5 factors to consider when choosing a standby servicing provider

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In an ideal world, lenders would operate without the safety net of a standby servicing provider. However, all businesses face commercial risks that might jeopardise continuity and solvency, and when a business can't meet its obligations and its cash flow is under threat, it will need a standby servicing provider to protect its stakeholders.

This is particularly important for loan companies and the investors who underwrite them with funds to finance lending. In the event that the lender (the primary service provider) fails, a standby service provider will step in to meet the lender’s commitments and safeguard the business. The result is the safe return of investor funds without disruption to the end customer.

As the economic climate grows more challenging and the risk of failures increases, lenders must ensure they are adequately protected and can continue performing vital functions such as the collection of receivables. So, how do you choose a reliable standby servicing provider? Here are five factors for lenders to consider to gain the right level of standby cover.

1. Experience and credentials

When choosing any third-party standby servicing provider, you must look closely at its track record and achievements. Does it have an established and creditable industry reputation, how long has it been in service, and what do its customers say about the service they have received? Positive background checks will inspire confidence, and confidence is key when it comes to a standby service. Having a dependable and reputable standby service provider will reassure investors and build trust in the loan company. The requirements checklist should include customer testimonials, case studies, credit ratings, and service level descriptions that are closely aligned with your specific needs.

2. Scalability and stability

Your needs will change as your business grows and evolves. Can the standby servicing provider accommodate new service levels and future requirements? You should assess its ability to scale and whether it has the flexibility and resources to match your growth. Being adaptable is an important requirement together with financial and organisational stability, particularly as economic conditions become tougher, which is why a standby servicing provider with a good credit rating will inspire confidence.  

3. Technology and technical expertise of the standby servicing provider

A standby servicing provider must demonstrate that it has the technology and technical expertise to manage what are often very demanding handovers with complex data mapping. They must then maintain operational efficiency across all the required services to mitigate risks and sustain performance. Because of the need for continuity, seamless integrations and speed of delivery are important considerations, as any disruption to servicing can adversely affect portfolios and customer experience. 

The right technology and technical know-how will ensure a smooth transfer to the standby servicing provider, which will need to meet the demands of one of the following service levels:

  • Cold – less frequent data transfer (e.g. quarterly) and typically a 60-90 day migration to the backup platform

  • Warm – more regular data transfer (e.g. monthly) and typically between 30 and 60 days to migrate

  • Hot – an immediate standby service with access to real-time data and full migration occurring in one or two days

Warm standby is now the preferred option for investors, so standby service providers should have software and systems to handle all the technical requirements for a successful transition in this timeframe.


4. Compliance and regulatory knowledge

Negotiating the intricacies of an ever-changing regulatory environment and staying compliant are musts for an effective and responsible standby service. The standby servicing provider should comply with Know Your Customer (KYC) and Anti Money Laundering (AML) regulations and be up-to-date and compliant with new legislation such as Consumer Duty. The standby servicing provider must ensure transparency and meet reporting requirements, and effective compliance and accurate reporting will depend on having the right technology.


5. How the standby servicing provider communicates

Clear communication is a vital part of regulatory reporting but it is also far more than that. Transitioning from one provider to another is a complicated process that requires precise and timely communication with all the stakeholders before, during, and after the handover to the standby servicing provider.  

How Lenvi can help as a standby servicing provider

Lenvi’s technology and experience is tried and tested. With over 30 years’ experience in the UK lending markets, we’ve helped ensure swift and successful invocations for UK based and international clients. As a capital markets support provider with over £25 billion in funds under protection, we offer comprehensive standby servicing solutions that enable your securitised and non-securitised portfolios to be fully administered if something happens to your business.

To find out more, book a consultation and learn how we help protect lenders and investors who need a proven and dependable standby servicing provider.