followed on from the reg- ulator finding serious failings at more than 30 firms, mostly within the con - sumer lending sector. These lenders were found to not be directing borrow- ers in need to access free debt advice, therefore not providing the correct support to vulnerable customers.
Alongside offering support for existing customers, the firms are being encour - aged to consider how a new borrower's changing circumstances could impact their affordability, and how any finan - cial pressure they may face due to the cost of living crisis could impact their expenditure. Sheldon Mills, Executive Director of Consumers and Competition at the FCA, said: 'Many consumers are feeling the impact of the rising cost of living in their personal finances and we expect this to increase over the next few months.' 'Early action is important for those struggling with debt. We need all firms to get the basics right and provide good quality support. Where we see more serious wrongdoing, we are already acting to ensure these firms improve. 'The financial services industry has a significant role in helping consumers manage their finances – and it should expect us to pay close attention to how they do that over the next few months.'
Above: Head of Sales Claire Januszczak recorded a presentation at the Credit Strategy studio for the Credit Summit 2020 conference
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OpenBankVision enquiries surge following Apple's acquisition of Credit Kudos
LendingMetrics has reported a “sky- rocketing” in enquiries for its Open- BankVision (OBV) platform following the acquisition of Credit Kudos by Apple. Requests for information about the OBV platform by LendingMetrics have been significantly higher than they were prior to Credit Kudos’s purchase last month. The firm believes demand has been spurred by industry speculation that Apple intends to pivot Credit Kudos away from business sales to focus more on consumer activity. Credit Kudos specialised in Open Banking software for finance provid - ers, enabling them to measure finan - cial behaviour and accurately conduct credit assessments. Along with Lend- ingMetrics, it has been one of the main providers of such data, and commen- tators have speculated that the acqui- sition by Apple suggests the tech giant may plan to expand its lending services,
potentially paving the way for the Apple Card – available in the US since 2019 – to be released in the UK. LendingMetrics’ OBV platform allows lenders to paint a detailed picture of a consumer’s finance by using real- time banking data. The solution gives access to 90+ days of fully catego - rised data once consumers have con- firmed consent for read-only access to their accounts. It then interrogates the accounts and filters the data, automatically identifying salary pay-
ments, ongoing commitments and any unusual activity, so rapid affordability and creditworthiness assessments can be conducted. David Wylie, Commercial Director of LendingMetrics, said: “We are now seeing massively more interest in OBV than only a few months ago. This is undoubtedly due to the Credit Kudos changes, which have come at a time when interest in Open Banking has been generally rising.”
Bank of England warns inflation will hit 11% Inflation has been climbing rapidly and the Bank of England now predicts it will hit 11% this year, revising their forecast for the eighth time in a year.
In contrast, the US Federal Reserve raised rates by 0.75 percentage points at the end of June, marking the biggest rise since 1994. The US is expected to raise rates by another 0.75 points in July and 0.5 in September, leading to concerns about the strength of the pound against the dollar. James Reilly, assistant economist at Capital Economics, said: ‘We expect the pound to weaken further against the US dollar over the rest of 2022 as the Bank of England fails to keep pace with the Fed and appetite for risk continues to weaken.’
The surging inflation - which has hit a 40-year high - led the BoE to raise the base interest rate by just 0.25 points to 1.25% , despite concerns over the strength of the economy and weak growth readings in recent months. This marks the fifth time the central bank has raised rates since December, but never more than 0.25 points each time.
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New product launch
LendingMetrics launches new SaaS innovation DeeJoop The problem of ‘double counting’ consumer credit files when using data from more than one bureau has been solved thanks to the introduction of a new solution from LendingMetrics.
The data specialist’s DeeJoop platform, which is set to be used by lenders for the first time this week, distills credit risk data from multiple bureaus to produce a ‘net’ credit file for consumers. Using proprietary algorithms, it interrogates the large quantity of data contained in multiple Credit Reference Agency (CRA) files and removes double-count - ed credit commitments, defaults, mort- gages, CCJs and other duplicated ele- ments of a consumer’s credit file. The DeeJoop file returned, in com - pliance with a provider’s decisioning parameters, produces higher quality affordability assessments to ensure
that lenders treat customers fairly and identifies the trust picture of a client’s credit file in amongst the inevitable duplication of data. A copy of the original consumer credit file is always retained, meaning that subject access requests and corrections can be handled in the usual way. The platform has been in development since mid-2020 by LendingMetrics’ team of credit risk analysts, architects and developers, who have drawn on the company’s extensive lending technolo- gy expertise. The solution evolved from a welcomed
increase in regulation across the indus- try, leading to finance providers needing to carry out more effective affordability and eKYC assessments on applicants. For those with thin credit files, lenders can run multiple bureau searches, but this can be problematic given the need to handle different data formats and heavy data duplication, as well as unpredictable CRA coverage and occa- sional outages. The new DeeJoop tech- nology enables providers to efficiently run these multi-bureau searches and avoid wasted opportunities to lend to otherwise perfectly suitable borrowers.
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David Wylie, Commercial Director of LendingMetrics, said: ‘We have helped countless lenders to create and refine their credit risk strategies and have done so with visibility across the CRA spectrum. This places us in the unique position to identify the challenges faced by our customers and to develop solu- tions to overcome those challenges. DeeJoop is what a lot of lenders have been waiting for. Finally, they have something that delivers higher match rates and better affordability assess- ments though a true multi-bureau solution.’ Unlike other solutions, DeeJoop is an entirely proprietary solution. Access is via a single, future-proofed API, pur- pose-built to cover amendments by CRAs to file formats and APIs. It is available as a completely stand-alone SaaS solution, or fully integrated with LendingMetrics’ market-leading ADP and LMX platforms. Mr Wylie added: ‘Against the backdrop of the evolving regulatory landscape, DeeJoop ensures that lenders can make better credit decisions whilst seamless- ly on-boarding more customers in an ever more competitive environment.’ To find out more about the cutting-edge solution or book an exploratory call, visit the DeeJoop webpage now!
Distil multiple credit searches in milliseconds with DeeJoop Increased lending potential Standardise & remove duplication Improve compliance Seamless & quick results Built by data industry experts Compatible with major CRA formats Find out more
Metrics Monthly | 09
The Holy Grail for lending
David Wylie, Commercial Director of LendingMetrics, considers the challenges lenders face with a multi- bureau approach to assessing affordability, and one potentially game-changing solution. Ask any mortgage or credit provider to name their top ten customer origi- nation challenges and you’ll find these answers featuring prominently: • Conversion rates: Am I sourcing enough suitable applicants who complete the onboarding journey? • Cost of acquisition: How much am I paying for leads and how many credit searches am I running? • Treating Customers Fairly: Am I making the right decision for each customer? None of these examples should come as a surprise to anyone familiar with the online onboarding world. After all, lead brokers have been driving growth and innovation in this market for years, expecting lenders to respond quickly and in real time to the leads on offer. With capital to deploy, lenders require a steady and scalable stream of appli- cants to assess as quickly, cost effec- tively and diligently as possible.
"With the right technology in place, both parties can deliver a seamless cus- tomer experience" As interest rates rise alongside the spi- ralling cost of living, the logical expec- tation is that demand for credit will increase, making speed and scalabil- ity as important as ever. But as these factors fuel demand, so too will they add to the credit risk and therefore require robust underwriting decisions. With the right technology in place, both parties can deliver a seamless custom- er experience. In order to quickly execute vigorous and compliant lending and affordability decisions, Open Banking has - without
doubt - begun to play a more important role each year, and this trend is set to continue. However, Credit Reference Agency (CRA) data is, and will likely remain for the foreseeable future, the most effective and reliable means by which to assess an application for credit. CRAs therefore perform a critical function for lenders. Credit reference data though, is not perfect and none of the major CRAs would claim otherwise. There is the issue of coverage: no single CRA has a credit file on 100% of the UK adult pop - ulation. Moreover, no single CRA has 100% knowledge of every one of the consumers for whom it holds a credit file. Why is this?
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The fact of the matter is that lenders of all shapes and sizes have the choice as to which of the major agencies they report their loan performance data to; some chose just one CRA whilst others choose two or even all three. So, despite the degree of data sharing that exists within the CRA industry, as many people will recognise, the information on your credit file from one CRA can be materially different from that shown on another CRA. This phenomena, known as “thin files” drives up the costs for lenders because it leads to an increase in declined appli- cations or referrals (those applicants needing more labour-intensive under- writing attention) which means a drop in conversion rates and, more importantly, disappointed applicants. CRAs do also have occasional outages which leads to the risk of yet more declines and referrals, because applicants cannot be searched for at all during these times. No wonder, then, that the prospect of lenders using more than one CRA to assess an applicant -known as the mul- ti-bureau approach - has gained popu- larity in recent years. What better way to overcome the “thin file” problem, than by calling a second or even third CRA to get a full picture of your customer? It’s a treasure trove of valuable informa- tion when the decision is in the balance! But, just like Indiana Jones trying to find his way to the Holy Grail, metaphorical spears emerge from the cave walls and floors collapse beneath him. In less dra - matic terms, there are some significant obstacles en-route to reaping the bene- fits of a multi-bureau strategy, and traps which are all too easy to fall into. The most significant of these challeng - es is the double counting trap. In 2020, the major CRAs each reported coverage upwards of 70% of UK adults, which leads to two conclusions: 1. Some CRAs have limited or no vis- ibility on up to 30% of the UK adult population (for some CRAs this number will be materially lower)
2. As there are three major CRAs, there will inevitably be duplication, after all, 3 x 70% equals 210% coverage! So, to the uninitiated, a multi-bureau approach would begin with a lender searching one bureau, resulting in a “thin file”, before searching a second bureau to augment the data already obtained. The additional data shows more credit, but also restates some credit commit- ments from the first search, resulting in enough data to make a lending deci- sion BUT duplicated credit commit- ments, which can potentially destroy the affordability calculation. The con- fusion and lack of clarity creates the need for a manual review or automatic decline, leading to higher costs and low conversions. "There are some signifi - cant obstacles en-route to reaping the benefits of a multi-bureau strategy, and traps which are all too easy to fall into." What’s more, one of the biggest risks associated with this approach is of failing to Treat Customers Fairly, a giant boulder thundering towards lenders whose only option is to try to outrun it, because whilst it is well accepted that customers should not be granted credit they cannot afford, it is also unfair to evaluate applicants based upon faulty affordability assessments. Let us say that the first CRA returns details of a mortgage, two credit cards and two personal loans, but a second CRA returns the same mortgage, one credit card (also included in the first CRA search) and two personal loans (only one of which was included in the first CRA search). The applicant therefore has one mort- gage, two credit cards and a total of three personal loans, however, the com-
bined searches show three credit cards and four personal loans. Unless this information is subjected to sophisticat- ed analysis and robust deduplication, a lender may inadvertently double count the offending duplicated commitments and fail the affordability calculation, thus declining the application. This is just one of thousands of exam- ples of how multi-bureau strategies can deliver better underwriting decisions if used effectively but can also create unintended consequences if not, and it is one of the many ways in which DeeJoop , the revolutionary new SaaS service from LendingMetrics can help. Using a sophisticated algorithmic approach, DeeJoop analyses multi-bu- reau API files in real time and returns to the lender a consolidated and distilled view, thus eliminating the risk of double counting credit commitments. This in turn allows for a much higher applicant conversion rate and a more accurate automated affordability calculation and credit decision; a Holy Grail when it comes to onboarding. Such accuracy gives lenders the confi - dence that they are making high quality, high velocity and high-volume deci- sions, as cost effectively as possible, and Treating Customers Fairly whilst doing so.
Above: LendingMetrics' Commercial Director David Wylie
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A new video outlining how the lender Loans 2 Go has harnessed the benefits of using Auto Decision Platform (ADP) has been released by LendingMetrics. The three-minute production sets out how Loans 2 Go have used the mul- ti-award-winning SaaS platform to adjust its lending appetite in light of changing market conditions over the past few years. The video has been fast-changing lending landscape. Our customers are at the forefront of our business and being able to reflect on the success of working with Loans 2 Go has been enlightening. We hope it will communicate the benefits of imple - menting ADP to those curious about taking the next step in underwriting technology.’ Watch the brand new video below! Loans 2 Go: Five years on Lender Loans 2 Go reflects on 5 years of success with ADP made in response to the growing number of requests LendingMetrics receives from businesses wanting a real-world insight into how ADP can transform their lending practices. David Wylie, Commercial Director of LendingMetrics, said: ‘The video pro- vides a first-hand account from a lender explaining how it has employed our technology to navigate what is a
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Customer stories We work with some of the best innovators in the industry. Click on a story to learn more.
“With the help of the LendingMetrics team, we we have developed a solution that will allow us to focus on the details of the case and arrive at a decision quickly.” Darren Ditchburn, Chief Customer Officer at Darlington Building Society
“We can change things within minutes – it’s brilliant!” Dave Hindle, Chief Executive Officer at Propensio Finance
“LendingMetrics [is] helping us to quickly and reliably assess customer affordability in line with our strong focus on responsible lending.”
“We’ve had a lot of support from the LendingMetrics team to establish how we can get the most out of ADP and we’re looking forward to getting started with the solution.” Ken Doyle, Head of Credit Risk and Data Strategy at Specialist Motor Finance Ltd
“The partnership with LendingMetrics has allowed us to provide a scalable offering, increase our volume capability and improve both broker and consumer journeys, thus delivering more successful outcomes.” Buster Tolfree, Commercial Director of Mortgages at United Trust Bank
“ADP is second to none for champion/ challenger testing. It has enabled us to confidently propose and execute changes in the knowledge that the objective is achievable.” Leon R Tunnicliff, Global Head of Credit Risk & Fraud at etika
View the full collection
Brace for impact David Wylie, Commercial Director of LendingMetrics, looks at how high-and- rising energy costs plus retail price inflation is going to impact borrowers.
We are in for what is shaping up to be a tumultuous second half of 2022. Things were already getting heated at the beginning of the year, when the tailing off of the pandemic was fol- lowed swiftly by rises in inflation and higher interest rates as the economy seemed to bounce back. Then another ‘black swan’ event came into view, as Russian tanks massed on the Ukrainian border in March. As a result, the large hike in inflation that
the most pessimistic pundits thought might, possibly, occur towards the end of 2022 arrived early, and the cost of living has been going through the roof as we have been caught in a pincer movement of rocketing energy bills and rising retail prices. I find the need to repeat the figures to fully digest the enormity of the hikes that are coming down the track. The larger of the two hits to income is obvi- ously going to come from fuel.
The average annual dual fuel bill is esti- mated to be, staggeringly, £2,800 a year when the new price cap comes into effect in October. Bear in mind that the price cap in April meant average annual dual fuel bills of £1,971 and, as recent - ly as last October, that figure was just £1,277. In effect, average energy bills will have risen by just under £1,000 in the space of a year. On top of this, of course, consumers will have to contend with retail price rises that are going to have a similarly large impact on their wallets. The UK’s Retail Price Index is now running 11 per cent ahead of where it was this time last year (334.6 as compared to 301.1), meaning that the weekly shop and other staples are going to make a big dent on disposable incomes. The Bank of England might be predict- ing that inflation will peak and start to come down some time in late 2023, but it goes without saying that in the mean- time wages are not going to keep up with this level of inflation.
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On the plus side of the equation, we have the government’s recently-an- nounced energy grant of £400 per household (with those on means-tested benefits receiving £600 on top), which is going to take the edge off energy costs for many. However, we should not lose sight of the fact that there will remain, even after this handout, a large number of income earners who are going to take a considerable hit to their wallets when energy bills hit the doormat. Graphs show that this is going to impact those households on lower incomes far greater than those on higher. Add housing costs (mortgage, rent and council tax) into the mix of those house- holds in the bottom 10% whose total annual disposable income is £13,550 (after tax and National Insurance) and there won’t be an awful lot left.
It hardly goes without saying that this has the potential to subject lending decision-making to a considerable level of stress testing. Borrowers with untarnished credit his- tories may suddenly find themselves unable to keep up loan payments as their disposable income shrinks, while prospective clients who would previous present as low risk may be anything but. In such an environment, lenders will have to be extremely vigilant when man- aging their loan books and making new lending decisions. While sales teams are given the opportunity to shine during the good times, it is in times such as these that the quality of the back office is truly tested. It can literally mean the life or death of a business. Expertise and systems that usually work fine during economic upturns are put to the test when there is a down-
turn and can come up short. Reliance on systems that are overly dependent on what is essentially partial or histor- ic data are not going to be up to the complex changes that the economy and individuals are going to experi- ence. Underwriting teams will have to contend with sudden changes to per- sonal circumstances. This will equally apply to commercial lending. Sectors that fared well pre-Cov- id, such as entertainment and hospitali- ty, may struggle as discretionary spend shrinks in response to unavoidable expenses. As with individuals, busi- nesses may suddenly find themselves unable to meet financial commitments as a result of static or shrinking income. Ideally, lenders want to be able to recal- ibrate their scorecards and appetite for risk on an almost daily basis as the lending environment changes. They also want spot-on affordability assess- ments with the applications that come in. Thankfully, this is now possible thanks to the technological advances that have taken place since the last downturn. Where, in the past, timely, high-quality data was virtually unobtainable, today fintech suppliers such as LendingMet - rics have made it easily accessible, and in an instant.
Above: LendingMetrics' Commercial Director David Wylie
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Second charge market boost
Rising interest rates and mortgage costs are leading to the growth in second charge mortgag- es, providing a new oppor- tunity for lenders. New figures show an increase in second charge mortgages, as home- owners look to capitalise on property equity without having to remortgage to more expensive deals, which comes as a result of the Bank of England’s base rate increases. According to the Finance and Leasing Association (FLA) , the value of new second charge business totalled £127m in April, a 54% increase com - pared to the same time last year, and new agreements came to 8,520, a 49% uplift. In addition, house price increases have allowed prime and debt consoli- dation borrowers to secure higher loan amounts than was previously possible. The boost to the second charge market provides the opportunity for growth for specialist mortgage lenders, such as Evolution Money, a leader in secured loans. The lender reported a rise of second charge lending between March and May, with prime borrowers making up 31% of its second charge lending, up from 27% in the previous quarter. Evolution Money echoed the idea that the rise could be due to rising first-
charge mortgage product pricing meaning existing borrowers no longer want to remortgage onto poorer deals to release equity for funding specific things such as home improvements or paying off other more expensive debt. Steve Brilus, chief executive of Evo- lution Money, said: “This has already been a very strong start to 2022 for the second charge market and given the likely direction of travel for interest rates in the first charge space through the rest of the year, we fully anticipate
that both advisers and consumers will continue to see the value available in a second-charge mortgage” Andrew Fisher, Chief Commer- cial Officer at loan comparison site Freedom Finance, agreed, saying: “The second charge mortgage market con- tinues to show continued growth and we expect this to accelerate through the year as people look to capitalise on property equity following the boom in house prices through the pandemic. “
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Into the den Chief Technology Officer Neil Williams presented a Dragon's Den-style pitch at the Asset Finance Connect UK Conference
The Holy Grail for lending David Wylie considers the challeng- es lenders face with a multi-bureau approach to assessing affordability, and one potentially game-changing solution.
FCA expresses concerns for struggling customers The Financial Conduct Authority (FCA) wrote to 3,500 lenders in June to remind them to provide appropriate support to borrowers struggling with the cost of living.
Take me there
Above: LendingMetrics' Chief Technology Officer Neil Williams presents at the AFC Conference
Loans 2 Go: 5 years on Lender Loans 2 Go reflects on 5 years of success with Auto Decision Platform by LendingMetrics. Watch the brand new video now!
The 7 th annual AFC Conference returned in 2022 as an in-person event, and welcomed over 450 dele- gates from the asset, equipment, and auto finance industries. As part of the conference, Lending- Metrics' CTO Neil Williams presented a pitch about the multi-award-winning Auto Decision Platform (ADP) at the FinTech Innovator Showcase. LendingMetrics were chosen as final - ists from over 50 nominees, making them one of five leading FinTechs to present a short pitch at the showcase before asking questions from the audience and the panel of judges.
The presentation focussed on how ADP can benefit the asset finance industry. ADP leads the way in assisted decisioning, allowing lending approv- als to be made in seconds rather than days. Since it was launched in 2016, ADP has permitted businesses to rapidly deliver increased lending volume, improve decision quality and reduce overheads. To find out more about how ADP can benefit your business, whether in the asset finance sector or another finan - cial industry, visit our website today.
Watch it now
Metrics Monthly | 17
Open Banking gains momentum Neil Williams, Chief Technology Officer at LendingMetrics, says that Open Banking’s time has finally arrived.
After a gradual start, Open Banking looks like it is finally set to win wide - spread acceptance. Today, there are over five million active users of Open Banking in the UK, according to the Open Banking Imple- mentation Entity (OBIE ), up one million compared to four months ago. By 2023, it’s predicted that some 60% of the UK population will be using it on a regular basis. It seems that every month hundreds of thousands of UK consumers and businesses are becoming new users of Open Banking. API call volumes have increased from the relatively small numbers during the first year of imple - mentation to nearly 6 billion in 2020. The number of third-party providers, or businesses who use Open Banking technology, has now grown to almost 300. Since Open Banking’s launch back in September 2018 we have all been hoping that the steady but relatively
small gains in user numbers would reach a kind of critical mass and subse- quently take off. At last, it looks like this is happening. What’s more, we can expect the pace of growth to continue to accelerate. At the macro level, the pandemic has imprinted on everyone’s mind the ena- bling role that Open Banking can play when you are forced to conduct all your financial affairs online. Even those who might normally be ‘tail-end’ adopters of such technology have found them- selves having to use it and can now appreciate how superior it is to more analogue systems. At the micro level, the two most sig- nificant of factors that are set to drive growth further in the coming months are the introduction of variable recur- ring payments (VRPs) and the opti- misation of the 90-day authentication requirement from the consumer. So far, Open Banking has made life easier for businesses and consumers
who are making and collecting single payments. The very large gap that’s left for regular payments that is currently filled by direct debits is there waiting to be plugged by VRPs. VRPs will soon become another factor in Open Banking that enables third party providers to initiate a series of payments for a customer at variable amounts and intervals. Payments will become smarter, more convenient and efficient – a sort of ‘clever direct debit’. Unlike direct debits, however, VRPs can be set up in minutes rather than days or weeks and payment mandate parame- ters can be changed dynamically (right up to the point of payment) so that busi- nesses and consumers can respond to life events in real time. Payment trans- fers will be in real-time and without long processes and paperwork. Additionally, VRPs are an ideal mecha- nism to ‘sweep’ funds, for example into savings accounts or to maintain ‘smart’ overdrafts.
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Alongside a take-off in the use of Open Banking for VRPs, will be changes to the 90-day re-authentication window, which has previously acted as a brake on growth. Now, finance providers could be able to call on real-time transaction data beyond this window by using so-called ‘long-lived’ tokens (once they have the necessary authorisations). Previously, the consumer must input fresh creden- tials with their bank to refresh access every 90 days. The latest changes to the rules mean that banks will now only have to authenticate for the first access request of an AISP.
Although these changes are welcome, they are not, by themselves, enough to ensure Open Banking reaches its full potential. Consumer education has also got to form part of the mix. Against a backdrop of increased data protection concern, there is understandably still some consumer reluctance to allow third party access to their banking data. We as an industry are going to have to invest more time and money in pushing home the message that Open Banking does not expose anyone to additional security risks and is there to help people better manage their finances.
Above: LendingMetrics Managing Director and Chief Technology Officer Neil Williams
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Customer stories Commercial lender Shire Leasing made their underwriting agile with “no code” automated decisioning
Shire Leasing is an SME lender, who specialise in delivering flexible funding solutions for businesses, including commercial finance, asset leasing and equipment finance. Established in 1990, they support over 60,000 customers each year, offering automated decisions in as little as 6 seconds. Why LendingMetrics? The lender had already been utilising automated underwriting since 2001 but found that moving from single track sales channels to multi-sales channels resulted in much more complexity in their decisioning. They needed constant
IT developer involvement to do what they were trying to achieve, so were looking for a solution that gave more control, allowed flexibility and did not require an IT resource to make changes. Shire Leasing had previously spoken with LendingMetrics 3 years before deciding to work with the finance tech - nology provider, during which time they looked at alternative solutions includ- ing developing a system in-house and working with other third parties. They eventually chose to use LendingMet- rics’ Auto Decision Platform (ADP) , due to it being universally connected to any data sources, including internal and Credit Reference Agency (CRA) sources, and there being no reliance on an IT team once the intuitive platform was implemented.
The number one priority of ADP is to deliver autonomy to clients, leaving them free to build, test, edit and deploy the most simple or the most sophis- ticated decisioning logic, without dependency upon any IT resources. Shire Leasing value the importance of innovation and agile working, and this was influential when choosing a tech - nology partner. LendingMetrics’ 3 year research and development roadmap ensures their platform is continual- ly evolving and remains cutting-edge, and their financial stability was another driving factor in the lender’s decision. In particular, they felt that ADP offered a good balance of cost to benefit, espe - cially in comparison to the costly CRA solutions.
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We see this as a long-term relationship, and we’re delighted that we picked LendingMetrics as a partner. Malcolm Workman Chief Operating Officer at Shire Leasing “ ”
The experience The implementation process was very smooth, and Shire Leasing found the organisation of the technology company to be exceptional. Lending- Metrics organised regular catch-ups with the right people, facilitated by a ded- icated Project Manager who ensured the implementation process was kept on track. Specialists, including business analysts, developers and senior person- nel were involved as-and-when needed, ensuring the clients’ needs were fully met and their expectations exceeded. Shire Leasing have been involved in the administration of three different auto- mated decisioning solutions and found ADP’s implementation to be the quick- est by far.
The result The lender is now benefiting from the ability to create and manipulate decisioning logic on demand, without the need for IT input. They found the platform’s “no code” Engine Editor user-friendly, understandable and intui- tive, enabling the most comprehensive and sophisticated decisioning require- ments to be generated and adapted efficiently. When they originally went live with the platform, Shire Leasing ran decisions using ADP in tandem with their exist- ing system to compare the results, and now regularly make use of the passive engine functionality to see the impact of changes before fully implementing
them. They find making these changes so easy and quick that they now have a new iteration of their decisioning at least once a week, thus making their underwriting process particularly agile. Next steps The first phase of utilising ADP in Shire Leasing’s business has proved highly effective, and they are now continuing to work with LendingMetrics’ expert team on the next phase of bringing more data into the platform, whilst continuing to efficiently and accurate - ly enable businesses to invest in the equipment they need.
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Metrics Monthly | 21
Lenders are ready
in eastern Europe, we are going to have to consider that, like my inflation predic - tion of last year, there is a risk that this could fall some way short of the mark. I know the Bank of England has sug- gested that the Russian invasion may delay its rate rises, however, if inflation persists, it is bound to hike them in line with its mission to keep inflation under two per cent. The interest rate rises will come later, but they will still come. UK borrowers used to a long period of ultra-low interest rates, may be looking at a BBR of two per cent or more by the end of the year on top of all the other escalating costs. Two per cent may prove to be a worse case scenario, but whatever happens during the coming months, lenders are going to be moving into waters they have not navigated for the best part of twenty years. British borrowers have become used to stable rates of under 0.75 per cent. You have to go all the way back to 1988-90 and 2003-7 to find periods when interest rates increased sharply from a low base. Then - in line with all previous periods of higher and rising interest rates - many borrowers struggled as their monthly payments grew. Aggregate default rates rose. The cost to lenders varied accord- ing to the quality of the loan book and ability to handle the changing situation. For a few the rising adverse lending was fatal for profits, for others less so, but for all these were unsettling periods. This time around, thankfully, lenders small as well as large, are in a far better position to ride out the impact. Technology, undreamt of at the turn of the 21 st century, will allow them to weather such stress tests. Where ana- logue processes in the 1990s meant meaningful data was to all intents and purposes unobtainable, fintech suppli - ers such as LendingMetrics now mean that it is easily accessible and in an instant.
David Wylie, Commercial Director of LendingMetrics, says that unlike previous times of economic uncertainty, most providers of finance are well prepared for the impact of higher interest rates and cost- of-living increases When I wrote about rising inflation in these pages six months ago, little did I know that my prediction would appear to be somewhat on the low side. At the time, I saw prices rising to four per cent ‘or more by the second half of 2022’. Now, I can see that my ‘or more’ should have read ‘considerably more’. Even without the invasion of Ukraine, the UK was looking at inflation hitting six per cent by the Spring (source: Bank of England). Now that we have the long- feared Russian aggression, and what looks like the phasing out of European dependence on its energy, who knows
what the Consumer Price Index is going to be by the end of the year. Given the number of variables at play, even the most reliable of sources is going to find it difficult to predict. Most though would put money on it being a lot closer to ten per cent than is comfortable. For lenders, such a high inflation sce - nario should cause some concern. For, where inflation goes, interest rates invariably follow. And there is obviously a well-established link between higher interest rates, testing economic times, and the incidence of late payment and default, particularly for those with varia- ble rate finance. The further north the interest rate goes, the greater the level of grief for any lenders’ loan book. Financial markets were pricing-in four interest rate rises for 2022, taking the Bank Base Rate to 1.25 per cent by year end, before Ukraine. Given the conflict
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can afford yesterday, is not necessar- ily what they can afford today when their circumstances are more prone to change. With this in mind, regulators are driving in the direction of ever more demanding tests of a consumer’s ability to satisfactorily meet their loan com- mitments without causing hardship. This will be the first period of significant economic uncertainty when lenders will have tools at their disposal to make such assessments in levels of detail previously unheard of. Real-time auto- mated access to transaction and mul- ti-bureau data will enable recalibration to take place from one second to the next. Furthermore, the technology will make loan book management a far more exact science. Lenders can tap into data feeds that, when authorized, can be used to automatically track spending habits and pre-warn underwriters when borrowers are on course to miss pay- ments. A single pre-emptive telephone call while the borrower is still able to meet their commitments can be used
to reschedule a loan, rather than the usual situation of having calls ignored after they fall into arrears. In general, lenders will have access to data and analysis that will guide them to making optimal decisions, both in terms of new and existing business, and in terms of regulation… Tools that they would only have been able to dream about twenty years ago.
Plug-and-play automated platforms, such as LendingMetrics' ADP and LMX , enable lenders to precisely calibrate the level of risk they are willing to take with every single applicant. A risk that they can scale up, or down, according to the changing environment. And, because they can take a granular view of each applicant and obtain a real-time insight into their activity, lenders are less likely to make poor lending decisions. Ideally, the turbulent times we are enter- ing require lenders to be able to recal- ibrate their affordability assessments for individual applicants on a quick and constant rolling basis. What someone between higher interest rates, testing economic times, and the incidence of late payment and default" "There is obviously a well-established link
Above: LendingMetrics' Commercial Director David Wylie
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