Before you sign-up to partner with anyone, think about these five thingsIf you are an asset finance provider, chances are you are spending a lot of time thinking about your service offering. Is it enough anymore to simply provide customers with finance – or should I be trying to provide more? With US statistics showing managed solutions are on track to account for 22% or more of the total equipment leasing and finance industry volumes over the next 3 to 5 years, it’s a good question to be asking.
Certainly Alta Group research shows end users are focused on usage and on greater operating flexibility rather than on equipment acquisition and ownership.
So, if you can form strategic partnerships with finance providers or other key players – both you and your customers will win. They get a true one-stop-shop – the trucks, the finance for the trucks, and maybe even the servicing of the trucks, all in one agreement. And you have just formed a stronger and more encompassing relationship with your client. You are more involved in their day-to-day business processes and decisions, and they rely on you as a true partner, not just an equipment provider.
If you are an equipment supplier in the market for asset finance, a partnership with a business which can do more than just structure your finance sounds a bit like nirvana. But before you choose who that partner is, be sure they have a solid understanding of five things:
- Your industry. How does structured finance operate in your industry specifically, and how it can help you achieve your business goals.
- What that means in your industry.
- Product development. What’s at the forefront in both your industry and in asset finance itself.
- Structured finance. How it can work for you, and what are the latest innovations.
- Vendor finance. Can it work for you, or is there a better way.
What was clear at the 2017 Alta Group Equipment Leasing & Financing Industry Summit is that when it comes to managed solutions, no one asset finance provider has all the answers. At the same time, managed solutions are playing an increasing role in our industry given managed solutions are on track to represent 22% or more of the total equipment leasing and finance industry volumes over the next 3 to 5 years. Whether they represent wholesale business change, or just another revenue source, they certainly can’t be ignored.
The rise of technology, and in particular financial technology, or fintech applications, means that more comprehensive and streamlined asset finance solutions are starting to become the norm - and more importantly – what customers expect.
Let’s start by defining exactly what we are talking about and how managed solutions work.
Managed solutions seek to combine many business needs into one streamlined process.
Managed solutions are bundles of a client’s various business needs, which may or may not be related. Rather than seeking a financier to provide money, an equipment manufacturer to provide the assets and a service provider to install and maintain them, a managed solution provider endeavours to find ways of providing all of these things together – usually with one price and one contract.
For the managed solution provider, it is a way of becoming more closely aligned with a client’s business and a way of increasing revenue from individual clients.
For clients, managed solutions are a one-stop-shop agreement to solve a number of needs in regards to acquiring and maintaining infrastructure in an end-to-end, smooth and more efficient way.
This may not sound particularly revolutionary, but it is in stark contrast to how the asset finance industry has typically operated - which is as a provider of finance alone.
It’s still early days, but managed solutions will become the norm
In her presentation at the 2017 Summit in the US, Valerie Gerard, Managing Director – Management Consulting for Alta Group, explained the move towards managed solutions very neatly, and talked about the evolution as being on a continuum:
Source: Alta Group
- In the past, and still now, most service offerings to clients are not bundled. One or more providers deliver different components, and pricing and contracting for each component is separate.
- There is now a widespread move towards partially bundled service offerings, for example, where equipment and other one-time costs (professional services) are bundled together. At the same time, usage and/or services are still bought and billed separately.
- Bundled appearance is the next iteration, where one service provider offers all terms for all components and these are incorporated into one contract and one bill. Commitments related to financing are embedded into the contract.
- At the far end of the continuum is the so-called true service offering – where one agreement covers all service-like attributes and no traditional financial terms are enforced on the service provider.
Valerie argued that the so-called ‘fourth industrial revolution’, or the rise of breakthrough technology, has given rise to the need for managed solutions in asset finance.
She asserts that cutting-edge technologies are changing customer mindsets. Customers now expect more holistic solutions to their financing needs – and they expect asset finance providers to deliver them. Simplified, on-demand delivery combined with balance sheet flexibility and a demonstrable ROI are considered table stakes now.
Additionally, the new breed of customer is wary of commitment, and prefers a pure consumption model. This puts yet more pressure on asset finance providers to offer value and instill loyalty in customers they can no longer lock in.
In short – flexible end-to-end service solutions are becoming more mainstream, and may soon be central to gaining a competitive advantage.
Fintech is facilitating the move towards managed solutions
The rise of fintech has also played its part in the demand for managed solutions. Online offerings are more and more prevalent and sophisticated, and there’s no question that they are impacting the businesses of brokers and finance providers alike. And as the cohort of under 35s become the decision makers – asset finance providers will need to be ready to talk to them in the way they are used to – with online, sophisticated technological offerings.
A good example of a fintech offering impacting traditional value chains is Currency Capital, an online asset finance provider in the US. Currency is going head-to-head with traditional financiers by using technology to radically speed up the financing process.
There’s no question that there’s a real niche to fill, both in the US and Australia, thanks to post-GFC lending practices. Since the crisis, banks have been notoriously stringent in approving loans, either refusing funding straight out, or taking far too long to approve or reject applications.
Currency uses the latest technology to get a complete financial picture quickly, at the very beginning of the application process allowing business owners to approve or reject client requests for credit within 3 minutes at point-of-sale. A far cry from what most commercial banks, or even asset financiers can provide.
Legacy systems are proving challenging for asset providers
A perfectly streamlined, simple and efficient managed solution to asset finance may well be the holy grain for clients and asset finance providers alike, but achieving that is not without difficulty. One of the challenges that many asset finance providers face is the unwieldy and fragmented legacy systems they currently work with. In many cases different software is used at each stage of the process, and in too many cases, this software doesn’t speak to each other.
Finding ways to overcome these legacy issues must be top of mind for asset finance providers hoping to move and evolve in line with changes to the industry. And there are a number of challenges and questions which need to be answered as well - are managed service offerings really just another revenue source, or do they represent wholesale business model change?
And then there are the business questions – how do we educate our sales force about integrated selling, how will increased flexibility impact our pricing and profits?
And ultimately, what business are we actually in? Are we asset finance providers (essentially lenders) or are we becoming asset managers, which is a different ball game altogether? Is it possible to be an expert in asset finance, as well as in software and/or asset management, and is that really desirable?
These are questions which we, as an industry, are grappling with. And as yet, there are no clear answers.
Ultimately, however, it’s what our clients want that counts
Source: Alta Group
The research confirms that managed solutions will be major drivers for the growth and composition of the industry moving forward. In the field, clients tell us that from their perspective a great experience is a great partnership. They want a partner which doesn’t simply provide finance, but rather offers insight into their business. A partner helps them make better buying decisions, evaluate the options open to them more fully, and provides programs and solutions designed for them – with the aim not just of helping them acquire capital, but of eliminating risk and improving margins.
Sounds like a good place to start.