At the Leasing Life conference this year, our panel event, chaired by CHP Consulting’s chief operating officer Andrew Denton and involving 3 Step IT chief executive Carmen Ene, Max & Tite International chief executive Patrick Gouin, DLL chairman and chief executive officer Bill Stephenson and Close Brothers Asset Finance chief executive Mike Randall, considered future challenges to the leasing market and where the market is heading in the next five years.
Denton: "This idea of leasing as a product, this path to servicing, how do we get there?"
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Stephenson: "Europe’s fragmented in this industry. There’s country-specific associations, which there needs to be, as we have different laws and different languages, and different approaches to this business. But a strong universal voice in the European Union is what we need, and the only way we get that is each of us collectively agreeing we should model this, and then it’s going to work truly by lobbying and education at a specific country level. We are probably the least-known industry in the financial services businesses, so to speak, yet we finance well over a third of all assets around the globe. So governments view us strictly from a consumer lending perspective. Lets be clear about that, and we’re not a consumer lending business. So you have to draw a line, advocate, and then really start."
Gouin: "Maybe I will play devil’s advocate and say that I’m not sure there is a leasing industry as such. But that’s always why we are struggling for discussion whether leasing as a product, leasing as a service, or leasing as a business is the most relevant debate. We should make a start as to whether leasing is a product or a business. In fact it’s both. And in that sense there will be banks and leasing companies that will cover all bases, all across the board of credit products. So the leasing industry for me is where we have true defined specialisation on the asset, with the right services as was described earlier.
"We also need to define ourselves as an industry by what we really bring to the market, and in terms of benefits to the real economy, and to the political classes, and by what we bring in terms of benefits to our customers. By this, we need to define ourselves."
Denton: "If we aren’t visible we are really going to struggle to attract talent, and in particular young talent. How do we do that Mike?"
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By GlobalDataMike Randall:"We’ve just been on a two year journey creating a school in Close Brothers training academy. We’ve taken 34 people on and it’s probably fair to say that those 34 people probably didn’t understand that there was an asset finance or leasing industry at all, so again it begs the question how do we get our industry out there, and promote ourselves better? I think that from where we are sitting the work that we are doing with the regulator is raising the bar a bit, which I think will help us out in the marketplace. But I did find it shocking, as did our team, that our academy entrants didn’t know the industry existed; they just fell into this industry. There might be people in this room who feel that we fell into this industry too all those years ago, so I think we have a lot of work to do.
Denton: "How do we do it Carmen?"
Ene: "I was trying to touch a little on that in my presentation earlier when I said that we are under-represented because people don’t know exactly how big we are, because there aren’t clear numbers. It’s a data hygiene factor. First we work out the numbers, then we can work out who we are. Then if we are four to five times bigger than people know, we suddenly become more relevant. If we educate and explain what we are doing, we become a big part of the economy so the regulators will look at us differently. But I do believe that accurate representations of the size of the industry what we are doing, and things like this event helps us discuss these issues together. "
Denton: "Is there a problem trying to be unified as an industry when we are not all agreed as to what the industry is?"
Ene: Of course there are many variations. Should we use leasing as a bad word, because some people in the past did some bad things? Should we call ourselves services, should we rename? At 3 Step IT we call ourselves life cycle specialists. We’re very keen on the circular economy, and we think a lot about how to further the circular economy. However, leasing in my mind is the vehicle to move us from where we are today into the structure of price-per-transaction, because it’s the future. I would recognise that I’m in the leasing industry, but that I’m more about services that will hopefully be competitive in the new world of service led economies. And I think the fact that we start together, with the vendors and the dealers, is a good sign that we want to create equal systems that help our clients businesses progress in the future and that will make us competitive as an industry.
Denton: Mike, what do you think?
Randall: "Well I would say that the asset finance industry was my business. We lend daily to SMEs in the UK, so for me it’s the asset finance industry. Do we have vendors and partners? Of course we do, but we all do that in different ways. I suppose that it’s articulating that better. It’s the age-old debate: are we leasing, are we asset, are we service providers? I think it’s a debate that won’t end."
Stephenson: "I don’t care if they call us a bunch of knuckleheads! I think that the name is not as relevant as the value of the services we are providing in the economies we are working in, and whether it’s leasing for me is your pay for use, and using something. I’m from Texas; we have a very small dictionary, so until we come up with another word, then it’s okay. We are headed for more complex way s of using the phrase ‘leasing’, and I think that banks and normal lending organisations are going to get away from the old definitions. A lot of upgraded leasing companies believe that ‘the regulation is killing me because we are not a bank’. My advice is don’t rest on your laurels there, trust me. Once the regulators come with the banks and realise how much we are financing, in the economy, they are going to immediately going to pass those same regulations and rules down to you. And I think that is extremely possible. And earlier this morning [Keith Softly] from Lloyds, mentioned strategies for bank-backed asset lenders, and one that is on the horizon is compliance and regulatory costs. It’s extremely expensive to do what we need to do, because the regulators have a view of us as a bank. They view us as consumer lenders. They don’t understand the industry. Thus the advocacy is so important to educatem, or the cost will not subside, and a lot of small financing companies will be out of the industry once that regulation hits, and it will be too late. Fortunately that hasn’t happened yet, so we’ve got to get ahead of the curve."
Denton: "How does that advocacy happen?"
Stephenson: It starts here. It starts with people being willing to volunteer, people coming together, and define what market unity is, and getting a common agreement as to what is pay per use. I think the first and foremost that we need to educate government officials that we are not a bank. That’s for certain. We are not a consumer lender. We may be part of a bank, but we’re a conduit in providing services.
Gouin: But I think your point as well, Bill, is that it’s not just how we view the market, but the institution. We’re coming back to the idea of looking at how the banks owned these so-called leasing companies; how this business is understood as part of the overall value proposition, to deliver what you said of moving sales and investing in the market. In terms of expectations I think that part falls on shareholders in the industry, and there are not a lot in that respect. 80% of the related European leasing business is bank-owned. To be where we need to be, we should get the shareholders in the banks to support us in the way that we think of this industry."
Randall: I think there’s an appetite out there for all our businesses to join up. We piloted an tech app in September around broker behaviour, in terms of what they do with their businesses in the UK. We invited 12 or 13 lenders into the room to say, there’s a level of standards out there, and we want to try and understand that and the different players. And, beneath all that is a broker who is asking, ‘what am I supposed to be doing?’, which has a knock-on effect with the customer and the journey. So we had a good attendance from brokers and lenders, and we came to some agreements that this was the way to do it. Let’s be clear; this regulator [the UK regulator is the FCA] is not messing about. Someone out there is going to be castigated because they are doing what they are not supposed to be doing, and you need to define what that is, so there is an appetite to learn.
Denton: "How do we make that happen?"
Randall: "We’re not there yet, we are only at the beginning of that journey, so it takes all of us to gain consensus and stand up and say that can do this. There needs to be a group approach."
Denton: "We are also talking about leasing in 2020, so we might change gear and address that?"
Stephenson: "Well, if we don’t get this fixed, I’m going to be fishing in Florida! We’ll come through this. I’m surprised that we are fighting each of these battles at a country level. In our organisation, as you indicated, it would be so much easier if we had a ‘lobby’, and I know it’s a loaded term, to assist industry leasing companies or finance companies, or solution providers or whatever you call yourselves, into these areas where we could sit down and come up with one approach, into that market, to eliminate this, and to get the regulators comfortable with it in this particular market, so we can get back to providing value to our customers. Because by being owned by a bank, we’re representing a shareholder too. I can assure you that they know our value and our contribution, but at the end of the day they are being forced to provide so much from a compliance regulatory reporting perspective, that they are saying we need to do the same. We don’t even provide those products and services. It’s like apples and oranges, yet we’re being forced to comply, which makes it very very expensive, because shareholders don’t even want to irritate the regulator. "
Ene: "I’m an optimist by nature. I really feel that this is a resilent industry. For me ownership is receding, and I think that we will have to develop a strategy that accepts that. 2020 will be the onset of the circular economy, and the reuse of materials will start to come to the fore. Tech is also going to come to the fore. The near future is one of opportunities."
