The growing number of entrants in the UK leasing market is having an effect on competition, pricing and market behaviours.

Alternative funders entering the small ticket SME lending market are turning to block discounting to help drive volume, and as a result, drive market share.

There’s been a lot of M&A activity over the past 18 months. The brokers that have benefited have had their own book, as well as growth in income from the business they originate on a day to day basis.

Perhaps other businesses which haven’t had their own book are now looking to rebalance some of their income; from short term broking business, into long term annuity income derived from a portfolio, says one head of asset finance sales at a UK bank, who told Leasing Life that the block discounting method was becoming increasingly more popular.

“If you look at the way that the broker market is operated, where we have historically played, there are a lot of businesses that have been bought up by private equity,” he said.

“Now they are using those platforms as a method to generate their own book, and they are using block in a large instance to do achieve their aims.

“Block is a very important funding method for these businesses to be able to effectively recycle their portfolio and keep lending.”

One of the attractions to the block discounting product is that it creates an income for the alternative funder, beyond the receivables from the leases it writes.

So UK mid-ticket and small-ticket players have had more competition, but have seen more business written through their block discounting product.

The source said: “The effect [of increased market competition] on block discounting is that more people are writing their own business, more people want to build their own books. So on the one hand, you lose a proportion that you would normally hadve through the traditional broker business, but see an uptick from other businesses, as block discounting is quite a nice hedge for self-written business.”

New entrants

It’s a badly-kept secret that there are new players in the UK market. A cursory look at who’s hiring at the minute gives a healthy picture of UK asset finance.

Virgin SME lending is recruiting far and wide and I expect them to announce a leasing presence this year. It’ll be an interesting proposition from the retail bank, and the market will be looking to see how much of the consumer acumen and ‘voice’ will be transferred across to its business proposition.

Market voices expect a big play from Santander’s corporate lending division this year, now led by former RBS deputy chief executive Chris Sullivan.

Growth abounds too at Dutch bank ABN Amro, which has been recruiting in the UK to build its UK Lease presence, and which is rumoured to be opening an asset finance business in France in 2017.

Meanwhile there’s been a lot of change in some other familiar places. Investec’s Mike Francis has been replaced by Andy Hart, who has a strong asset finance pedigree gained at Lombard and Shop Direct.

There was shock at the departure of Mike Randall from Close Brothers last month, after 22 years at the bank.

Now that his replacement Neil Davies is leading both the Leasing and Asset Finance divisions, questions will be raised about the possible integration of both units.

Brian Cantwell
brian.cantwell@uk.timetric.com