WE LIVE IN TIMES OF DRAMATIC CHANGE, for society in gen-eral, and asset financing, in particular.

Technology is bringing inevitable change. We know aboutthese new technologies now; we can see some of the emergingeffects on the way business is done. So Amazon is the world’s largestshop, with neither bricks nor mortar; Airbnb is the largest holidayaccommodation provider, with no beds of its own; Facebook is theworld’s largest media provider, and it owns no content.

Technology is also bringing inevitable challenges. Fintechoffers capabilities which can displace traditional finance andfinancing processes. While there is a choice: it can be done to you;with you; or by you; it cannot be avoided.

These changes will affect the way leasing and asset financingis carried out. So much is certain, we just do not know what theeffects will be. And the best way of dealing with both theinevitability and the uncertainty is through partnerships. Whilenone of us has a monopoly of the best ideas, each of our organi-sations have some great ideas and unique capabilities. We can ben-efit from others using those ideas in their markets, in partnership;just as we can gain competitive edge in our own markets throughpartnerships. There are new synergies to exploit and develop.

Inevitable changes“Don’t stand in the doorwayDon’t block up the hallFor he that gets hurtWill be he who has stalled”

We have all observed the first megatrend: access becoming moreimportant than ownership. It is the trend exemplified by Amazon,Facebook and Airbnb. It is the trend that shaped the mobilephone industry. Now the Generation Y children, who benefited asthey continually renewed phones while a parent paid their sub-scription, are reaching senior positions, their subscription experi-ence will encourage leasing behaviour.

A second megatrend is environmental concern. Governmentand regulatory bodies respond to this concern with regulation,which is growing exponentially. In 2004 there were just under2,000 global regulations concerning batteries, climate change,packaging, product safety, energy and waste. And by the end of2016, we will probably reach 12,000 regulations (see Table 1).

Society’s sensitivity to waste is rising continuously, and that isfuel for remanufacture, remarketing and the circular economy. It is

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The times they are a changin’By Carmen Ene, 3 Step IT

Table 1: Environmental regulation is growing exponentially

Global regulations enacted and planned, devised by governments and regulatory bodies that affect batteries, climate change, packaging, productsafety, energy, waste, substances. They are a symptom of growing concern about the environment, and an attempt to reduce, or at least manage thedamage caused by society.

Source: Compliance & Risk 2016

0

2,000

4,000

6,000

8,000

10,000

12,000

2003

2013

2007

2012

2011

2010

2009

2008

2006

2005

2004

2015

2014

No.

of r

egul

atio

ns

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also fuel for leasing: as the asset financier should be a specialist inextracting value from used equipment, which is theirs to exploit.

From a technology perspective, the information discarded inobsolescent IT products is another kind of hazardous waste. Nowthe risk associated with General Data Protection Regulation,with fines of up to e20m or 4% revenue, has focused minds. In2012, just four years ago, only a third of boards were concernedwith IT governance and information security. Now the positionis reversed: only a third of boards is not concerned with IT gov-ernance and information security.

GDPR regulation has catapulted data protection into theboardroom. It’s another tailwind for technology financing. Thelessee sees value in the lessor’s end of lease asset dispositionexpertise: their data is securely erased and there is an audit trail todemonstrate it has been done.

Specialist lessors, whatever their niche, have specialist skills.Partnerships with the general lessor should enable the specialist toextend their reach. Conversely, for the generalist, partnershipsoffer a way to add value, to offer more than financing and avoid arace to the bottom competing on cost of money alone.

Inevitable challenges“Come gather ‘round peopleWherever you roamAnd admit that the watersAround you have grown”

The fintech industry is expanding rapidly, and it is an acceleratingtrend as costs of entry fall. While many of the new ventures arenot profitable yet, their intellectual property is attractive enough

to give them billion dollar valuations.Traditional banking is the natural first target, and these start-

ups are stepping in between banks and their customers. In theinsurance industry they sell insurance without agents. For theaverage individual, automated investment advice is an attractiveproposition.

It is a short step from robot investment advice to robot riskadvice. A well-structured evaluation, with an almost binary out-come, should be a natural target for rapidly advancing artificialintelligence agents. And when the binary choice is unclear, theautomation of most decisions will allow the risk professional timeto focus on those decisions that need finer judgement.

Artificial Intelligence could help the leasing sales person totarget prospects, finding those which share characteristics withyour current customers. Smart contracts could simplify negotia-tions. Tracking in the Internet of Things could combine withblockchain technology to manage and monitor asset inventories.

Financial institutions have shown a variety of responses tofintech threats and opportunities (see Table 2). Whatever theapproach, a portfolio of initiatives, will ensure there are successesas well as the inevitable failures.

One of the approaches to fintech, to ignore it completely,will ensure there is neither a cost of failure, nor any competitiveedge gained from success. In a few years’ time I believe no finan-cial institution will be in this ostrich category: they will eitherhave gone out of business, or they will have changed theirapproach.

Fintech is an area ripe for partnership, and the survey revealsthis to be the most popular strategy. If there is a generalisation tobe made of emerging fintech companies, it is that they ignore

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T H E T I M E S T H E Y A R E A C H A N G I N ’

Now the Generation Y children, who benefited as they continually renewed phones while a parent paid their subscription, are reaching senior positions, theirsubscription experience will encourage leasing behaviour.

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compliance, or at least pay it insufficient attention. In this casepartnership gives rapid access to a new capability, which isimproved by the requirements of the more mature partner.

Do more, or do it better?Come writers and criticsWho prophesize with your penAnd keep your eyes wideThe chance won’t come again

Leasing is a way of acquiring the right to use an asset, rather thanacquire the asset itself. One of the inevitable changes discussedearlier is the general shift from access to ownership: a favourabletrend for the industry to exploit. Other changes favour broaden-ing the offer: a move from simply enabling access to the asset, toenabling more productive use of the asset.

So far there has been no mention of the overused ‘S’ word.Now it is unavoidable: solutions allow lessors to differentiate theiroffering. They also help build loyalty, making the lessee’s choice ofasset financier becomes more subtle and more complex than astraight-forward lease rate plus terms and conditions evaluation.

The challenge of environmental regulations will affect anyused asset. So offering the best re-use capabilities will be a valu-able differentiator. Specific trends will have their own effect onthe lessee’s decision criteria for different asset classes. Whatevertrends you spot will guide your selection of services to add. Whileyou might build your own service, seeking a partner to provide itwill be faster.

Reacting to inevitable changes leads you to do more, and soprovide a value-added leasing service. By contrast, the possibilitiesof fintech challenge you to do things better, or faster, or both.

So this section’s title offers a false choice: it is not either-or;it has to be both.

There is no success to be found in offering the best financingsolution, if you do it inefficiently: your customer will notice andmove on to a supplier with superior service.

Equally, there is no point in being efficient, with thesmoothest administration processes: if your solution is incompleteyour customer will not be attracted in the first place.

In both cases, partnerships offer the prospect of rapidprogress and mutual advantage.

At 3 Step IT we have partnerships with banks, lessors, ITvendors and distributors. Some are at an early stage; others aremore mature. Some are delivering well; others look promising; afew are challenging. Whatever their status in our partnership port-folio, all have the potential to increase our participation in ourcurrent markets, or expand our business to new markets.

So look at other lessors’ capabilities. They may be potentialpartners, rather than competitors. And hurry. These changes arehappening fast. If the choice is sink or swim, ‘then you better startswimmin’ or you’ll sink like a stone.’

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T H E T I M E S T H E Y A R E A C H A N G I N ’

Author:Carmen Ene

CEO3 Step IT

Mechelininkatu 1a 00180 Helsinki

FinlandTel: +358 50 543 2222

Email: Carmen.Ene@3stepit.com

Website:www.3stepit.com

Table 2: How are you currently engaged with fintech?

There is a variety of approaches to fintech engagement. Given that some will succeed and others fail, any strategy will need to place more than onebet. One of the strategies adopted by some is guaranteed not to see any fintech benefits and, to the extent that fintech changes the leasing and assetfinance industry, this approach may cause the whole business to fail as it becomes uncompetitive.

Source: PwC Global fintech survey 2016

9%

11%

14%

25%

32%

Engage in joint partnerships with fintech firms

Do not deal with fintech

Set up venture funds to fund fintech services

Launch own fintech subsidiaries

Acquire fintech companies

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