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Hand holding a smartphone with a locker unlocked against binary code on screen

Where are we heading – wait, where are we now?

Creativity, innovation, flexible solutions, digitisation…we hear lots of buzzwords thrown around, but what does it all mean?


Tom Brewin

Tom Brewin

Business Development Manager at Scania Finance at Scania Finance
I am responsible for our internal sales team and work closely with Commercial Operations and our dealer network on Sales & Marketing initiatives and projects.
Tom Brewin

Latest posts by Tom Brewin (see all)

Introduction from Editor Peter Thomas

Tom Brewin of Scania Finance reviews some of the findings from his research on the MA in Asset Finance and considers the implications for the future of the industry.

Who should be interested in this?

Anyone concerned with the future of asset finance.

 

Where are we heading – wait, where are we now?

Creativity, innovation, flexible solutions, digitisation…we hear lots of buzzwords thrown around, but what does it all mean?

Let me step back and set the scene; a year or so ago I embarked on a new journey by starting my study on the MA in Leasing and Asset Finance in conjunction with Falmouth University and The Leasing Foundation. This led to me conducting a piece of research looking across the financial services industry, focussing on the changing customer demands and needs, how the industry has evolved and where the future lies.

I was lucky enough to find a number of incredibly willing, experienced and knowledgeable individuals from the industry who took the time to share their insights. This article summarises some of what I learned in those conversations.

Where are we now?

The industry doesn’t seem to have evolved hugely over previous decades.

Let’s face it, we have two products in asset finance, one which leads to ownership and the other focusses on use. The consensus from those I spoke with is that we are a very slow moving industry with little movement beyond rate and risk appetite which generally runs on a cyclical pattern. It’s the delivery of these products that has seen the most drastic shift, with technology playing a key part – email, mobile devices and IT developments have enabled this progress.

We currently see little differentiation between competitors in the market, and in a situation of high market liquidity the focus primarily comes down to two factors – rate and credit appetite. This is a dangerous situation, with customer business models being built on cheap available funding. Will they be prepared for a downturn or increased rates when if and when this happens? Likewise, should the market turn (given some significant uncertainty resulting from recent events such as Brexit) how will the finance providers fair after a period of high volume of lending on thin terms with minimal margins? It is likely some will not survive or be in the market for long.

Commodity, service or solution?

I discussed with those who talked to me about how we might describe the asset finance industry and the issue of whether we are commodity, service or solution providers.

In general there was a feeling from those I talked to that we should be offering a service and/or solutions, but that we’re not there yet, particularly in the current market. And in talking about where does or should asset finance fit with the customers’ purchase processes, very few said that finance currently sits before or at point of asset selection; the majority said that finance should be present earlier than it currently is to add more value and so not be seen as a commodity.

Providers in the industry need to think carefully about the sustainability of their approach, and invest time exploring what customers need to creating value through real solutions. This helps define a clear investment strategy, a product development strategy, technology development and how to bring the right people into the industry.

Some of the solutions proposed are pay-per-use or pay-for-outcome models that offer a fundamental shift from traditional products, but require careful risk management, external expertise for asset management and a collaborative approach. And this of course requires investment in infrastructure, particularly in IT. Nearly all the companies I spoke to are heavily investing in IT, although there doesn’t seem clarity in what the expected outcome is at this stage –  only that technological advances are key to future success.

Ultimately, these developments need to deliver value to customers in the way that they want it. Some of the solutions will be automated and self-serve, and some will use technology to achieve efficiencies but retain an element of personal service – depending on transaction size and market segment.

Evolving customer needs

And, of course, customers’ expectations are changing, largely influenced by their consumer experiences in areas such as shopping and entertainment.

To keep up with these changing expectations one thing that is needed is effective data management – something I fear is far from the case today. I learned that those who have CRM systems in place don’t feel the data is good enough, or don’t use the data particularly well.

To be truly effective, businesses need to be able to trust that their customer data is accurate, segment their customers to understand their needs and address those needs. This really should be a fundamental part of business strategy, reinforcing the business’ mission statement.

The role of industry bodies

I would suggest that is also a requirement for industry bodies to provide access to relevant information and support.

Industry collaboration facilitated by industry bodies could help move a relatively slow moving industry forward at a greater pace. Part of this will be investment in research programmes to help define clarity and direction for the industry, making sure optimal regulation is in place to benefit customers, and supporting industry innovation.

Fintech

Fintech providers could threaten some traditional asset finance providers, but there needs to be proof that their models are sustainable. What would be an interesting prospect is the collaboration or integration of two such organisations. Either way there will be challenges to current incumbents if change is not successfully achieved, customers will simply not accept traditional approaches if their needs are not met and will otherwise seek alternative solutions.

Where are we heading?

Those market providers with a clear and defined plan, offering the right customer centric integrated products and services, successfully managing these using the best available (or developed in-house) technology will leave competitors behind, making greater margins in the process.

This does not mean that all funders will have to develop the same business model and products; there will always be a need for varied market offerings which suit different segments with different requirements, serving them how, where and when they want.

There is, however, a need to shift away from only two factors being critical – rate and credit appetite – which everyone is responsible for in the current race to the bottom.

With the ever-present requirement to balance business volumes with margin to please shareholders, who will be bold enough in the industry to move from traditional ground and break the current cycle – and will the first mover be a current incumbent or a new challenger? Some may argue P2P platforms have already started the challenge the norm, but there is a requirement for a multitude of offerings to suit all of the market needs.

Change is something I believe our industry needs. I’d be interested if any readers have any opposing views, if so get in touch and perhaps we can collaborate on a discussion document to explore the issues further.

CC BY 4.0 Where are we heading – wait, where are we now? by Tom Brewin is licensed under a Creative Commons Attribution 4.0 International License.