Today’s Fintech businesses know all too well that their success hinges, in large part, on the quality and capabilities of their servicing partner. However, what many don’t realize is, amid the fluctuations of today’s marketplace, having a quality backup servicing partner is equally critical to their bottom line.
A backup servicer is defined as:
A service provider who agrees to take over the servicing of a portfolio of assets on the occurrence of certain trigger events, most commonly failure of the existing servicer to perform or the servicer’s insolvency.
While some companies may see this as a relatively simple task and, as a result, underestimate the need for backup servicing. Backup servicing – when executed properly – can be an art form. As a backup servicer, asserting that you can effectively take over the servicing of a client’s portfolio upon a trigger event is one thing. Coming to the table with proven experience, security, capacity and infrastructure to efficiently onboard and manage that portfolio while maintaining full compliance is quite another thing and something only a select few backup servicing providers can accomplish.
If it’s time for your organization to secure a capable and effective backup servicing partner, here are five make-or-break capabilities to look for:
In the world of backup servicing, having experience working with specific asset classes matters. Backup servicing organizations that deal with business loans, credit cards, or other asset classes will have systems, compliance programs, and people designed to support those assets. You certainly don’t want your backup servicer to learn a new asset class by working with your portfolio when it is in distress, so look for a partner with asset experience that matches yours.
Backup servicers must be able to scale up quickly, so look for those who operate a SaaS-focused, cloud-based platform that can scale quickly, versus a proprietary in-house system that may lack the ability to scale on demand. Also, determine if the servicer has the office space to accommodate additional personnel, and the recruiting power to onboard staff quickly. This is where servicers with multiple locations have a distinct advantage.
Since every backup servicing arrangement includes a contractual “conversion time” – or how many days the backup servicer is allotted to take over servicing of the portfolio – you need to be confident the servicer can execute the conversion on time. Servicers without proprietary in-house systems often have difficulty with meeting conversion times of less than sixty days, and servicers with legacy systems (especially for credit card portfolios)often need to wait for the next “window” with their platform service provider which can cause delays.
In backup servicing, deep relationships with investors, warehouse providers, and other capital market participants are worth their weight in gold. Not only do they help to build confidence that the backup servicer can effectively step up when called upon, but they also afford the backup servicer advance notice of potential upcoming events prior to formal industry notification.
One of the most important elements in the marketplace lending industry is compliance. Compliance is THE must-have capability when screening potential backup servicing partners. Reason being that when it comes to backup servicing, compliance involves more than simply following current regulatory mandates regarding consumer PII for storing backup data. When converting a client’s loan portfolio, the backup servicer becomes, in effect, the successor servicer. As such, the servicer must be compliant with all the client’s regulatory requirements and the laws in the areas where the portfolio is in effect. This is another area where the servicer’s experience with similar assets becomes an important factor.
To say that marketplace lenders can strengthen and secure their business with a proven and capable backup servicer would be an understatement. With that in mind, it is absolutely critical to look at a backup servicer who has specific experience in your asset class, the ability to scale up and responding an expedient manner, established industry relationships, and bulletproof compliance and risk management models. With those capabilities in place, you can rest assured they will always have your back.
The fastest-growing servicer of loan and lease portfolios in the United States, Vervent sets the standard for outperformance in complex service industries by delivering superior industry expertise, future-built technology and meaningful services that are built for speed. Our solutions, which include Consumer Loan and Lease Servicing, Commercial Loan and Lease Servicing, Backup Servicing, Call Center Services, and Third Party Collections, empower companies to accelerate business and drive compliance.