# A risky business: why the mispricing of credit is a danger to us all Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2018-05-21 Category: BUSINESS Category URL: https://financedigest.com/category/business Meta Title: How Mispricing of Risk Threatens Lenders Meta Description: Discover the dangers of mispricing risk in the UK credit market and how lenders can adapt to changing customer attitudes for long-term success. URL: https://financedigest.com/a-risky-business-why-the-mispricing-of-credit-is-a-danger-to-us-allhtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/fd210518-10-1736842705800-compressed.jpg) _The mispricing of risk in consumer credit is a threat to all lenders, particularly those that lack flexibility, explains Sarah Jackson, Director, Equiniti Credit Services._ Years of low interest rates and fierce competition in the UK credit market has created a price war. Lenders are using cheaper loan products with wider consumer appeal to retain existing customers and capture new market share.  This is a dangerous [game and is leading](https://www.financedigest.com/advertys-multi-patented-and-industry-leading-in-game-viewability-technology-brainimpression-now-available-within-oracle-moat.html "Adverty’s Multi-patented and Industry-leading In-game Viewability Technology BrainImpression™ Now Available Within Oracle Moat") to inadvertent mis-pricing of risk in the race to attract customers. ![Sarah Jackson](http://www.financedigest.com/wp-content/uploads/2018/05/Sarah-Jackson.jpg) Sarah Jackson At first glance, however, the [market fundamentals look sound](https://www.financedigest.com/benign-positional-vertigo-treatment-market-is-pegged-to-witness-sound-growth-in-terms-of-value.html "Benign Positional Vertigo Treatment Market Is Pegged To Witness Sound Growth In Terms Of Value"). Figures from the Bank of England show [strong growth](https://www.financedigest.com/lego-posts-strong-growth-on-robust-demand-new-store-openings.html "Lego posts strong growth on robust demand, new store openings") across all credit asset classes. In the last quarter of 2017, ‘Residential investment’ (mortgages) grew by 10.1% on the previous 12 months [\[1\]](https://mail.google.com/mail/u/0/#m_-8095604339491145256__ftn1). In the same period ‘Average arrears’ continued to fall – suggesting a buoyant market with high confidence in both borrowers and lenders. In the year to March, the entire consumer credit category grew by a more-than-healthy 8.6% [\[2\]](https://mail.google.com/mail/u/0/#m_-8095604339491145256__ftn2). But there are also warning signs, principally from the figures relating to the cost of credit. Except for credit cards, the [Bank of England’s figures paint](https://www.financedigest.com/bank-of-england-removes-paintings-of-governors-linked-to-slave-trade.html "Bank of England removes paintings of governors linked to slave trade") the same picture across all asset classes: it’s getting less and less expensive to borrow money. As this trend continues and the number of high-risk-cheap-credit customers spikes, inevitably, an adjustment must occur. Defaults will rise and, to compensate, the pricing of [risk must](https://www.financedigest.com/ecb-must-be-prudent-with-rates-hikes-as-recession-risk-rises-panetta.html "ECB must be prudent with rates hikes as recession risk rises: Panetta") do the same. Lenders agree: a straw poll at a recent Equiniti [Credit Services](https://www.financedigest.com/credit-agricole-and-caceis-to-buy-rbc-investor-services-europe-unit.html "Credit Agricole and CACEIS to buy RBC Investor Services’ Europe unit") event revealed that 83% believe the market is mispricing risk. What’s more, the future is becoming increasingly tough for lenders to predict because the [market dynamics are changing](https://www.financedigest.com/plaque-disclosing-aids-market-important-changes-in-industry-dynamics-during-2022-2028.html "Plaque Disclosing Aids Market Important Changes in Industry Dynamics during 2022-2028") dramatically. Equiniti’s research into the UK’s [credit landscape confirms a seismic attitudinal shift among the UK’s borrowing public](https://www.financedigest.com/sp-global-fined-1-1-million-euros-for-premature-credit-rating-publications.html "S&P Global fined 1.1 million euros for premature credit rating publications"). [Nearly half](https://www.financedigest.com/meta-to-take-nearly-half-of-sales-made-by-its-metaverse-creators-as-fees.html "Meta to take nearly half of sales made by its metaverse creators as fees") the market (47%) is now prepared to borrow from an unfamiliar lender. A massive 83% of [consumers now research loans using a price](https://www.financedigest.com/german-eu-harmonised-consumer-prices-up-8-8-y-y-in-august.html "German EU-harmonised consumer prices up 8.8% y/y in August") comparison site. Just 18% of [consumers want direct](https://www.financedigest.com/direct-to-consumer-the-rite-of-passage-for-retail-in-2022.html "Direct to Consumer: the rite of passage for retail in 2022") contact with their lender (down from 77% in 2014). Consumers are becoming distant. Brand loyalty is evaporating. Decisions about lenders and their [credit products are being made on price](https://www.financedigest.com/austria-grants-credit-line-to-vienna-utility-squeezed-by-power-price-surge.html "Austria grants credit line to Vienna utility squeezed by power price surge") alone. They say, ‘age is the price of maturity’. But if today’s lenders want to last the distance they must take the mature view today. If a [market adjustment is ahead](https://www.financedigest.com/dollar-soars-to-two-decade-high-as-putin-shakes-fx-market-ahead-of-fed.html "Dollar soars to two-decade high as Putin shakes FX market ahead of Fed") (and, surely, it is), lenders must have the agility to respond quickly to that adjustment. Knowing that customer attitudes are on the move isn’t enough. To continue to prosper, lenders need to understand how they are changing and what they [must do to keep](https://www.financedigest.com/why-employers-rocked-by-the-great-resignation-must-keep-working-mothers-on-board.html "Why employers rocked by the Great Resignation must keep working mothers on board ") them. This means taking a data-led approach and embracing systems that deliver real-time [customer insight](https://www.financedigest.com/sports-and-athletic-insole-market-players-eye-custom-and-3-d-printed-products-for-performance-optimization-says-future-market-insights.html "Sports and Athletic Insole Market Players Eye Custom and 3-D Printed Products for Performance Optimization, Says Future Market Insights"). It means freeing up internal resources and offloading non-core activities to specialist partners to enable fleet-of-foot operational change. The longer the mispricing of risk continues, the bigger the adjustment will be and the harder the [industry will be hit](https://www.financedigest.com/china-july-industrial-profits-down-as-covid-curbs-heatwaves-hit.html "China July industrial profits down as COVID curbs, heatwaves hit"). Getting the house in order now while the going is good isn’t just sensible, it’s essential. For some lenders, it could be the difference between continuity and crunch. **About the author** Sarah Jackson, Director, Equiniti Credit Services Sarah Jackson is a Director at Equiniti Credit Services, a leading provider of loan application, administration and collection [software systems that enable extensive automation of business](https://www.financedigest.com/why-no-code-beats-custom-software-and-turnkey-solutions-for-business-automation.html "Why no-code beats custom software and turnkey solutions for business automation") processes. Ms Jackson has over ten years’ experience working in fintech, holding a variety of roles in project management, sales and [business development](https://www.financedigest.com/covid-19-makes-the-case-for-technology-and-automation-for-business-development-in-professional-services.html "Covid-19 Makes the Case for Technology and Automation for Business Development in Professional Services") within banks, financial media and financial software companies. Ms Jackson holds a Bachelor of Science degree in [International Business](https://www.financedigest.com/a-taxing-issue-ten-tax-invoicing-pitfalls-that-international-businesses-must-avoid.html "A taxing issue: Ten tax invoicing pitfalls that international businesses must avoid") and French from Aston University and spent a year studying at the Ecole Superieure de Commerce Marseille-Provence. **Equiniti Credit Services** [builds innovative](https://www.financedigest.com/innovation-to-be-a-building-block-of-the-automotive-glass-market.html "Innovation To Be A Building Block Of The Automotive Glass Market") solutions that are transforming the credit industry.  Offering a complete outsourced credit management solution, combining award-winning proprietary technologies, specialist personnel, FCA compliant [processes and industry](https://www.financedigest.com/growth-of-mineral-processing-and-mining-industrie-is-creating-demand-for-rotary-trommel-market.html "Growth Of Mineral Processing And Mining Industrie Is Creating Demand For Rotary Trommel Market") best practice. Equiniti Credit Services delivers flexible, agile [solutions that support the entire loan](https://www.financedigest.com/the-professionals-at-real-estate-funding-solutions-helping-you-find-success-with-commercial-real-estate-loans.html "The Professionals At Real Estate Funding Solutions Helping You Find Success With Commercial Real Estate Loans") life cycle process. The scalable platform enables lenders to increase efficiencies, reduce [time to revenue](https://www.financedigest.com/german-tax-revenues-fall-in-august-for-first-time-this-year.html "German tax revenues fall in August for first time this year") and improve operations. --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---