Increased competition in the growing broker market seems to be exhibiting signs of pressure on lenders as well as brokers in 2017.
An increasing number of acquisitions and mergers in the UK leasing market, competition on pricing of deals, and a rapid entry of new lenders into the market with new banking licences mean that pressures on the funding chain have started to rise.
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In September, Bibby Leasing managing director Carol Roberts told Leasing Life that the funder was rebalancing towards direct sales in light of the significant changes to the broker market, with changes to the balance expected to come into force in 2018 after recruiting new personnel.
“We have deliberately moved that to a different model, so that we go directly to the customers and the vendors,” Roberts told former reporter Saad Ahmed.
A great deal of this direct strategy is driven by necessity – a large number of brokers have been snapped up by private equity houses, which has removed a great deal of origination from the market.
Roberts suspected that Bibby was not the only funder taking this route. The withdrawal of some of the larger “superbrokers” has led to a shortage of originations across the market, she said, as they then began to build their own lending portfolios. “A lot of the brokers have been bought up by the private equity houses; so much of the origination has gone out of the market as they try to build their own portfolios. We have to find our leads and customers elsewhere,” Roberts said.
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By GlobalData“I think generally that most funders will look at their business model at the moment and consider where they will get their future business from,” she said.
“It is a moving market with the way that all of the superbrokers have been bought over the past three years. I would think we are not the only business doing it.”
As another example, at the start of November, Maxxia made a public call to brokers to join their business. Julian Humphreys, chief revenue officer at Maxxia, said: “We are looking for experienced asset finance people that will add further value to our business.
“You could join the Maxxia Group as an agent, as an appointed representative, or you could introduce business to Maxxia for us to transact through selected relationships.”
Maxxia itself has acquired CLM Fleet Management, Anglo Scottish Asset Finance, Capex Finance, and Eurodrive Motor Finance.
It is a sign of the times that even the architects of the M&A activity in the broker market are themselves making calls for new leads and contacts in the broker market. And the pressures also apply to the capital used to lend to businesses. At the start of November, Shire Leasing expressed an interest in potential new equity into the business, with all options on the table, from a sale to new funding partners.
Although it looks like a sale exploration, it is also the first of the broker-turned-own-book-lenders which have made an explicit call for funds to lend out – for fuel for their business.
With so many direct lenders making entries into the SME marketplace, or lenders that have acquired distribution wings, there are some superbrokers which might find that the larger credit lines that funders formerly signed off to aspirant broker-funders are harder to secure.
Additionally, larger institutional investors and banks, which may have lent capital through the leasing market, have been throwing it into peer-to-peer alternatives such as Funding Circle and MarketInvoice, seemingly willing to take the risks associated with the peer-to-peer market.
The question about changing priorities must be in the back of the mind. With the former lender-broker model changing into something less well defined, what of the change in the relationships between superbrokers – the new lenders – and bank lenders using brokers, which are seeing their revenue retract and their lead generation drop?
Both sides valued the relationship for decades, especially so in 2013 when the slush of cheap capital really hit the leasing market and brokers were spoilt for choice among panel funders fighting for deals.
It is a fluid market, and those who take the biggest chances – and risks – will cut new territory in its setup.
