UK Lenders feel they are in the midst of a price war according to a report from Target Group

Target Group, the financial services outsourcing and software provider has revealed that 9 in 10 (90%) banks, building societies and P2P lenders believe that the UK lending market is in the midst of a price war. The findings form part of Target Group’s latest ‘UK Lending: The Drivers of Change’ white paper which examines the attitudes of the lending market to pricing, product innovation, customer engagement and technology.
The study revealed that more than one-third (35%) of the industry believe that the flood of new entrants into the market in recent years has created greater competition and driven down prices in the process. Meanwhile, nearly half (45%) of the lenders surveyed believe that challengers have sparked greater product innovation.
Target’s report also reveals that big banks are most reliant on technology when it comes to making underwriting decisions. Nearly all of the established banks surveyed (95%) regard big data as important or very important to loan decisions compared to just under three-quarters (74%) of building societies and P2P lenders.
Banks also ranked highest when rating the importance of technology for customer engagement. Nearly two thirds (65%) regarded it as very important, compared with only 9% of building societies and 4% of P2P lenders.
Ian Larkin, Co-Group CEO at Target Group, commented: 
“It will come as no surprise that lenders have seen competition intensify in recent years. The arrival of new specialist lenders has created an impetus for change when it comes to product design, customer engagement, underwriting and technology.  This in turn has sparked price pressure that has not been slowed by Mark Carney’s recent guidance on UK interest rates.  Indicators point to competition increasing in the medium term.”                                                                  
Larkin continued:
“Target Group’s White Paper reveals how lenders are opting to use the technology at their disposal.  Whilst the vast majority of traditional lenders say that technology is important when it comes to customer engagement, many face a challenge in adapting their legacy systems. On the other hand, new entrants have the advantage of having no legacy, creating technology platforms with greater flexibility and agility.  However, these players do not have access to the same degree of historical customer data, a valuable tool to provide insight into customer behaviour and credit risk.”
Larkin concludes:
“Whether they are new entrants or more established banks, all lenders need to recognise the importance technology will play in the coming years.  The market is evolving quickly and new approaches are needed to improve proposition flexibility, credit risk capability and customer experience and to drive cost efficiency without compromising on service.  This will continue to be especially true as long as margins are being squeezed by downward pressure on pricing.”