Peter Thomas, executive director at the Leasing Foundation, reports on the organisation’s attitudes and responses to the type of disruptive technologies that are set to dominate the leasing industry in the coming years
If you have been reading my columns for Leasing Life over the last year, you will have recognised that my view is that technologies – some of them emerging, some of them established, such as AI, blockchain, Big Data, XaaS, the Internet of Things (IoT) and connected assets, cloud computing, mobile devices – will be the catalysts of change for asset finance, and will present the greatest challenge for incumbents.
One outcome may be that fintechs own the future; the other is that incumbents embrace digitisation and survive and thrive.
Around the board table at The Leasing Foundation we are fortunate to have business leaders who are thinking about these issues every day, so I asked for their answers to the question: “Who owns the future?”
The view of Ian Smith, CEO of 1pm, is that building digital capability and thinking beyond the boundaries of asset finance are both essential. As he says: “Those that successfully combine digital capability and breadth of finance solution are those that will endure and will shape the industry in the future.”
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Smith’s view is that it is not pure fintech, but improvements in basic automation and decision-support capability that are most needed. For him, that asset finance is behind the pace in some commercial lending sectors compared with consumer lending.
He suggests that “the days of sole product leasing, or loans, or vehicle finance companies are numbered”, a view echoed by Peter Alderson, managing director of LDF, who comments that “a broad-solution approach is how the market is moving”.
Those that survive need to orient themselves more to providing solutions to customer needs rather than seeing the world from the perspective of established products.
This evolution from product to solution, and the disruption of the traditional ‘asset finance provider’ is something echoed by Andrew Denton, chief executive officer of Alfa. From his perspective, one of the biggest changes, paralleling other industries, is unbundling.
“You do not need a back office if you are a PayPal or an online challenger bank, or a front office, and so some of the big asset finance companies may become become engine rooms.” Instead, he suggests, customers will interact with finance solutions from a range of diverse players, who will not necessarily be asset finance companies, and who can provide better customer experience, have access to a wider market and can use their investments in technology to more effectively identify and serve customer needs.
What emerges in these comments is a recognition that the asset finance industry is behind the curve in terms of exploiting new technologies.
But it is not just about operational efficiency or channels to market. Joanne Davis, head of asset finance, leasing and consumer finance at Locke Lord, points to the fact that the changing regulatory landscape also demands a fluency with new technologies, which is absent.
“We are vulnerable in the hands of the regulator,” she says. “Our operational systems, controls development and data and evidencing capability needs work. Investing here will support the industry in the long term.”
Looking beyond technology, she also identifies a concern that has been repeatedly discussed around the Foundation board table, at many industry events, and in almost every conversation I have: the desperate need for product innovation.
She says: “Our leasing products need a lot of work now, and the concern is that we are not ready to provide for evolving customer demands. Unless we evolve I have concerns over the asset finance product.”
One of the ways evolution is taking place is the growth of consumption-based models. The most visible place where this is happening is in high-tech, where the measurement, billing and collection of pure usage is emerging in place of traditional finance solutions wrapped around assets, and will be part of a future of connected assets and the IoT.
Ricoh Europe’s director of leasing Sharon Butler says “the subscription economy may be the future in terms of financial offerings – as opposed to the current financial products and the heavy operational infrastructure required to deliver these offerings.
And, to echo Davis’s comments on regulation and technology, she adds that “if subscription models become the norm, it could also take care of the bulk of the lending regulatory and IFRS worries of today”.
Vendors are currently the best positioned to take advantage of consumption-based models, but for other players and other types of assets it may be more difficult to match the type of asset with customer needs – and do this profitably. There is a natural scepticism over whether all, or a significant number of, commercial customers would be willing to fully embrace the subscription economy – but if they do, it might provide opportunities for the asset finance industry to align with an emerging customer need.
And so, beyond product evolution, and exploiting new technologies – which all of those quoted above agree is necessary and inevitable – the real evolution for asset finance as an industry is in new business models.
“Whoever can pivot their business model, or come to market with a new business model, rather than just a new offering, is where disruption for us is likely to lie. This is where new entrants have a massive advantage. Incumbency has never been less relevant.” says Butler.
So who owns the future?
The picture is confusing, changing rapidly, and everyone is learning as fast as they can.
Previously I have suggested that incremental evolution is not enough to ensure success, and that the pace at which customers are migrating towards services that offer better user experiences and sophisticated personalisation, and away from what they see as old-fashioned manual ways of interacting with finance, is increasing.
One thing that is certain is that traditional asset finance companies must evolve, or be left behind – as so many established businesses have been in other markets.