The evolving disconnect between ‘process’ and the more personalised delivery of financial products is creating a new dynamic for the leasing and asset finance industry.
 
 
The evolving disconnect between ‘process’ and the more personalised delivery of financial products is creating a new dynamic for the leasing and asset finance industry.

An evolving trajectory for leasing and asset finance

There is a cultural gap between large volume process driven business and the more transactional, people to people business.


Derek Soper

Derek Soper

Derek Soper is a long-standing member of the Leasing Industry having entered the business in 1960 with the first leasing company established in the UK. He has served as Chairman of the UK Equipment Leasing Association (now the Finance & Leasing Association) and was a member of the Industry Future Council of the Equipment Leasing and Finance Association of America and the Finance House Association of Hong Kong, having also chaired a European integration committee for Leaseurope. Derek is a Fellow of the UK Institute of Directors and a Freeman of the City of London. Latterly Derek chaired AT&T Capital in both Europe and Asia returning to the UK from Hong Kong in 1998 and established International Advisory Associates and The Alta Group consultancy in Europe where he served as Principal and Chairman. Currently Chairman of IAA-Advisory he continues with close associations across the industry and throughout the world.
Derek Soper

Introduction from Executive Producer JO DAVIS
Bank lenders are increasingly turning towards process-driven financial products that need little or no intervention from management, sales people, or in many cases credit analysts, and this, argues Derek Soper, is an indicator of a growing disconnect between the banking sector and the SME sector who need more personalised delivery of products and services.

Who should be interested in this?
Leasing professionals who are interested in the future of the industry. 

 

An evolving trajectory for leasing and asset finance

Concerning to many of us for the past few years, since the crisis, has been the lack of support by the banks for the SME sector. Statistically it is true that lending to the sector has diminished, although the leasing and asset finance industry has, in the main, continued their support. It is also true to say, although perhaps stating the obvious, that the leasing and asset finance industry is obliged to follow the sale and acquisition of assets – if there is no sale of equipment there is no business.

Natural divisions have also appeared in the industry – on the one hand the banks seek to deliver an equipment related product, mainly in the form of a lease or hire purchase arrangement. The bank’s inclination towards process driven financial products – ones that need little or no intervention from management, sales people, or in many cases credit analysts, but rely on the ‘process’ for pricing and delivery without personal interaction with their customer. For plain vanilla products the technology driven process clearly works and manual intervention is not welcomed. This is the path that many are following for their leasing and asset finance products.

On the other hand there are manufacturers and suppliers of equipment whose sales process relies heavily on a close interaction with their customer. This is not only to sell the base product, but also to ensure that other essential services are embodied into a lease or financing agreement – not a relationship conducive to delivery by remote control. This is one of the reasons that manufacturers have established their own leasing and asset finance businesses and continue to do so.

Perhaps we shouldn’t be surprised that those banks experiencing the pressures resulting from the need for additional capital are reluctant to develop or further expand their product range by agreeing to more manual intervention. The only compensatory feature, it could be argued, would be increased profitability. Unfortunately there is little evidence that profitability in the leasing and asset finance sector is much higher that many other banking products. It is certainly not large enough to attract major new investors, although many of us in the industry have spent a lot of time trying to find significant investors from overseas and here at home who would be interested. The failure to find investors has come from two issues – both size of potential investments – these are in the main too small; and profitability, which is also mainly too low.

So, where does this take us? It seems that there is a cultural gap between large volume process driven business and the more transactional, people to people business. Not surprising you may say; but it may well be the disconnect between the banking sector in its evolving form and the SME sector.

It is my belief that this evolving disconnect between ‘process’ and the more personalised delivery of financial products is creating a new dynamic for the leasing and asset finance industry.

The underlying drivers of these two channels of customer financing are becoming clearer. Banks are moving towards a multi product customer service, simply delivered, preferably without staff intervention and cost effective. This, they hope, will produce increases in profitability. Manufacturer and supplier captives will additionally need to cater for the delivery of services by their parent to its customers by way of monthly rentals or subscriptions. This implies choice and additional complexity, which will have to be paid for.

Calls for the banks continuing involvement in the whole process, particularly increased customer facing financing arrangements by the manufacturers and suppliers, but some re-thinking about product will be required. Manufacturers will need to define new relationships with the banks in order to manage de-leveraging of their balance sheets.

The next phase of corporate lending relationships with manufacturers will have to address new products specially designed to assist manufacturers in accessing well priced, well thought out simple solutions to relatively complex finance packages for the end user customers.

CC BY 4.0 An evolving trajectory for leasing and asset finance by Derek Soper is licensed under a Creative Commons Attribution 4.0 International License.