Economies of scale in action: empowering specialist lenders through strategic outsourcing

By Tim Bowen CEO at Mutual Vision

Economies of scale were the main drivers of corporate gigantism in the twentieth century. They were critical to Henry Ford’s revolutionary assembly line.  And they remain fundamental to the provision of technology to this day.

Outsourcing is not a new phenomenon either.  Companies have outsourced their advertising, for instance, for almost as long as advertising has been in existence.  But the appetite for outsourcing has grown recently.  In 1946, only 20 per cent of a typical American manufacturing company’s value-added in production and operations came from outside sources.  Within fifty years, that proportion had tripled to 60 per cent.  Much of the increase has come from the outsourcing of tech functions: many companies outsource the provision of technology to third parties like Mutual Vision.

Why bring up these two concepts?  Why lump them together? Because outsourcers benefit from the economies of scale inherent in the model — and that’s one of the things helping us level the technological playing field, on behalf of our small to midsize lender partners, with the big Tier 1 banks.

A third party like MV can gain enormous economies of scale by pooling the research and design activity of a large number of firms.  This makes it cheaper for individual lenders to outsource specialist activities — where they cannot hope to gain economies of scale on their own — than it is to carry them out themselves.  We can help  small lenders to develop technologies for which they could not justify hiring full-time employees. It’s no accident that, quite aside from our partnerships with lenders like Streambank and Kingdom, we have worked with 23 of the UK’s 43 building societies.

On top of that, of course, we are specialists.  We can stay abreast of the latest developments in our field.  Change is so rapid that in-house teams within building societies and other specialist lenders are hard pressed to keep up with it.

The best example comes in the form of our new banking platform, MV Solar, which you may have read about in the mortgage and fintechpress.  With the launch of MV Solar, we are giving specialist lenders access to a ready-made banking platform that can be  tailored to their needs.  Our lender partners don’t have to build a new, bespoke version from scratch — we have developed one centrally.

That’s inherently more efficient.  As any MBA will tell you, economies of scale can produce radical reductions in unit costs. Globalisation may well allow us to cut costs even further — by serving ever more lender customers and spreading R&D costs more widely (indeed, we’ve already worked with The New Building Society, in Guyana, albeit on a different project).

So we can now help smaller, specialist lenders compete with larger lenders at a fraction of the price digital business transformation firms would charge. Pooling investment in technology and deployment of efficient cloud native technologies has helped keep costs down.  Without the MV Solar option, many building societies, for instance, would find the cost of digital upheaval prohibitively expensive — and that will ultimately lead to stalled growth and organisational stagnation.

Our online banking facility allows our lender partners to provide an omnichannel experience to their customers, meeting digital demands of their customers and offering them the instant gratification they desire.  It’s what lenders need and by outsourcing the work to us, they can save a great deal.  I am reminded of a piece in The Economisthighlighting the case of a bank, here in the UK, that decided to outsource the origination, packaging and servicing of all its personal loans, both old and new. The savings were dramatic; it cut the average cost of processing by over 75 per cent.

It’s just another example of the symbiotic relationship between tech outsourcing and economies of scale has reshaped the digital banking landscape.

Mutual Vision’s model offers specialist lenders a competitive edge in today’s technology-driven world — a way to fight back against the banking Goliath who have outcompeted them on the digital battlefield for so long.

By leveraging the benefits of outsourcing complex tasks to specialised third-party providers like Mutual Vision, lenders can tap into cost efficiencies and innovative capabilities that might otherwise remain out of their technological and financial reach.

Using economies of scale, we can empower small to midsize lenders and offer them access to cutting-edge technologies and services — driving operational efficiencies and enhancing customer experiences.

Tim Bowen