Asset Finance: Next-Generation Technology Systems Critical to New Business Model

Spurred by increasing customer demands, new competitive pressures and regulatory changes, the North America equipment leasing industry is undergoing dynamic change. It will affect how lessors conduct business for years to come, with companies feverishly developing new products, income streams and distribution channels, while still seeking further operational efficiencies.

Emerging from these efforts is a new business model for the industry. Its success depends on organizations embracing fundamental changes and integrating next-generation technology systems that better align with today's business requirements and act as an enabler to growth. Those leasing organizations that successfully adapt in this evolving market will survive and flourish; those that cannot will undoubtedly struggle.

Evolution of the Industry

Surveying the competitive landscape, it is clear the days of lessors only offering lease financing to customers may be drawing to a close. This is because leasing does not have the emotional resonance it once did in the marketplace and, more importantly, it may not actually be the best option today for a company trying to acquire a critical piece of equipment. There are other financing tools available that may make more sense to a business, from traditional loans to conditional sales, not to mention the convenience of credit cards for some transactions.

Consequently, a growing number of finance companies are embracing what is best described as a solution-selling strategy that offers a multitude of financing products and services. Lease financing may still meet all the needs of some companies, but there are a growing number of customers who want other options for securing equipment.

This consultative approach also helps defuse the potential impact of the commoditization of lease financing, a real concern of both large and small lessors during the past several years. With so many finance companies competing on price alone, profits have been driven down across the entire industry. Solution selling may provide the relief needed for the industry to reinvent itself. Nobody wants to compete for business solely on price if they do not have to do so.

In the current environment, finance companies also must bring products to market faster. This is really challenging for organizations with entrenched products and business processes. They may be really good at one thing, but struggle when a customer asks them to do something else. The goal is to become more flexible in the types of products and services offered, but still maintain operational efficiency.

Improved business processes are particularly critical today, with cost-income ratios under extreme pressure. This is forcing everyone to operate much more efficiently than in the past. This, however, must not come at the expense of customer service ' a key differentiator in the market.

Traditional leasing companies also are looking for additional income streams in this competitive market. Consequently, many firms are taking a closer look at the assets they are leasing and how to maximize value over their lifecycles. Some lessors think the only real difference between a loan and a lease is the tax treatment. But a growing number are considering opportunities to generate additional revenues from the asset through insurance, maintenance, consumables, disposal and related opportunities. In these situations, the profit margin on the lease financing is just a small part of the overall revenues.

Another change impacting the finance market is the gradual movement away from direct to introduced sales channels. More business activity, especially pure financing, is now being generated through intermediaries such as vendors and brokers. The better service provided to such channels, the greater chance of securing long-term business ' even if a firm's rates are not the lowest. Such a focus on introduced sales necessitates new systems and business process requirements.

Emergence of New Business Model

The impact of all these changes has prompted a growing number of leasing organizations to consider a new business model. They are evaluating the benefits of moving away from being strictly leasing operations and repositioning themselves as asset finance providers.

The Equipment Leasing Association (“ELA”) sees this accelerating trend among its members, as well. In its 2005 Industry Future Council Report, the ELA states that by 2010, this industry may not even be known as leasing. Rather, leasing will just become part of a bigger solution.

The goal is to offer a multitude of products and services through multiple channels to help organizations acquire equipment. A consultative approach, or solution selling, is best aligned with this asset finance model. Success relies on the elimination of product and market silos throughout the business and, as mentioned earlier, extending the boundaries of the operation to include new distribution channels.

Early adopters of this new business model in North America now openly promote the fact that they offer asset finance rather than just traditional lease financing. RBS Lombard, for example, barely references leasing on its North American Web site and prefers to showcase its asset finance capabilities. This transition away from exclusively offering lease financing has just begun but, if these trailblazers are successful, bank-owned finance companies and third-party lessors in North America will surely follow. Some financing arms of equipment manufacturers also have adapted this model, offering a variety of financial products through multiple channels.

There undoubtedly will be some organizations in North America that cannot migrate to this new business model, due in part to the costs and resources necessary to make it happen. Organizational change does not come cheap. This model may also conflict with the business culture. Some firms simply are more interested in making money in the short term without having to change, rather than investing the necessary time to embrace solution selling and asset finance.

However, those finance companies that refuse to change could run the risk of losing market share or, worse yet, fail to optimize relationships with existing customers. A transaction-oriented firm, working in product silos, misses opportunities to cross-sell products and services. The bottom line: When a company focuses solely on closing transactions and bases its relationships with customers strictly on price, somebody else with better rates can snatch a customer away.

From an industry perspective, the asset finance business model is firmly in place in parts of Europe, Australia and other overseas markets. The transition took about 10 years to complete. The process in North America has really just begun. Successful change management strategies must be executed so associates understand the rationale behind the new asset finance business model and their roles in it. Finance generalists actually may become more appealing than leasing experts, although leasing expertise must still be available when required. From a systems perspective, a company must understand where business processes must be unique and focused, and where they can be centralized. This often necessitates some tough decisions. At the end of the day, however, the result is a new business model that can handle constant change without jeopardizing operational excellence.

Critical Need for Flexible Technology Platform

In order for the asset finance business model to work, technology systems must be in place that can support a myriad of products and distribution channels, facilitate faster speed to market and foster cross-selling through effective customer relation-ship management. These systems must also optimize partner relationship management. A big mistake companies often make when selecting a technology platform is their failure to think ahead. Their only focus is what works for the business now, which is OK in a market that is not moving. In one that is changing quickly, however, system flexibility is the key. A technology platform must be able to handle the ebb-and-flow of products that may be popular one year and pass' the next.

The vast majority of current technology systems in place throughout the lease finance industry support one finance product or type of equipment and nothing else, making them incompatible with the asset finance business model. They do not easily facilitate the development and launch of new financial products to market. These systems also cannot be customized easily for specific business requirements. In addition, critical functions, such as origination, pricing, credit checking, processing, billing and asset management are not seamlessly linked, hindering workflow efficiency. When a new product is launched, significant changes need to be made with each, and this takes time.

In such situations, a company's systems can actually be an inhibitor to the development and launch of innovative finance products that meet changing customer needs. Technology systems need to be an enabler of change ' letting finance companies evolve their product mix, rather than handcuffing them.

Next-generation technology platforms that support the asset finance business model are available overseas and now in North America. The ideal system features a core platform that enables asset finance companies to mix-and-match products easily and launch new ones efficiently. A workflow-based, enterprise system with end-to-end capabilities can instantly make a new product available to an organization's sales team and channel partners.

Even Greater Flexibility in the Future

Within the next couple of years, technology systems that feature even greater flexibility will be the norm. They will include customizable workflow capabilities that cater to a business' specific needs. As a firm's product mix evolves, it will be able to configure the system as needed without having to call on the vendor for assistance, which often takes time to schedule and costs extra. The faster systems changes can be made, the faster the finance provider can launch new products or react to changing market dynamics.

Also coming will be technology systems that are event driven. That is, over the course of an asset's lifecycle, whether a leased vehicle, computer or other piece of equipment, the technology system will trigger notices to the finance provider when it is time to engage it. For example, if a lessee requests a termination quote, there is a good chance it is looking for new financing elsewhere. At that moment, the system could evaluate the lessee's credit history, determine if it makes sense to keep the lessee as a customer and then alert its salesperson to immediately contact the lessee.

As the emerging asset finance business model gains traction in North America, technology systems providers will scramble to fill the current functionality gap in the market. It will take more brainpower, however, than simply asking what financial products are available today that a technology system can help sell. Technology providers who want to provide real value will introduce systems that lay the building blocks for companies to develop new, innovative financial products – helping the traditional lease finance industry reinvent itself.

Spurred by increasing customer demands, new competitive pressures and regulatory changes, the North America equipment leasing industry is undergoing dynamic change. It will affect how lessors conduct business for years to come, with companies feverishly developing new products, income streams and distribution channels, while still seeking further operational efficiencies.

Emerging from these efforts is a new business model for the industry. Its success depends on organizations embracing fundamental changes and integrating next-generation technology systems that better align with today's business requirements and act as an enabler to growth. Those leasing organizations that successfully adapt in this evolving market will survive and flourish; those that cannot will undoubtedly struggle.

Evolution of the Industry

Surveying the competitive landscape, it is clear the days of lessors only offering lease financing to customers may be drawing to a close. This is because leasing does not have the emotional resonance it once did in the marketplace and, more importantly, it may not actually be the best option today for a company trying to acquire a critical piece of equipment. There are other financing tools available that may make more sense to a business, from traditional loans to conditional sales, not to mention the convenience of credit cards for some transactions.

Consequently, a growing number of finance companies are embracing what is best described as a solution-selling strategy that offers a multitude of financing products and services. Lease financing may still meet all the needs of some companies, but there are a growing number of customers who want other options for securing equipment.

This consultative approach also helps defuse the potential impact of the commoditization of lease financing, a real concern of both large and small lessors during the past several years. With so many finance companies competing on price alone, profits have been driven down across the entire industry. Solution selling may provide the relief needed for the industry to reinvent itself. Nobody wants to compete for business solely on price if they do not have to do so.

In the current environment, finance companies also must bring products to market faster. This is really challenging for organizations with entrenched products and business processes. They may be really good at one thing, but struggle when a customer asks them to do something else. The goal is to become more flexible in the types of products and services offered, but still maintain operational efficiency.

Improved business processes are particularly critical today, with cost-income ratios under extreme pressure. This is forcing everyone to operate much more efficiently than in the past. This, however, must not come at the expense of customer service ' a key differentiator in the market.

Traditional leasing companies also are looking for additional income streams in this competitive market. Consequently, many firms are taking a closer look at the assets they are leasing and how to maximize value over their lifecycles. Some lessors think the only real difference between a loan and a lease is the tax treatment. But a growing number are considering opportunities to generate additional revenues from the asset through insurance, maintenance, consumables, disposal and related opportunities. In these situations, the profit margin on the lease financing is just a small part of the overall revenues.

Another change impacting the finance market is the gradual movement away from direct to introduced sales channels. More business activity, especially pure financing, is now being generated through intermediaries such as vendors and brokers. The better service provided to such channels, the greater chance of securing long-term business ' even if a firm's rates are not the lowest. Such a focus on introduced sales necessitates new systems and business process requirements.

Emergence of New Business Model

The impact of all these changes has prompted a growing number of leasing organizations to consider a new business model. They are evaluating the benefits of moving away from being strictly leasing operations and repositioning themselves as asset finance providers.

The Equipment Leasing Association (“ELA”) sees this accelerating trend among its members, as well. In its 2005 Industry Future Council Report, the ELA states that by 2010, this industry may not even be known as leasing. Rather, leasing will just become part of a bigger solution.

The goal is to offer a multitude of products and services through multiple channels to help organizations acquire equipment. A consultative approach, or solution selling, is best aligned with this asset finance model. Success relies on the elimination of product and market silos throughout the business and, as mentioned earlier, extending the boundaries of the operation to include new distribution channels.

Early adopters of this new business model in North America now openly promote the fact that they offer asset finance rather than just traditional lease financing. RBS Lombard, for example, barely references leasing on its North American Web site and prefers to showcase its asset finance capabilities. This transition away from exclusively offering lease financing has just begun but, if these trailblazers are successful, bank-owned finance companies and third-party lessors in North America will surely follow. Some financing arms of equipment manufacturers also have adapted this model, offering a variety of financial products through multiple channels.

There undoubtedly will be some organizations in North America that cannot migrate to this new business model, due in part to the costs and resources necessary to make it happen. Organizational change does not come cheap. This model may also conflict with the business culture. Some firms simply are more interested in making money in the short term without having to change, rather than investing the necessary time to embrace solution selling and asset finance.

However, those finance companies that refuse to change could run the risk of losing market share or, worse yet, fail to optimize relationships with existing customers. A transaction-oriented firm, working in product silos, misses opportunities to cross-sell products and services. The bottom line: When a company focuses solely on closing transactions and bases its relationships with customers strictly on price, somebody else with better rates can snatch a customer away.

From an industry perspective, the asset finance business model is firmly in place in parts of Europe, Australia and other overseas markets. The transition took about 10 years to complete. The process in North America has really just begun. Successful change management strategies must be executed so associates understand the rationale behind the new asset finance business model and their roles in it. Finance generalists actually may become more appealing than leasing experts, although leasing expertise must still be available when required. From a systems perspective, a company must understand where business processes must be unique and focused, and where they can be centralized. This often necessitates some tough decisions. At the end of the day, however, the result is a new business model that can handle constant change without jeopardizing operational excellence.

Critical Need for Flexible Technology Platform

In order for the asset finance business model to work, technology systems must be in place that can support a myriad of products and distribution channels, facilitate faster speed to market and foster cross-selling through effective customer relation-ship management. These systems must also optimize partner relationship management. A big mistake companies often make when selecting a technology platform is their failure to think ahead. Their only focus is what works for the business now, which is OK in a market that is not moving. In one that is changing quickly, however, system flexibility is the key. A technology platform must be able to handle the ebb-and-flow of products that may be popular one year and pass' the next.

The vast majority of current technology systems in place throughout the lease finance industry support one finance product or type of equipment and nothing else, making them incompatible with the asset finance business model. They do not easily facilitate the development and launch of new financial products to market. These systems also cannot be customized easily for specific business requirements. In addition, critical functions, such as origination, pricing, credit checking, processing, billing and asset management are not seamlessly linked, hindering workflow efficiency. When a new product is launched, significant changes need to be made with each, and this takes time.

In such situations, a company's systems can actually be an inhibitor to the development and launch of innovative finance products that meet changing customer needs. Technology systems need to be an enabler of change ' letting finance companies evolve their product mix, rather than handcuffing them.

Next-generation technology platforms that support the asset finance business model are available overseas and now in North America. The ideal system features a core platform that enables asset finance companies to mix-and-match products easily and launch new ones efficiently. A workflow-based, enterprise system with end-to-end capabilities can instantly make a new product available to an organization's sales team and channel partners.

Even Greater Flexibility in the Future

Within the next couple of years, technology systems that feature even greater flexibility will be the norm. They will include customizable workflow capabilities that cater to a business' specific needs. As a firm's product mix evolves, it will be able to configure the system as needed without having to call on the vendor for assistance, which often takes time to schedule and costs extra. The faster systems changes can be made, the faster the finance provider can launch new products or react to changing market dynamics.

Also coming will be technology systems that are event driven. That is, over the course of an asset's lifecycle, whether a leased vehicle, computer or other piece of equipment, the technology system will trigger notices to the finance provider when it is time to engage it. For example, if a lessee requests a termination quote, there is a good chance it is looking for new financing elsewhere. At that moment, the system could evaluate the lessee's credit history, determine if it makes sense to keep the lessee as a customer and then alert its salesperson to immediately contact the lessee.

As the emerging asset finance business model gains traction in North America, technology systems providers will scramble to fill the current functionality gap in the market. It will take more brainpower, however, than simply asking what financial products are available today that a technology system can help sell. Technology providers who want to provide real value will introduce systems that lay the building blocks for companies to develop new, innovative financial products – helping the traditional lease finance industry reinvent itself.