The findings are a result of a white paper from Target Group, the financial services and software provider, which examined the attitudes of the lending market to pricing, product innovation, customer engagement and technology.
The research also revealed 35% of the industry believe that the flood of new entrants into the market had created greater competition and driven down prices.
However, 45% of the lenders said the challengers has resulted in more product innovation.
Ian Larkin, Co-Group CEO at Target Group, said it came as no surprise that lenders had 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,” said Ian.
“This in turn has sparked price pressure that has not been slowed by (Governor of the Bank of England) Mark Carney’s recent guidance on UK interest rates. Indicators point to competition increasing in the medium term.”
Ian added that Target’s white paper also discovered that banks 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.
“On the other hand, new entrants have the advantage of having no legacy, creating technology platforms with greater flexibility and agility,” said Ian.
“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.”
Ian said all lenders need to recognise the importance that technology will play in the years ahead.
“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,” said Ian.
“This will continue to be especially true as long as margins are being squeezed by downward pressure on pricing.”
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