In the first new monthly round-up on how
sectors are faring, Fred Crawley looks at
what is needed to make the ideal micro-ticket solution.
Micro-ticket leasing – an innovative
and profitable new sector for lease business, or just a way to
dress up small-ticket tech finance as the market continues to drive
down electronic equipment prices?
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Simply speaking, micro ticket (MT) describes
deals (usually involving technology assets) with a value of €10,000
or under. But ask anyone who champions the term, and they will tell
you that it is not just the deal size that defines the sector – it
is also the fundamental method of doing business.
Whereas SG Equipment Finance and Siemens
Financial Services are significantly engaged in the continental
sub-€10,000 market (primarily in the office and medical equipment
sectors, respectively), they retain the general business models of
their overall leasing activity.
Just two companies in Europe, however – Grenke
Leasing in Germany and Parfip Lease in Belgium – specialise in the
MT business model.
This is based on a large scale, high volume
sales operation designed to target small, high-margin transactions
which spread risk as widely as possible.
Kevin Kennedy, director of tech finance
consultancy Clearcape and former head of Grenke’s UK business, says
that the key to success in MT is to borrow elements of the
business-to-consumer (B2C) business model.
“Micro ticket,” says Kennedy, “uses all the
excellent B2B channel knowledge and portfolio management skill
present in the leasing industry, but delivers it through a B2C
workforce, with IT systems, marketing and customer service strategy
also adopted from the B2C model.”
In essence, he explains, this means two
things. Firstly, a direct sales force comprising highly
incentivised, non-specialised junior staff, backed up by a
B2C-style IT scoring system that provides them with all the
necessary information to make process-based, real-time risk
decisions on the spot.
Second, an extremely rapid and thorough
customer service set-up that adds significant value to a highly
simplified product. The result? Justifiably higher pricing, without
the need for discounting in the face of competition, due in part to
the lack of other lessors working in the MT space.
Grenke certainly proved the robustness of this
model in 2008 when, despite the financial services sector being
dragged down into the flames of the mortgage market, it grew new
business by 18 percent (24 percent year-on-year in the final
quarter of 2008, no less, and 35 percent over the year in its
international markets).
“Micro ticket uses all the excellent B2B
channel knowledge and portfolio management skill present in the
leasing industry, but delivers it through a B2C workforce, with IT
systems, marketing and customer service strategy also adopted from
the B2C model”
Furthermore, Grenke proved the profitability
of the MT model, managing to exceed 2007’s €32.1 million profit
figure by €1 million, and delivering a return on equity of 13.5
percent.
According to Grenke, an effort has been made
in 2009 to actively reduce new business levels in favour of
promoting margins, which have now risen to a record high of between
13.7 percent and 19 percent.
Parfip is a much younger and smaller company
than Grenke, with an appetite for continued volume growth through
securing vendor relationships and improving the speed and
simplicity of its IT systems.
According to financial director Franck Lebled,
margins have stayed around the 10 to 14 percent mark since the
start of the global financial crisis, while new business has kept
growing rapidly, seeing a 45 percent rise in 2008.
Micro ticket business certainly seems to
deliver results for those companies prepared to specialise
themselves enough to pursue it, and if the market for larger-ticket
leases continues to stagnate, it may not be long before companies
like Grenke and Parfip start rubbing shoulders with the giants of
the industry.
