The Leasing Life conference this year saw an industry grappling with a rapidly shifting future, and searching for answers to several key questions. Saad Ahmed reports on the event’s key themes and discussion points, and finds an industry questioning basics such as its name, nature and definition
“The revolution is ahead of us,” declared Marie Christine-Ducholet, chief executive officer of Société Générale Equipment Finance. “A lot of new opportunities are coming.”
The Leasing Life conference this year took place in Paris, the prototypical city of revolution. Bringing together the leading lights of the asset finance industry, the conference sought to address a changing landscape.
Reporting from my first Leasing Life conference, I saw an industry looking to change and embrace new developments, and wondering how to do so. The Leasing Life conference 2016 assessed the changing landscape of the leasing industry throughout Europe, considering factors that were beginning to impact upon the way banks and lessors conducted their asset finance business.
The rise of fintechs, impending Brexit, and a change in the way businesses used technology and products all presented challenges, and seemed to warrant a renewed and radically different approach to funding and business practice in order to meet the needs of SMEs and other customers.
Themes of disruption and usership, of the Fourth Industrial Revolution and the Internet of Things weaved through the talks, and all hinged on one overarching concept. In Paris, it seemed, the revolution would be digitised.
State of the industry
Françoise Palle-Guillabert, délégué général at ASF, began the proceedings, delivering a welcome address, assessing the state of the leasing industry in Europe.
“In 2015 in Europe, total new leasing volumes reached €315bn,” she said. “This represented a significant increase of 9.4% compared to 2015.”
Palle-Guillabert noted that Europe represented the second-largest market in the world, coming just after China, for leasing.
Equipment leasing was the focus of her speech, stating new leasing volumes had increased by 10.3% to circa €300bn.
“This represents double-digit growth,” she said.
Fintech was the word when Ducholet delivered her talk. She urged attendees to adapt, saying: “We need to transform our business process” in the face of developing fintechs.
Posing the question: ‘Are fintechs a threat or opportunity for leasing?’, Ducholet answered by saying through fintechs, lessors could find a new way of working. The threat of fintechs would resurface later on.
From BNP Paribas Leasing Solutions, global head of business lines and member of the executive management committee Pascal Layan considered how leasing businesses could develop in the international market.
Though noting 14% growth of the leasing market in Europe, Layan considered ways in which this could be increased. He stated that the way some European banks considered asset finance had an adverse effect on the profitability of the industry.
“When I look at the competition, especially on the continent…it’s getting tougher,” he added, stating that in many banks, leasing was seen as a means to ensure customer loyalty.
“It’s a way to keep the relations, not a way to get additional revenues. That is becoming a big problem when I look at asset finance coming from banks, and it is influencing our profitability.”
IFRS16, the upcoming lease accounting standards, were mentioned by Layan. Although he stated it was hard to conclusively assess the future impact of the standards on the leasing industry, he argued that they would not affect the benefits of leasing, such as maintaining cash flow.
Peter Hupfeld, Nordea Finance’s chief executive, explored how leasing business could be made simpler through the use of digital techniques.
“Digital is going to change the market,” Hupfeld said, and unveiled Nordea’s 2020 digital strategy. “Big Data is on everyone’s agenda.
“Customer behaviours are changing. New players are coming into my business model,” Hupfeld continued, “It’s technology, it’s fintechs, blockchain.”
Hupfeld argued that this would drive transparency, and in order to compete, lessors must harness technology and lower their costs.
Expanding in the panel discussion, Hupfeld argued that using Big Data could improve profitability, and knowledge of customer requirements, allowing lessors to offer asset finance products when they were required.
The panel discussion included Hupfeld, Layan, and Bas Hoekstra, vendor relationship director SGEF, Jonathan Power, managing director, International Decision Systems, and Patrick Gouin, chief executive officer, Max&Tite International and senior advisor, Invigors.
The tightening of regulation and its likely impact on the leasing industry was raised in the session. Layan argued that factors such as higher liquidity ratio requirements made conditions harder for smaller lessors. He warned it could cause a concentration of business among the larger players in the market.
Europe and the future
Unsurprisingly, the ‘B word’ was on many people’s lips as Stream A of the second session, chaired by Per Dahlqvist, manager business development and marketing, Emric, began.
Brexit, although it did not dominate discussion, undoubtedly lingered. As Close Brothers Asset Finance spoke of European expansion, the impending UK withdrawal from the EU was mentioned – though it was not necessarily spoken of as an existential threat to the leasing industry.
David Bunker, assistant managing director at Close Brothers AF, stated that SMEs were adapting to the changing landscape, and urged greater and consistent support from other lessors.
“Close Brothers is very firmly in [Europe], and we’re looking to gain even further links with the European market. That’s why I think that Brexit is a very serious issue,” Bunker said.
Stating its plans to move into Germany and Ireland, Close Brothers AF vowed to advance through Europe, despite Brexit.
“Doing nothing isn’t an option. We’ve got to get on with the task in hand, and look at how to capitalise. At Close Brothers, we’re looking to grow our SME customer base,” Bunker said.
The circular economy took centre stage with Egbert de Jong, vice-president product development and lifecycle asset management at DLL.
Decrying a lack of urgency in the leasing world, de Jong said the industry missed the sense that there was a need to “really change”.
“We come up with ideas, and then it’s like pulling a dead horse. We all agree, as a leasing industry, that [innovation] is a great thing to happen, it’s what all of our customers want…we introduce it to our vendors, and no response,” de Jong said.
He impressed upon the attendees the need to be more flexible, to use data analytics, and embrace the circular economy.
“We should be willing to finance equipment through its lifecycle,” de Jong said, and also brought up the theme of usership as a model the leasing industry must adapt to.
Pascal Philippossian-Hardouin, regional sales manager Europe, Middle East, Africa, and Russia South at Cisco Capital, brought an international perspective, looking beyond Europe for global trends in spending on information and communcation technology (ICT).
Warning that “our industry is facing major challenges,” Philippossian-Hardouin stated that not all equipment lessors were poised to benefit from rising ICT spending by businesses.
Highlighting the digital shift in business, the Cisco speaker stated that “the hardware portion of ICT leasing will decline to less than 50%” over the coming years. He seemed to warn that lessors focused on hardware would need to change their strategy. “Not all equipment lessors will benefit from growth in ICT spending without a clear strategy,” he warned.
Per Dahlqvist, Emric’s manager of business development and marketing, joined the speakers for a discussion and Q&A session focused around the role of technology in asset finance. Bunker stated that Aldermore had worked through the changing landscape with both mainstream banks and other lessors, identifying a role to support SMEs who did not meet traditional bank requirements.
He also emphasised the need for digitalisation, saying: “We’ve heard…the role of technology and how that should be used effectively in our industry.”
“I see the role of the use of technology for assets that are a commodity as being really exciting,” Bunker added, “Close
Brothers is looking to fit in and play a role that sits in the leasing industry, but maybe not on the scale of some of our peers.”
Session three was chaired by Lindsay Town, chief executive officer of IAA-Advisory, and it was dominated by further discussion of how digital trends were poised to disrupt the leasing industry, and specifically how they interacted with usership models.
Carmen Ene, chief executive officer of 3 Step IT, began the discussions, explaining how 3 Step IT had embraced the circular business model.
“We resell 95% of the equipment that comes back,” Ene said, and reinforced the idea of ownership giving way to access and use.
Deutsche Leasing’s managing director, Thomas Stahl, spoke on how to overcome the challenges in the leasing market.
“How to overcome, and offer some thoughts and ideas, how we can improve in order to survive these challenges,” Stahl said, “challenges are the ‘new normal’ for leasing.”
Pointing to Deutsche Leasing’s over 60 years in existence, Stahl expressed that the industry needed to change and adapt to new developments.
“The liquidity of the market is huge, banks are entering our areas,” Stahl said. “Fintech and regulatory demands make our business more difficult.”
Fintechs, he said, were developing to a stage where they had begun to cover most aspects of bank operations. Asset finance was not immune to this, Stahl suggested. He suggested that the industry may have to embrace a more consumer-centric approach, pointing to shrinking margins to warn that the days of “earning money with money is not a possibility anymore”.
Digitalisation was slapped right back into the agenda as Rohan De Souza, vice-president at Greenpact, took to the stage.
“It is easy and cheap to transport data and extremely inexpensive to process,” he said. De Souza focused on the declining cost of data use and processing, and argued that it could usher in an era of ever-increasing connectivity between devices.
“By 2020, there will be 50bn Internet of Things devices connected. The next revolution is the industrial Internet of Things.”
The Q&A session involved the three session speakers discussing technology, and considering ways to address the challenges and opportunities of the digital realm.
A lease by any other name
Andrew Denton, chief executive officer of Alfa, chaired the fourth and final session of the conference, where the entire industry – or rather, its name – was called into question.
“What defines us?” was the question Lindsay Town posed to the crowd at the conference. Town told the attendees that they had to reconsider what they did and what they called themselves. “We define our industry too tightly,” he said.
“Leasing does not even come close to describe what we’re doing, or what we’re going to do.”
Drawing on the idea that lessors provided a service, Town argued: “Leasing as a finance tool has little value.”
Town’s remarks seemed to wrap up some of the themes of the conference. How could the leasing (or asset finance, or solutions) industry define itself and its purpose in a time of great upheaval?
With shifting technology and business practices and a changing economic landscape with new rivals, the question seemed all the more important.
The spectre of fintechs reappeared, as Town warned that they represented a form of ruthlessly targeted competition.
“Competition can arise in a very targeted way very quickly, and very, very effectively,” Town said.
Town’s talk led into the final swing of the Leasing Life conference, as Layan, Rees, Ene, Hupfeld and Carlo van Kemenade, chief operating officer and member of the executive board at DLL, joined Town for the CEO panel debate.
Denton commenced the session with the question: “What industry do you think you work in?”
Hupfeld remarked that the labels of ‘leasing’ and ‘asset finance’ conferred practical restrictions, in the form of more restrictive regulation.
Part of the potential threat of fintechs was significantly lower regulatory constraints, meaning they could participate in more activities, with a lower regulatory burden.
“We are, as an industry, constrained by that label. Regulators try to put me in an industry. We need to educate regulators,” Hupfeld said. “Fintechs aren’t regulated the same way.”
The panel revisited the themes of the final session and of the conference overall, speaking of the need to embrace digitisation and other developments in order to confront changing economic tides, rising competitors, and the changing needs and business requirements of lessees.<