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Bridging the Technology Gap in Equipment Leasing
VRL Financial News Publishing, January 2011
In this report on the role of technology in equipment leasing, industry specialist Kevin Kennedy examines how the technology environment has changed and what the implications are for current lessors, investors and entrepreneurs.
This is a challenging time for large cross-border equipment lessors. The current business models are unlikely to increase return on capital in the medium term, a consequence of the effects of consolidation, technology trends and a tactical rather than a strategic approach to systems.
Difficult choices lie ahead and scale may be as much a disadvantage now as it used to be a barrier to entry. Some current players will exit at a loss and new entrants will emerge. For leasing, a technology gap has opened up which is so wide, that it is hard to see how current players will bridge it.
This report assesses the state of the equipment leasing sector, finding challenges for incumbents and opportunity for others.
Read this report to:
- Investigate how other sectors have incorporated new technology and regulatory change
- Assess the state of the equipment leasing sector
- Study current technology trends and what they mean for the leasing industry
- Work effectively with software suppliers
- Investigate technology strategy options for the future
What does the sector think?
Chapter 1: Current technology trends and what they mean for the leasing industry
Technology trends and late adopters
Another late adopter: retail banking
More and more information
A blind spot for leasing?
Increased automation and new frontiers of cost reduction
Using new tools to reduce cost and increase competitiveness
New channels, new expectations, new products
Technology driven management
Past trends - still fighting old battles
Contrast with the insurance sector
Chapter 2: Technology and a competitive advantage in leasing
Chapter 3: Bank, non bank and niche - similarities and differences
Case study: BNY Mellon
Chapter 4: The challenge of upgrading
Core systems replacement vs. cost reduction and discounting
Leasing software suppliers
All paths lead to new technology
Chapter 5:Technology strategy options for the future
Good prospects for equipment leasing
Large incumbents - double or quits?
Pooling technology investment across related businesses
Case study: 3Step IT
Specialisation, fragmentation and re-designing asset backed lending
Specialise for higher returns and growth
New beginnings - buy or build?
Case study: Grenke Leasing AG
A global lessor
Combining an insider’s knowledge and looking at how other sectors have incorporated new technology and regulatory change, Kevin Kennedy assesses the state of the equipment leasing sector, finding challenges for incumbents and opportunity for others.
Topics covered include:
Current technology trends and what they mean for the leasing industry:
- Declining price of processing
- Improved connectivity between applications
- From relationship to web to mobile
- Rapid Application Programming and the return of in-house programming
Technology SWOT analysis:
- Strengths: asset expertise, funding and handling scale
- Weaknesses: legacy, patchy automation, slow data and inertia
- Opportunities: standards, bespoke services, micro-automation
- Threats: loss of competitive advantage, other financial services, alternative service providers, new software tools
Bank, non bank and niche – where do they stand and who is best placed for the future?
Working with software suppliers
Technology strategy options for the future:
- Preserving current advantages and retaining scale
- Specialisation, outsourcing and fragmentation
- Technology platforms for new entrants
- Strategic alliances
Systems that were built to handle asset lending must adapt to a future where margins are earned from fast and/or information rich services. This report argues that in the absence of investment, participants will face the break-up of their existing business model. Specialist functions will become common-place. New niche businesses with attractive customer interfaces can target vendors and customers and outsource the back office. Upstart entrants from emerging markets will leapfrog to better technology platforms, with slimmer and cheaper organisation structures. The creation of a truly global equipment leasing company fit for the next phase of leasing financial services will require strategic alliances that combine existing asset expertise, process excellence and vendor knowledge of the developed markets with the growing customer base and capital of emerging markets, delivered on a fit-for-the-future platform.
On the positive side demand for asset linked credit from SMEs remains robust, and vendors understand and value point of sale finance. Cheaper and faster programming makes the capture and protection of asset expertise easier and cheaper. Better process mapping and past lessons learnt will create better applications. However, the primary focus of development to date has been to improve the lessor experience rather than that for the lessee, at a time when customer expectations are rising fast.
Accumulated technology issues in equipment leasing are tipping the balance in favour of new entrants, and away from legacy systems and low margin portfolios. Emerging market banks and non banks can offset the investment in more fit-for-purpose systems, in the knowledge of growing demand from domestic SMEs. Global treasury services banks offer vendors and smaller regional lessors new options for the back office.
So, with better applications, alternative providers, fragmentation of core expertise, disruptive new entrants and strategic alliances all possible, the choices offered through improved technology have never been greater. Which is the right way forward?
The report will feature relevant case studies from inside and outside the sector and is intended to advance the strategic debate within the sector both from a customer and supplier perspective, as well as informing potential investors on the best way forward.