Specialist Lending

Overview

There are multiple reasons why high street banks may not wish to lend to potential retail or business customers that apply to them for their borrowing needs. In the near-prime and subprime sectors, these include poor or little/no credit history, insufficient income, and overindebtedness. In nonstandard prime lending, these can include complex circumstances such as multiple sources of income or volatile earnings, unusual assets acting as security, and a range of other causes for the underwriting process to become more onerous than it is in standard situations.

These needs are served by a range of nonstandard or specialist lenders with relevant skills and expertise to address them profitably over the cycle, including bespoke processes and data sources to bring the additional depth and detail required to assess risk in these circumstances.

In common with other financial services businesses, specialist lenders are facing a range of tactical and strategic issues, including changing customer behavior; the emergence of new technology and data sources, including some early instances of big data; and increasingly interventionist customer-focused regulatory approaches. The industry has also attracted substantial new investment and capital in the past few years, leading to intensification of competition and pressures on margins.

More customer-centric approaches, including multiproduct offerings, are also emerging. Banks are expanding their risk appetite and entering or re-entering areas that were previously the preserve of specialist lenders. The potential impact of a future economic downturn is now coming into sharper focus following a relatively long period of positive macroeconomic circumstances in many jurisdictions, especially for those businesses that were established after the global financial crisis and lack a through-the-cycle track record. These circumstances create a range of challenges and opportunities for industry participants and investors alike.

How we help

We provide specialist lenders and investors in the industry with a comprehensive range of strategic and transaction advisory services, including:

  • Classic strategy review and development: We help our clients review, refine or develop their overarching corporate or business unit strategies. This starts from the highest-level goal setting, definition of vision and mission, setting of risk appetite, and other constraints, and proceeds to support “where to play” choices in terms of industry sectors or product categories, geographies, stages in the value chain (e.g., broking vs. underwriting), customer segments, and channels.
  • New market entry strategy, and new product and service development: We help our clients expand into new geographies and market segments. This includes mature and emerging geographical markets, consumer and business/commercial markets, mainstream and niche product areas, direct and intermediated markets, and new, innovative markets enabled by the rapid changes that are ongoing in financial services. Our customer-centric approach to developing market-ready solutions is based on detailed customer segmentation analysis and assessment of optimal price points to support the product/service proposition. Our market entry strategies for clients open the door to growth and long-term value creation, with a proven track record of success.
  • Identification and execution of value-creating transactions: We support our clients at every stage of the deal lifecycle, from evaluation to execution to integration, acting in both buy-side and sell-side roles. In a rapidly changing market landscape, we work with our clients to create and deliver on innovative investment theses based on in-depth understanding of the underlying markets and their competitive dynamics, customers’ preferences and behaviors, and the specific differentiating characteristics of the asset or assets under consideration.
  • Optimization of operations and configuration choices: We work closely with our clients to optimize processes, operations and organizational structures across the specialist lending value chain. Frequent topics include commercial effectiveness, incentives and operating model design, including detailed assessment of the capabilities required to turn a “paper strategy” into practical success. Our work for clients has increased productivity and contributed to top- and bottom-line growth across a wide range of specialist lending subsegments.
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