According to Datamonitor forecasts, the non-conforming population is set to increase to 9.4 million people by 2010 or 16.9 per cent of the lending market. The increasing number of people who fall into the non-conforming category will undoubtedly bring greater opportunities for specialist lenders. As non-conforming lending continues to outperform the mainstream mortgage market, innovation will play an increasingly important role in its ongoing growth and development.
Development
Non-conforming lending was born of innovation, designed specifically to address the needs of the growing numbers of entrepreneurs and self-employed people unable to secure loans through mainstream lenders. Since its establishment in the US over 30 years ago, the specialist lending market has continued to develop and adapt to its customer needs at a consistent and impressive rate.
Innovation has always been a high priority in the specialist market. If new entrants want to succeed and established players maintain their positions, they must strive to continually innovate and develop their product and service offering. It is therefore key for businesses to differentiate themselves in this crowded environment.
Innovation doesn’t have to be a total re-engineering of a process or the invention and launch of a completely new product, it is about looking at continual change and improvement, challenging the way in which things are done and seeing if they can be improved in any way to bring about additional benefit to the customer.
At the heart of the innovation process is the customer. Put simply, if it doesn’t benefit the customer or the customer hasn’t requested it then quite frankly, it is hard to justify doing it. A truly innovative business will not just look for the showstoppers, but will look at the entire process. For example; innovation through distribution, reviewing current channels to market and seeing if they can be expanded and developed. Expanding the existing product portfolio, i.e. extending the loan-to-value (LTV) stretch, looking at new markets for existing products and developing new product markets, i.e. prime to non-conforming and vice versa. Process changes, such as improvements in technology or to affordability models which benefit the intermediaries and ultimately the end customer. For instance, BM Solutions’ online application system revolutionised the market by providing intermediaries with not only a credit-scored and searched mortgage decision in under one minute, but the functionality to submit applications online 24 hours a day, seven days a week. A process or ‘back office’ innovation might not always be immediately obvious to a customer, but if it enables you to provide them with a quicker, more flexible service, then it is worth investing time and effort in.
Business culture
If a company is really to succeed with innovation, it needs to develop a culture, which is open to, and accepting of change. Royal Bank of Scotland has recently appointed a global innovation director, mirroring one of its global competitors, Citibank, and added to its existing innovation teams operating within the retail banking and insurance areas of the business.
We continue to innovate through channel and product development. This month we announced the launch of the First National prime product pilot, the igroup 100 per cent mortgage, expanding our portfolio to offer a more complete range to best meet customer and intermediary needs. This is in addition to the continued expansion of the branded lending initiative. Working with packagers is one way of refining product design and testing the response to new ideas in a controlled environment. Differentiation is not simply about customised products, but about the additional services provided.
We are also one of many lenders committed to the self-certification market, a sector that is increasing
rapidly in popularity as the number of people on short-term or part-time contracts, or who are dependent on bonuses for a large portion of their incomes, grows day-by-day. The self-certification market is yet another example of lenders becoming more innovative and developing a range of competitive products to establish place in this flexible, niche market.
Staying ahead of the game
We will continually see lenders developing products and services in an attempt to stay ahead of the game and to provide brokers with the best value tools, and we should welcome this healthy competition. In addition, we will welcome and promote advances in responsible lending and empower our customers to make informed financial decisions. Ultimately, innovation is about knowing your customer and knowing your market.
Innovation is an omnipresent driver for growth and goes far beyond technological innovation to encompass service, branding, marketing, design and distribution. It is more important than ever for lenders and intermediaries to embrace innovation as the primary method of growth in an increasingly crowded market. In the words of Jeffrey Immelt, chief executive officer of GE, “The only source of profit, the only reason to invest in companies in the future is their ability to innovate and their ability to differentiate.”
