A Banking Lifeline: Standby Servicing in Turbulent Times | Lenvi | The Fintech Show #148

A banking lifeline: The role of standby servicing in turbulent times.

In the latest episode of The Fintech Show, we spoke to Owain Chambers, Senior Business Development Manager at Lenvi, to find out how standby servicing could have an increasingly critical role to play in protecting capital market investments. 

Over the past few years, global challenges and economic uncertainties have heightened the scrutiny and demand for these services. Chambers gives us the lowdown on all this and explains their proactive approach, which combines advanced technology and expertise, to provide peace of mind and operational resilience. 

For our first interview with Lenvi where we learnt more about the role of automation in combating fraud, head here. 

The Role of Standby Servicing  

For those who are unaware, standby servicing functions as a form of insurance for institutional investors and lenders, safeguarding substantial capital investments in case the loan originator or servicer faces operational or financial difficulties. These transactions often involve significant sums—ranging from millions to billions of pounds. Should an originator fail, the standby servicer steps in to secure the loan portfolio, ensuring the seamless continuation of operations for end borrowers while protecting investor capital. This dual purpose not only stabilises the market but also instils confidence in capital providers.

Chambers highlights that this service has evolved from being a “tick-box exercise” pre-pandemic to an indispensable safeguard, as unforeseen global events have underscored the fragility of financial systems and heightened scrutiny on standby servicers.

Heightened Scrutiny and Growing Demand  

The pandemic was a watershed moment for standby servicing. During COVID-19, uncertainty about the future heightened investor vigilance, prompting deep evaluations of backup servicers’ capabilities. Events like the Liz Truss mini-budget and geopolitical tensions further underscored the necessity of having reliable contingency measures. Chambers notes a marked increase in invocation events—three in the past 18 months compared to a single event previously—reflecting both market instability and Lenvi’s growing footprint in this space.

This intensified scrutiny, according to Chambers, is a welcome and necessary development. The stakes are high when billions of pounds are at risk, and investors need assurance that standby servicers can handle complex portfolios and ensure uninterrupted operations. This scrutiny drives innovation and reliability in the sector, strengthening its role as a financial stabiliser.

Lenvi’s Expertise and Unique Position  

Lenvi certainly have servicing expertise to add to their advanced technology capabilities. With £24 billion in assets under management at their HQ in Cardiff, Lenvi handles a diverse range of asset classes, from residential mortgages and consumer loans to niche areas like litigation finance and invoice factoring. The integration of technology into their servicing model gives them an edge, enabling efficient portfolio management and swift responses during invocation events.

Their invocation processes—essentially the transfer of servicing duties from a failing originator to Lenvi—are a testament to their preparedness. Chambers details how Lenvi contracts for a 30-day transfer window but often completes the process much faster, even in as little as seven days. This efficiency is rooted in meticulous pre-invocation planning, which includes deep dives into lender operations, systems, and customer management practices. By ensuring they can replicate or improve upon the original servicing model, Lenvi minimises disruptions for all stakeholders.

Lessons from Real-World Invocation Events  

Chambers shares insights from recent invocation events, which highlight the unpredictable nature of the market. One event occurred overnight, requiring Lenvi to compress its standard 30-day transition plan into just 10 days. Success in such scenarios stems from Lenvi’s robust due diligence and agile processes, which ensure readiness to adapt to sudden changes.

Each invocation presents unique challenges, regardless of portfolio size or asset class. For instance, redirecting payment streams from insolvent accounts or managing complex products like litigation finance requires specialised knowledge and rapid problem-solving. Chambers underscores that preparation—understanding a lender’s operations in-depth before a crisis occurs—is the key to successful outcomes.

The Broader Importance of Standby Servicing  

While invocation events remain relatively rare, the peace of mind they offer to investors cannot be overstated. With external factors like economic instability, regulatory changes, and geopolitical tensions influencing financial markets, having a robust standby servicer is akin to holding an insurance policy for multimillion-pound investments. For institutional investors, it ensures capital protection and continuity, even amidst systemic shocks.

Chambers reflects on the evolving role of standby servicing as an indispensable component of the financial ecosystem. As global uncertainties persist, the demand for skilled, tech-enabled, and proven servicers like Lenvi will only grow. Through their expertise and preparedness, Lenvi exemplifies how backup servicing can provide stability in an increasingly unpredictable world.

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Lenvi’s standby servicing team have been shortlisted for Overall Servicer of the Year with the Global Capital European Securitization Awards 2024 – which is now open to public vote to determine the winners, click here to cast your vote.