Keeping up with technological change in financial services

In the ever-evolving world of finance, technological advancements play a pivotal role in shaping the industry throughout the lending process. From AI-driven innovations to regulatory compliance measures, the intricacies of this sector demand a keen understanding of both macroeconomic trends and cutting-edge technologies.

It is these macro-economic trends that Richard Carter, CEO at Lenvi, believes is fuelling the technological race within financial services, he says: “Trends in the financial services sector are driven heavily by what’s going on in the economy. Factors such as interest rates, inflation and unemployment play a significant role, and everyone can see there has been some drama within these economic indicators recently. This also translates to the availability of funding for lenders and their ability to access funds themselves. So it also means lenders are taking on a lot more information to understand a customer’s affordability.”

Carter continues: “For consumers taking out relatively small loans, the affordability of that individual component probably hasn’t changed much. But the underlying issue that consumers may face around increasing mortgage payments, either now or when they come to the end of the fixed term, is significant. Rental prices have increased by about 10% over the last year, and we’re expecting to see another 5 or 6% increase this year and perhaps another 5% the year after. So, there’s a significant cost increase there. While salaries have risen slightly over the last couple of years, it is having a tightening effect on many lender’s underwriting criteria.”

In an economic environment where disposable incomes are being squeezed and the cost-of-living increase to such an extent that it is labelled a crisis, vulnerability, quite rightly becomes a dominant factor for lenders, especially in light of rules and regulations set by the Financial Conduct Authority (FCA).

Carter continues: “There is an increased focus on vulnerability in today’s market, in part historically driven by the FCA’s outlook on it, but also because more and more people are falling into that vulnerability category. Our argument would be that everybody’s vulnerable at some point in their lives; it’s just a question of when.”

Transformative tech

Transitioning to the realm of technology, Carter reflected on the transformative power of technological shifts in financial operations, he explained: “A piece of technology comes along and advances the way the market operates for a while. The most recent one that had a significant impact would be customer self-service capability. Originally, it was used for online origination, getting money within an hour, etc., but it became more widely used as an online servicing application. Now, I think the next shift is going to be around the use of AI, but I have to say it’s not quite there yet. It’s been over a year now since ChatGPT came out, and everybody was really excited about the things you could get it to do. But I think I’m a bit underwhelmed by some of the practical applications I’ve seen so far. There are issues around the traceability of the decision-making and the output it’s providing, which gives me a little cause for concern. But I think we can be sure that AI will be a huge component of finance, but right now, it’s just perhaps a little too early.”

As technology and AI advance and accelerates, for many observers it can be difficult to keep up with the rate of change. However, Mr Carter doesn’t think that this should faze those in the financial services industry: “Fundamentally, I think the principles of lending have remained substantially unchanged over a number of years. It’s a relatively straightforward process: you find a customer with good credit, lend them some money, and collect it back. However, what has changed is the extent to which technology allows that service to be performed more efficiently and effectively.”

Efficiency at the core 

While efficiency in the provision of credit is hailed as a huge benefit for the lending sector, there are sometimes practical reasons to ensure some friction within the application process.

Carter explains: “Improvement through efficiency within processes such as online underwriting and electronic signatures has been significant in the dot com era. We were at the forefront of pioneering E-sign in the UK. But you need to be careful not to remove all the friction through that process because before you know it, consumers find themselves with loans they hadn’t realised they had. I think that’s a bit worrisome with buy now, pay later options. There are occasions where technology can work incredibly well and automate tasks, making life easier for consumers. But there are also areas where, again, borne out by our research, consumers want to be able to talk to somebody to understand exactly how a product operates and what happens when things go wrong. Financial education also plays a role in ensuring consumers understand how their loan operates specifically to them.”

Looking at Lenvi’s approach to serving the market, Carter emphasises a multifaceted strategy encompassing market analysis, consumer research, and regulatory compliance. With over three decades of experience, Lenvi leverages its expertise to identify innovative solutions tailored to client needs. "We spend quite a lot of time looking at general market analysis around macroeconomics to understand what’s happening with the economy," Carter explains. The company’s commitment to compliance, coupled with proactive engagement with clients, fosters enduring partnerships and ensures alignment with regulatory requirements.

Addressing Lenvi’s commitment to innovation, Carter underscores the significance of independent research, regulatory analysis, and client feedback in driving product development. "It comes back to our own independent research on consumers and their attitudes to borrowing in the UK.” Carter states “We’re also constantly scanning the horizon for regulatory components, and we’re talking to our customers directly about these. Across our product team, we do not just look at what other financial services businesses are doing; we look at other firms generally and learn how they interact on a customer services basis. Think about Uber, for example, there’s actually no transaction between the driver and the customer, you don’t need any cash when you get in, the whole process has been completed digitally in advance.” By drawing inspiration from diverse industries, Lenvi aims to deliver seamless customer experiences and anticipate market needs proactively.

With a keen eye on emerging technologies such as AI, Lenvi remains poised to leverage innovation for sustained growth and client success. As the industry continues to evolve, strategic foresight, technological acumen, and a customer-centric approach will remain paramount for organisations navigating this dynamic landscape.