How are you finding the market at the moment?
The market has been good to us and we’ve had a busy year so far. Thankfully, we’ve been able to benefit from our regional and specialist coverage model, resulting in us winning some really nice business and growing our portfolio by 25% compared to last year. Competition is high but our strong propositions such as being able to take residual risk, structuring operating leases and financing over longer tenors has meant that we’ve been able to grow not only our portfolio but also our team by 20% since 2017 to keep up with demand.
Of course there are a number of legislative changes on the horizon and from conversations with clients we found they are responding to IFRS 16 in various ways. Some are redefining their lease-or-buy strategy, others are assessing their current portfolio of lease and rental contracts and in some cases they are implementing or potentially changing software systems to ensure they are ready. They may even be doing all three things at once.
What we do see is lessees continuing to use asset based finance as an enabler to get access to equipment. That’s because it offers a variety of benefits compared to comparable financing instruments, such as flexibility and convenience, whilst often not impacting on their bank relationships or facilities.
Brexit is also inevitably having an impact. We believe some businesses are delaying their investment decisions more and more. In addition, there is a train of thought that the break from the EU could make the skills shortage worse in some sectors we lend into, although it’s still too early to speculate.
What impact are start-ups having on the asset-based finance sector?
Digitally focused newcomers have caused increased competition in the financial services sector. Existing asset-based lenders must respond by improving their organisations agility and efficiency. This is good news as digitisation and automation should be a top priority anyway.
I recently read a report from audit firm RSM that found the number of new technology companies launched in the UK last year rose by almost 60%. A new firm is set up nearly once an hour. The fact this competition increases the pressures on the entire industry to continue to evolve is no bad thing.
Of course not only do these new technologies provide customers with new products and services, they can also help businesses alleviate the enormous regulatory burden. If margin pressures and increased returns are demanded, technology can help us to find cost efficiencies to drive our returns up.
Has the asset-based finance sector embraced tech for the benefit of the customer?
The industry, especially in the smaller ticket market place is looking to digitisation to redefine the customer experience at quite a pace.
New technology, such as artificial intelligence and chatbots, will play an important role in the interaction with customers too. Service will improve and become more efficient; we’ve already seen this in the smaller ticket segment and the middle ticket market will no doubt follow where it feels right to do so. One thing is undeniable - data is becoming increasingly important in enhancing customer benefit and indeed experience but understanding how to analyse it is no easy task.
How do you see your strategy evolving in the next few years?
Our strategy is quite simple really, we aren’t suddenly going to move away from asset finance and start selling golf clubs! It’s about growing what we do well in a sustainable manner whilst steadily looking to expand our offering into new asset types such as I.T. and Receivables based finance. Underlining all of that is the desire to respond to the needs of our customers and their growing preference for online and digital services. We are looking at ways to develop our own digital infrastructure with a mix of build and buy strategies. Of course we have the added benefit of looking towards our more established business model in the Netherlands and translating certain processes and systems for the UK market as appropriate.
We’re also looking to provide our services through multiple channels, not only continuing to focus on our trusted intermediaries, wholesale partners and brokers but also via the Bank’s growing coverage team, equipment vendors and online routes to market. Our goal is to grow our portfolio in existing markets but in a sustainable, scalable and most importantly, client-focussed manner. We see many opportunities within the UK to generate new sources of income which match our long term strategy.
What are the biggest challenges facing the sector?
In many countries, lease markets are dominated by bank-owned leasing companies and have moved beyond traditional leasing companies due to new technologies and innovations – the UK is no different. The sector faces more competition from captives (manufacturer owned), independent leasing companies and non-traditional (FinTech) players. This presents both opportunities as well as challenges for us all.
We believe the coming years will witness further digitisation of processes to create faster and more efficient customer service. The use of data will allow even greater improvements to products and services, allowing us to increase relevance and timing. Those who fail to adapt with the changing landscape will struggle to survive.
Allied to this, people buy from people and the industry must continue to invest in this biggest asset – its workforce. A major challenge for leasing organisations is to successfully attract younger generations to join our teams. The rise in a more digitised asset finance world will help attract this generation but we all need to get better in offering internships, apprenticeships and graduate programmes designed to fuel their long-term commitment. That’s the kind of sustainability ethos that’s working well in the Netherlands and needs further investment in the UK.
This article was originally published in the October 2018 edition of Business Moneyfacts (https://www.moneyfactsgroup.co.uk/publications) The questions were provided by Evette Orams, Managing Director of Hilton-Baird Financial Solutions.