Human vs automated
underwriting

In the present environment,
predicting insolvencies is a big challenge facing lessors.Credit
reference agencies are currently selling services that identify
significant decreases in customer creditworthiness, enabling
lessors to flag customers at potential risk by tracking a decline
in creditworthiness over time.

A couple of CIOs commented that even with
these services, predicting insolvencies is difficult. One lessor
has looked at the possibility of running agents across their ALFA
database (CHP Consulting’s flagship product) to give them an early
warning, but it still has proved very difficult to predict events
based on the information available.

This is an issue that all independent lessors,
and several bank-owned ones, face. Leasing subsidiaries of banks,
which have a wider relationship with customers, are theoretically
at an advantage in that access to current account data can provide
information on potential problems.

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In practice though, there is little evidence
that banks’ leasing and current account systems are linked in this
way.

Feedback from lessors indicates that, in
general, existing leasing systems are effective at an operational
level in managing transactions and have allowed them to squeeze the
maximum efficiency out of existing processes.

However, the financial crisis has bought a new
imperative to portfolio management with the need for a thorough
understanding of the business, including which elements are
profitable and which ones are not.

Dashboards

The visual presentation of corporate
metrics, such as Key Performance Indicators (KPIs) to executive
management teams using dashboards, has been commonplace for several
years now, and there are a number of well-established information
management tools to deliver this.

“We pride ourselves on having a better
than average service so a lot of our emphasis is on that service.
The best way of maintaining it is to make that service level
visible to the people providing it so you’ll see more plasma
screens with dashboards on round this place”

However, our interviews revealed a desire
among certain CIOs to extend this capability to more operational,
frontline staff, particularly where service quality was seen as a
key differentiator.

As the CIO of a pan-European lessor explained:
“We pride ourselves on having a better than average service so a
lot of our emphasis is on that service. The best way of maintaining
it is to make that service level visible to the people providing it
so you’ll see more plasma screens with dashboards on round this
place. Managers can see instantly if they’ve got things that are
going amber on service.”

Delivering service level data to operational
staff is proving to be a bit more of a challenge compared with
executive dashboards.

High-level metrics are extracted and
aggregated from leasing systems using standard BI tools on a
monthly or, at most frequently, a daily basis. Operational
managers, though, require service level data in real time.

One lessor commented: “There’s no point in
having a dashboard of information extracted from ALFA two minutes
ago if you’re going to make a decision instantaneously on it.”

While the lessor was able to use business
objects to extract this data, there was preference for the
functionality to be provided within ALFA as this was considered to
be a cleaner and speedier approach.

Risk-based pricing

The varying impact of different
industry sectors is leading some lessors to look again at more
scientific risk-based pricing.

“Our pricing tools allow lessors to apply
different margins based on the risk of the lessee. We are seeing a
lot of lessors spending time looking at features that have not been
used for years,” said Nick Pattenden of Field Solutions.

“If they are using a scientific method to get
from the lessee risk rating to the pricing, this remains a dark art
within their credit departments.”

Not everyone is convinced of the need to price
for risk at a transactional level though, particularly for
small-ticket business. One lessor explained how it sets its price
at a portfolio level and uses the sophistication of its analytical
tools to determine the optimum price for a particular asset class
and type of customer.

In his words: “It’s simple to work off a rate
sheet, it’s simple to say all deals in this market sector must
achieve this rate of return, rather than getting into a rate for
risk at a transactional level.”

Virtualisation

As with all costs of business, IT
has been under increased pressure to do more with less. Software As
A Service (SaaS) and even Cloud Computing offer one way to reduce
costs.

Many standard business applications can be
rented as a service such as e-mail (for example, Google apps,
hosted Microsoft Exchange servers) and Customer Relationship
Management (CRM – including Salesforce.com and NetSuite).

The attraction is that they can eliminate the
capital costs and fixed overheads of in-house infrastructure.

The usage costs are on a sliding base (usually
“per user”) – both up and down – which offer an advantage over
traditional hosted solutions.

However, the higher data security standards
for Financial Services have deterred many lessors from a wholesale
commitment to SaaS.

Virtualisation is another technology for
elimination of infrastructure and data centre operations costs.

Rather than having racks of application
servers and powerful desktop PCs – often running at below 5 percent
average utilisation – these can be consolidated onto larger
servers, divided into independent “virtual machines” using software
such as VMware, Microsoft’s Hyper-V and Sun’s xVM Server, together
with Virtual Desktop Infrastructure (VDI), which has just been
acquired by Oracle.

Virtualisation has many benefits. Not only can
it reduce hardware costs through the more efficient use of existing
equipment, it can also reduce support staff costs, too.

One CIO mentioned that, in the UK, his
organisation was already fully virtualised at the server level and
was pressing ahead with implementing desktop virtualisation as
well.

He added: “I have a ratio of IT support to
users here of 1:75 which is quite an extreme ratio, but we don’t
have a backlog and we’re regarded as quite agile. Things like
virtualisation allow us to reduce the need for so many skilled
people.”

Given these benefits, it was unsurprising that
virtualisation technology was one of the hot topics at the ELFA’s
Operations and Technology conference in San Antonio Texas in
May.

Web 2.0 technologies

Web 2.0 is a term applied to a range
of technologies that provide a new generation of Internet-based
collaboration and networking services. Many of these are popular in
the consumer market, particularly social networking sites such as
Facebook and MySpace.

Some of this is now making its way into the
leasing industry, as demonstrated at the ELFA O&T conference,
which showcased a number of new technologies including Web 2.0
collaborative software.

Key Equipment Finance’s WiKey was an award
winner. This used Wiki technology – as used by Wikipedia – to
provide a global intranet offering a structure that can change
organically with the organisation by user contributions.

Wikis have obvious applications within
businesses, but it remains to be seen if social networking can be
used to engage business customers.

However, it has certainly found a use for
business networking within the leasing industry with specialist
sites such as the LeaseBlog together with leasing special interest
groups in more generic business networking sites such as
LinkedIn.

And Web 2.0 is also being employed to keep the
industry up to date with Leasing Life news headlines via
the micro-blogging service Twitter.

Definition: What is
virtualisation?

Virtualisation means running
software within a virtual environment. Virtual environments are
created when operating systems and desktop applications are
emulated, and do not run directly on physical hardware.

When software is virtualised, you
can run several applications and operating systems on one physical
server. Virtualisation can be applied to servers, applications,
storage and desktop systems.

The main benefits of virtualisation, from a
business perspective, are reducing operating costs and enabling
existing hardware to be used more effectively. Specifically, they
include:

• Consolidating servers – for example, several
operating systems or applications can be run on a single server,
thereby increasing its utilisation and cost-effectiveness.

• Hosting legacy applications – for example,
ones that need to run on older operating systems on modern
hardware.

• Better business continuity – the flexibility
of a virtual set-up helps reduce scheduled and unscheduled
downtime.

• Being greener – fewer physical servers and
storage devices means a smaller carbon footprint.

Over recent years there has been less
desktop-based computing due to its inherent costs and support
issues.

There is now a strong desire among IT managers
to regain control of their IT resources, driven in no small way by
the need for greater efficiencies and return on IT
investment.