In the current financial landscape, servicers face a number of challenges that demand adaptation and innovative strategies. These obstacles, ranging from the volume of NPLs to new European regulations, define the current situation of the industry.
Direct flight to London with SIREC®. Thanks to SmithNovak for inviting us to the 5th International Summit on Non-Performing Loans. Two days where we have enjoyed recovery trends and technology. Esteve Ponsa and Antonio Bermúdez attended to share international experiences in the collection industry. We will share some with you.
Nowadays, it is essential for servicers to not only keep updated of these factors, but also to plan flexible and creative strategies that enable them to overcome these obstacles. In the following analysis, we will explore in detail the main challenges servicers are currently facing and the trends that are redefining the landscape of this vital sector.
NPL volumes
Although an increase was anticipated after COVID-19 pandemic, government assistance has kept non-performing loan (NPL) levels relatively low. However, an imminent increase is on the horizon, the question is when and by how much this increase will materialize.
Labour costs
Inflation and fierce competition for talent have led to a significant increase in labour costs. This phenomenon has a direct impact on the cost of the services offered, generating a special concern for older portfolios, that were conceived in a radically different economic context.
Consolidation
Investors’ search for larger and more solid servicers continues to drive the consolidation process in the sector. This trend reflects the need for market players capable of meeting today’s challenges with strength and resilience.
Servicers selection
Investors focus their attention not only on performance, but also on transparency and the ability to provide detailed information on the service. These factors are critical elements for investors and servicers require the necessary tools and setup to satisfy these requirements.
Compensation models
The discussion on compensation models for servicers reveals a general agreement: the need to combine a fixed management fee with performance-linked incentives. The end goal is to find the right balance between economic stability and creating the right incentives to achieve optimal results.
European Directive for NPLs
The implementation of the new European directive on Credit Servicers and Credit Purchasers creates a significant challenge for industry participants. The differences in the interpretation and application among EU countries represents a complex challenge for global players. On the other hand, the general view is that most organizations have already implemented enough controls to comply with most of the requirements of the directive.
The key to success for servicers lies in the ability to anticipate, adapt and lead in an ever-changing environment. With a combination of innovation, resilience and a deep understanding of market needs, servicers are well positioned to overcome today’s challenges and forge a sustainable future.
