Throughout its 13 years of existence, the Leasing Life Conference has covered the market during the finance market boom in the mid-2000s, the tumble during the crisis, and then the road to recovery.

The industry has come a long way since the recession: asset finance business across Europe reached a total worth of €164bn in the first half of 2017 – a 10% year-on-year growth.

The Netherlands is a prime example of strong industry recovery, having doubled its half-year figures to €3bn since 2010, according to national leasing association NVL. In light of this, Amsterdam provided an excellent backdrop to this year’s conference.

“The good news about the Netherlands is that we do not have any legal restrictions around leasing,” says Stephan van Beek, NVL president. “That gives a person the flexibility to start a leasing company tomorrow, if they want to.”

The bad news, he continues, is that new, tighter regulation is incoming – just like in the rest of Europe.

This and other changes could mean more hurdles for asset finance, especially in the SME segment. But there is also opportunity to embrace streamlining and stimulate solutions. Challenges are two-sided coins: a theme that recurred throughout the conference.

No cake slices left?

The asset finance market in Europe for 2016 was worth €333bn.

“Amazingly, it is exactly the same figure as 2007, just before the crisis,” points out Pascal Layan, global head of business lines at BNP Paribas Leasing Solutions.

Is this an ominous warning that another crash is just around the corner? Layan says he is not sure: despite uncertainties like Brexit, investment across Europe keeps growing, and forecasts for the near term are positive.

That does not mean everything is rosy. According to Leaseurope’s data, lessors’ revenues have grown on average 2%, against a 6% rise in operating expenses. Layan attributes this to multiple factors. First of all, with the exception of a few markets like the UK, margins are declining. In places like France, Belgium and Germany competition is fierce, and financiers are often content with maintaining customer loyalty rather than seeking out higher margins.

Furthermore, says Layan, the cost of risk will likely plateau, leaving little room to improve profits on that front. At the same time, the cost of doing business will increase: compliance with IFRS 16 and General Data Protection Regulation (GDPR) will inevitably weigh on expenses, as will protection against the growing threat of cyberattacks.

Regulation in particular is increasingly shaping the dynamics of competition: companies that are either regulated heavily, moderately, or not at all are competing for the same customers, creating uncertainty when it comes to future consolidations.

If more established players want to keep their edge, Layan continues, they need to use all that is available in terms of technology, to become more efficient, reduce overheads and produce new business models. Concepts like the sharing economy and the usage paradigm will become increasingly influential, and lessors need to dare in order to keep pace.

“If we do not experiment, if we do not try, we will not be able to adapt,” Layan says. “I have no certainty on an eventual success, but I believe we need to try. The cake could be bigger if we are able to launch the offer that customers are expecting.”

The sustainable path

With global population forecast to reach 9 billion by the middle of the century, lessors need to rethink the lifecycle model of their assets: the linear model, which begins with the raw materials and ends with waste, is not sustainable anymore.

Going forward, the world has no choice but to shift to a circular economy. “We call that ‘closing the loop’,” says Petran van Heel, sector banker for construction at ABN Amro.

For its part, the leasing industry needs to embrace the idea of ‘product as a service’, which inevitably requires longer-term contracts where the lifecycles of the assets – and its materials – are monitored all the way to recycling, or a new lease.

Of course, that kind of change will not come through industry roundtables alone. “Every day I hear colleagues and customers saying that the world is changing rapidly, that we are going to see disruption, that we have to be ready. But I very rarely hear a question on how we get there,” says Rick van Hemert, equipment specialist at ABN Amro Lease.

“Asset finance is a very transparent, easy-to-understand product that we can adapt to future demands.” The industry can lead the way when it comes to sustainability paradigm, he says, before telling colleagues in the room: “Do not become a thought leader: stay an action leader.”

A journey to digital

One of the areas where asset finance needs to act promptly is, arguably, digitisation.

What customers experience in their everyday consumer life, they also expect of asset finance companies, says Bas van Asseldonk, DLL executive vice-president for Europe – and digital propositions should strive to meet those expectations. “When we [DLL] talk about technology with our vendor partners, we constantly say that we need to go back to the end-users,” Van Asseldonk notes. “Who is using it, and what is in it for them? To understand that, we put together customer journeys, and explored what parts of it we could influence using digital technology.”

Achieving a digitised customer journey is much more complex than creating a mobile app, says Van Asseldonk. “We did a lot of tech refresh programmes internally to make sure our technology were prepared for the future,” he says, citing the difficulties DLL encountered in having its legacy systems communicate with the new ones.

“We want to try, to learn fast, to think big,” he continues, “but my team needed to learn to think digitally in the first place.”

But digitisation should not turn into a self-serving craze. Companies should still keep in mind that digital is just a tool, as Jochen Jehmlich, chief executive officer of Société Générale Equipment Finance (SGEF), puts it.

“We do not build digital solutions because they are fun to play with,” says Jehmlich. “We do it with the idea that our lives, or customers’ lives, get simpler.” Beyond buzzwords like AI and blockchain, the focus should remain on examples of concrete applications.

Financial services firms should not fall into the hype trap. The future might be behind schedule, says Jehmlich, but good applications for tech take time. Pouring venture capital into fintechs, even when regulatory compliance and other costs ultimately make them unprofitable, is not a feasible strategy for the asset finance industry.

“The Tesla and Uber model does not work for banks,” says Jehmlich. For an organisation like SGEF, it is crucial to understand how far down the supply chain new solutions go – whether vendors actually use software suites provided to them, and whether the customer is interested in liaising digitally in the first place.

Additionally, banks have some major expectations to meet to when it comes to customers’ data, which can make balancing privacy and digital innovation tricky. With GDPR coming in, firms should really think about what kind of data they are allowed to show to clients and vendors.

However, that does not mean that firms can rely on database exclusivity as their main competitive edge. Carmen Ene, chief executive officer of 3 Step IT, says the financial services industry is an “ecosystem” of partnerships, where borders and roles are increasingly blurry. Enabling these collaboration-driven dynamics are the APIs, little “openings” into a company’s software that provides partners with a window for “plugging in” their own system.

“This is the era of APIs,” says Ene. “It is very easy to open your data to other companies.” Conversely, one can access a partner’s data and find information that they would not otherwise have internally.

Daring to risk

Innovation, however, inevitably requires stepping into uncertain territories. Faced with a blurry picture of the future and a path that still needs tracing, it can be tempting for a company to retreat in to familiar business practices and avoid exposure to risk.

But risk can be understood, sized and managed. Major lessors have the most comprehensive view of the industry’s supply chain, says Patrick Beselaere, global head of leasing at ING Lease Belgium.

That makes them the ones best placed to demystify risk, both in the eyes of people in their own business and to partners. If risks are properly explained when arguing for a new initiative, they will eventually be accepted, he says. “Risk is not an enemy – it is a partner.”

International financier groups will be able to manage risks on their own, but smaller players might need assistance with their intelligence. Bigger lessors can help, says Beselaere, providing their insights – in the leasing market and beyond. That covers not only the sales process, but regulation as well.

Complying with regulation also makes a company knowledgeable about regulation. That knowledge can then be lent to vendors and other partners to navigate the compliance landscape.

The desire to innovate in asset finance is strong, as is the business case behind it, says David Fletcher, vice-president for sales at Dealflo. Yet distorted perceptions of risk still hamper the drive for change.

“There is a huge fear factor in financial services around doing things incorrectly – the fear of fines, of regulators, of doing something that is outside the perceived good way of dealing with customers,” says Fletcher.

He aggregates these fears around four areas: legal, fraud, compliance and enforceability. Businesses tend to overblow risks, especially when it comes to removing the human element from the sales process, with e-signatures, automation and the like.

If asset finance wants to make the graduation to a service industry – and consequently take centre place in the future circular economy – it needs to review how it conceives the associated risks.

“We are still focused on the value of money against assets. That does not add value nor distinguish us [lessors] from other parties,” says Nora Vermin, managing director at Deutsche Leasing Benelux. “We are currently only focused on a small part of the customer’s value chain, and we can improve it.”

Currently, Vermin says, the machine segment of asset finance revolves around leasing assets with a definite value. “We are a little bit scared of financing ‘air’ into the contract,” she says, meaning immaterial parts of the contract like servicing and lifecycle management.

But including such elements can be beneficial not just to the customer, but to the lessor’s margins as well, by creating added value. “We cannot only look at the asset,” Vermin says. “Let us start developing concepts for ‘function finance’, where we offer solutions and functionalities to our clients. We need to build alliances for that – between us, but also with fintechs, manufacturers and vendors.”

Simplification providers

The “immaterial” complements that Vermin mentions are key to making asset finance enticing to a customer base that is increasingly looking for access to a service, rather than ownership of an asset.

“Customers,” says 3 Step IT’s Ene, “are waiting for someone to come and simplify their life – to take care about everything, so that they do not get a headache.” It is a shift in mentality that Ene believes can provide tailwinds for asset finance, and its future product propositions.

The technology that can underpin the new service paradigm already exists. For instance, Ene mentions remote monitoring solutions that allow 3 Step IT to anticipate malfunctions in the lessee’s equipment, and address it preventively, rather than only following a prompt from the customer.

However, implementing such servicing infrastructure requires changes in how a lessor thinks and acts, which often encounter inertia. “Seventy percent of companies’ digitalisation projects fail,” says Ene, citing figures from consultancy McKinsey.

“One of the reasons is resistance, starting with executives all the way down to employees. A technology can exist for many years, but the willingness to adopt it is slower. It takes a lot of time to convince people to change.”

Customers, however, can only wait so long until an industry meets their needs, especially when expectations in the B2B area are being shaped by frictionless consumer experiences.

The challenge, says Dealflo’s Fletcher, is to give customers exactly what they desire: “A 24/7, on-demand business, making sure you are delivering an experience that is not [only] in line with your competitors in financial services, but with all other experience they [customers] see in their day-to-day business. Uber, Amazon – those are the customer experiences that we should replicate and exceed.”

Include the right people

But change is not just about technology, or mentality. It is also about people. The asset finance industry realises that it has a gender and ethnic diversity problem, and the leaders that convened to the conference clearly want to do more on that front.

How to do it, however, can be tricky to figure out. Lindsay Town, of IAA-Advisory, recalls his own experience in a leadership position: “Our business employed over 2,000 people. So statistically, we were probably diverse. But were we inclusive?

“I would always strive to review CVs blindly, but what I did not realise is that before they even got to me, those CVs were being filtered by recruitment consultants and HR departments.

“While I was trying to be inclusive, the system at the time was preventing it, and I only see it in hindsight.”

As a “woman trying to sell in a men’s world”, as she herself puts it, Carol Roberts, managing director at Bibby Financial Services, has witnessed first-hand the challenge of achieving a leadership position in a white male-dominated industry.

Moreover, she says, the status quo can only be shaken if companies start hiring more young people from a variety of backgrounds: “It is fine to come and say, let us do this or that [to improve workforce composition], but unless we train young people in our industry, we will not have the next generation coming through. The training we had back in the day was fantastic. What do we offer now?”

Improvement, Roberts concludes, can only come if figures in the industry come together and then reach out to other leaders.

Wrapping up

As the conference draws to a close, a lot of ideas – from the circular economy to leasing as a service – have emerged. The next phase is to go into the real world and implement them.

“All the themes are right and appropriate,” says John Rees, global head of sales and marketing at SGEF, “but now we need to execute. It is not easy, because we are trying to implement the same solutions across a number of different countries. But I think the opportunity is enormous, and executing all the things we have been talking about is the challenge.”

Richard de Keijzer, ABN Amro’s commercial finance managing director, goes further: “I agree that execution is key, but I think it is the bare minimum. It is your licence to operate.

“Next to this, if we want to survive and be successful, we may not be able to stick to the business model we used to have. We need to think outside of the box, about how to use our strength and capabilities in the new environment.”

To cope with constant change, and not be left behind, businesses will need to be ever-more agile. Digital development projects, notes Layan, cannot take two to three years anymore, confined to the IT department: software releases now need to happen every month, and involve the feedback of everyone from the back office to end users.

Leasing divisions can take the lead in agile restructuring drives. “Our parent companies are all constrained, boxed in, commoditised,” says van Asseldonk.

“We, as leasing businesses, can really provide propositions if we dare to step outside of our comfort zone.”

That includes opening up to fintechs, providing scalability, data and customer knowledge – while taking care not to become a fintech yourself.

At the same time, change cannot be forced on vendors’ and customers’. Feedback and cooperation are essential. “We cannot do this alone,” says Beselaere.

“I was a little bit frustrated by the response of my colleagues [to new solutions], because they did not see the benefit of new platforms.” It is of no use to just talk about transformation at roundtables if they are not put in action.

Rees says: “We are sitting here as thought leaders saying ‘this is where we think things are going to go’, but when you are out there in the fields, do your sales forces understand the new product, do they sell it? It is hard work to make the change.”

Asset finance may be advancing towards the usage paradigm, but in the meantime, it should not forget the basics of knowing what the customer wants in the modern marketplace.