Industry figures assembled at the Metro Bank UK head office in Holborn to discuss the ever-essential need to adapt and grow with changing technologies. The event was hosted by the Leasing Foundation, a non-profit founded to provide assistance and advice within the asset finance industry. Chris Marchant reports.
Keynote speaker at the event was James Alexander, co-founder of Zopa, considered the world’s first P2P lending business, and current director of think tank and advisory business Future Agenda.
At the heart of Alexander’s talk was that the need for disruption is an ideal critical for any business, so as to ensure they are not left behind by other firms who may already be carrying out rapid and permanent change.
Alexander’s experience is set against traditional banks, which he feels were far too slow to adapt to the P2P phenomenon following the founding of Zopa in 2004.
“If you are innovating in an organisation, there is something dumb and easy about the power of a shared narrative,” he said. “Where have we come from? Humans get their confidence from the past, not from the future.
“How many disruptors were there in 2005 in a big bank? None. If you exclude all of those people, you are not going to innovate very quickly.”
The differences between Zopa and the big banks are inherently linked to the type of customers being targeted. Zopa hired social economists and ethnographers who identified a demographic subsection that had previously been overlooked. Zopa defined this category as ‘free formers’, and Alexander described them as “propelled by their own self-reliance, they were independent and didn’t believe in the lifestyles their parents had led. They were looking into leading fulfilled lives, making choices that they loved”.
Explaining the motivation behind using the experiences of these free-formers to shape a business model, Alexander continued: “Clearly, we are living in the digital age right now, in an increasingly resource-strained world. In each of these explosions of technology, what tends to happen is that the technology gets laid down and over a period of time society shapes itself around it.
“You went to school, then college, got a job for 40 years, got a pension, died. That isn’t going to be the norm for the next generation, and of course, we can see that showing up all around us.”
On why he wanted to change traditional banking, Alexander offered a London-centric analogy: “Imagine going to an Oxford Street store with no shoes anywhere. You walk in and ask for size 38 black. Someone goes off behind the counter, comes back with size 40 red, and says that will be €110. What a ludicrous retail experience that would be! But that is the equivalent in banking.”
By comparison, Zopa offers an experience for the consumer that could integrate them. Essential to this is gaining consumer trust and support, of which digital technology could be a key component.
“Right from day one, we had an open discussion board on our website,” said Alexander. “That was an amazingly powerful thing. If we did something right, they could say: ‘Well done, keep it up, keep it going.’ If we did something bad, they would slam us. That sure is an incentive to get it fixed quickly.
“Users also started to get interested in what we were doing, and started to help. You wouldn’t believe the amount of business-development ideas and what-we-should-do-next ideas that came from that community.”
Not only was Zopa differing itself from traditional banks in its utilising customers to the point of creating a fan base, but there was a desire to reward investors on the other side of the transaction, providing equity to certain early lenders, “as they were taking a risk”.
Today, more than £4bn (€4.68bn) has been lent through Zopa, and there are more than 1,000 P2P lenders worldwide. For Alexander, this is representative of changes seen throughout industry in the West, the 21st century embracing a new way of doing business.
“In the post-war world, large companies coveted hierarchical market power, and size was everything – from the huge Walmart stores across America to having towers in Canary Wharf,” he explained. “Arguably, from 1970, it was also about prioritising short-term shareholder value.
“This is now a new consumer age, that will have a different logic, causing a gale of creative disruption. Disruption is hugely inconvenient. Along comes along a stupid short name, dismissing legacy technology, and invents something new that people love.”
Giving a single-sentence summary of what the Zopa, Uber, AirBnB and equivalents across a wide range of industries represent, Alexander said: “Disruption is about a market ceasing to function in its established way, and that is typically demonstrated by rapid large and irreversible changes.”
The second part of the Leasing Foundation Innovation Initiative was a panel building on Alexander’s themes of digital disruption, and the opportunities presented by these changes for an improved customer experience.
Chairing the panel was Ylva Oertengren, chief operating officer at Simply, an organiser of the event and member company of the Leasing Foundation. Participating were Justin Fitzpatrick, chief executive officer at business information provider DueDil; Karima Haji, director of Auto Novo; Ben Sher, managing director – EMEA at Cloud Lending Solutions; Matt Hicks, commercial director at accounting and bank data provider Codat; and Martin Bartlam, a partner at DLA Piper.
From a background in motor finance, Haji was able to trace a trajectory of a business not dissimilar from Alexander’s own account of banks finally facing a need to improve and adapt their digital output. “Traditionally, motor finance had been quite stagnant over the years,” she noted. “You’d walk into a dealership, you’d want to smell the car, touch the car, assess its affordability, and then you’d go off to a finance professional. If it was a yes, you would wait 12 weeks for a car and then hopefully it would arrive in time undamaged. You would go in and sign all your documents, and only then could you drive it.”
A perennial issue for the consumer business relationship has been the tedious nature of procuring key information, a process described as “document tennis” by Hicks.
Noting how digitisation has changed transactions for consumers, Haji said: “Before, you would walk into a dealer and walk over the brochure on three or four different models. Nowadays, you can go online and see what the availability of those stock vehicles are. The whole process is a lot faster; it is speedier, and consumers then want that instant gratification, and that is what we are giving them now.”
Fitzpatrick was also able to identify key ways in which digital developments can overhaul the sourcing of information, saying: “What DueDil sees across financial services in particular is a very gated customer experience. Because a lot of organisations don’t actually know that customers are going to know the people that they want to be approaching, you are really reliant on them to give you the information you need to be able to get through that journey.
“Where DueDil has helped clients to radically transform their digital customer experience is being able to interject the data on that business and the individuals behind it, so you can start running these processes and parallels. Rather than waiting for the company to give you some of their information and they have a back and forth, you are able to repopulate all of the information on that business.”
Representing Cloud Lending Solutions, part of a technological shift which – like P2P before it – has the potential to revolutionise the lending sphere, Sher said: “When a firm is considering a technology change, historically many large companies would look at implementing a new technology platform. Cloud lending takes this operation and does it faster, cheaper and better.
“The real value-add in looking at a technology partner and programme of change is to take the opportunity to assess a business model in five years’ time and figure out how to get there. That is the real value of a technology platform.”
All the speakers present were in unison when speaking of the need for change, and there was also an understanding that leasing as an industry still has much catching up to do. This cannot be achieved by a simple embracing of the status quo, but neither will anything be accomplished with rash adoption of the latest trends.
Those attending and members of The Leasing Foundation must readily and rationally introduce technology from P2P and cloud lending in order to become truly future-proof.