How are lessors staying ahead
of the competition? Fred Crawley reports.
Go deeper with GlobalData
An unfamiliar factor is starting to
appear in the strategic considerations of Britain’s lessors –
competition.
The industry contraction starting
in 2008 left huge tracts of market share for those with sufficient
capital and risk appetite to move into. For the most part their
growth has been undisturbed, with low pricing and customer-poaching
offers taking a back seat to a focus on credit and risk
strategy.
Even now most asset markets remain
vastly under-supplied, with “We lend money” the only thing
necessary to bring customers on board and keep them happy.
But supply will begin to catch up
with demand and it may happen sooner than expected. FLA statistics
for June 2010 show a 26% year-on-year increase in business volumes,
representing the first interannual growth since September 2008. And
this is just the start.
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By GlobalDataAs well as growth from active
players, many funders that have been quiet on the market due to
liquidity and risk issues over the last two years are showing
ambitions to restake their old territory.
CIT, for example, a name that many
thought would fade into obscurity after its near-collapse last
year, is eight months out of bankruptcy and has announced plans
this month to establish a stronger presence in Europe, including a
new £100m (€122m) funding line for its UK vendor finance arm.
With a wider revival of the
industry’s big names on the cards, those newcomers and opportunists
that have made inroads into the market over the past two years are
going to have to work hard to hold their ground.
Maintaining a
lead
One company that will come up
against competition from CIT is Grenke Leasing, a German small
ticket office technology lessor that has spent the recession
pushing for more and more vendor business through its European
network.
The growth of its UK subsidiary has
been remarkable. It has opened new offices in Bristol and Belfast
since the start of the year, and has already laid the groundwork
for up to four more offices in the next 18 months. Grenke’s success
depends upon efficiently managing a high volume of low-value
deals.
Business written in the year to
date has already surpassed its annual budget of £18m, and
represents a 33% increase on 2009’s annual business total.
UK operations director Robin Spurr
says much of this has been driven by the acquisition of vendor
customers from other, less active market players. Competitors
returning to market are still too risk-averse to offer the same
conversion rate as Grenke on vendor proposals.
“The resellers spot when a lender
is cherry-picking and, ultimately, we will retain a relationship
when the competition only accepts one out of five introduced
deals,” Spurr says.
Grenke is setting up a UK direct
sales operation to consolidate its position, using its contact book
of vendor customers to secure repeat business.
“We’ve got the product and workflow
in place to start and as we grow in general, we are developing a
very strong portfolio to begin looking at,” Spurr says.
Such a programme was started four
years ago in Grenke’s German home market, and now represents 30% of
annual business volume.
A direct sales model will
complement Grenke’s current customer retention strategy, which
involves treating every instance of customer contact as a potential
sales opportunity.
“If someone calls for a settlement
we treat it as a potential new business enquiry. We will know the
reseller that any given deal came from, and can send the customer
back to the reseller if they are looking to refresh. Even if the
relationship with that reseller is no longer there, we can always
recommend an alternative,” Spurr says.
Marketing mailshots are another
tactic that may be imported from the continent in the future.
Staying Close
Close Asset Finance (CAF) has
vastly increased its presence in the market since 2008, due to its
recession-friendly risk pricing model. Lending with higher rates
than most, it will also take on a higher level of risk.
This willingness to look at more
difficult deals has won considerable loyalty from customers unable
to secure asset finance elsewhere and has helped CAF along the way
to its current book of 16,000 lessees.
Steve Gee, the joint managing
director of CAF’s manufacturing division, expects cheap asset
finance to return to the market again before long. He says the
likelihood of losing customers over pricing is low.
“We are very wary of competition
starting to come back, but we are concentrating on our service
levels to ensure that when a customer is looking to make an
investment, we are first on the list. Our profile has increased
dramatically in last couple of years, but there’s always more work
to be done,” he says.
Retention levels at the moment are
particularly robust. Within Gee’s division, new business increased
from £57m in the year to July 2008, to £86m in the year to July
2010.
Repeat business accounted for 45%
of deals done over the past year. The manufacturing division
employs six people to telephone every customer at least once a
quarter to check on their financing requirements. Each customer
also has an area manager covering the “face to face” aspects of the
relationship, whose job it is to understand the customer’s
business, their financial circumstances, and the assets.
Close has what it considers to be
the best level of service around should lessees run into financial
difficulty.
“If a customer comes to us with a
potential problem, our first response is to try to help. If we need
to reschedule the agreement and it’s feasible, we will do so,” Gee
says.
He also mentions the ability to
offer sale and leaseback, and plant refinance, as a way to support
customers – as well as the ability to call on Close’s invoice
finance facilities.
Under one roof
The ability to offer other forms of
finance alongside leasing will be an advantage to lessors if SME
cashflow remains challenged. Leasing can be used as a wedge product
to attract customers, with different finance products offered
subsequently to keep the customer close long after the initial
leasing requirement is dealt with.
A firm believer in this type of
cross-selling is Aldermore. The new bank that sprang up at the
heart of the recession in mid-2009 offers asset, invoice and
property finance under one brand. Consistency of approach is at the
heart of the bank’s strategy for retaining customers gained during
the recession.
Aldermore’s invoice finance head
Ian Wilkins says: “The bank has been launched in a time of clear
market dislocation, but its strategy in terms of lending practice,
pricing and building customer service relationships has been
developed to fit a time when competition will return. The model we
are using at the moment won’t require too much evolution.”
At the invoice finance division
pricing has remained virtually unchanged from three years ago, when
there was a lot more competition in the market.
“We didn’t take a kneejerk reaction
and reduce pricing to an unsustainable level and so it has stayed
strong. The same is true of our credit policy,” he says.
The “pendulum” approach to lending
policies which Wilkins says he has observed at some bank-owned
lessors is a habit Aldermore is determined to avoid. Consistency
will be fostered by introducing of a single customer relationship
manager for both asset and invoice finance. This will occur once
Aldermore’s fledging asset finance arm has had time to pick up a
larger customer base.
Full speed for
Santander
Relationships are also absolutely
central to Santander. The Spanish bank has used the opportunity of
a relatively empty market in UK to build a large-scale corporate
banking structure at blistering speed. Hiring 175 staff to bolster
its 23 regional centres in the last year, Santander corporate
increased lending to SMEs by 25% in the first half of 2010.
Relationship managers at its
regional centres provide customers of turnover beyond £1m with
access to other products, including asset finance, through teams of
specialists at each regional hub.
The biggest challenge to Santander
in terms of improving customer acquisition and retention has been
increasing the variety of assets it is capable of funding. When it
first acquired the legacy business of Alliance & Leicester in
2008, the bank’s lease book was focused entirely on bus and coach
assets. In order to provide more options for relationship managers
to offer corporate banking customers, it has had to diversify
significantly.
Asset finance division head Mike
Oxby says that now, more than 40% of the business written by his
arm of the business is for non-wheeled assets.
In the next two years, 250,000 business customers will migrate
to Santander from RBS as part of the part-nationalised bank’s sale
of more than 300 branches. These customers will still have access
to leasing services through RBS subsidiary Lombard. With asset
finance services from Santander being offered to them through
relationship managers at their new bank, the competition is heating
up.
