Beyond transformation: How the Covid-19 experience can help the leasing sector secure a digital future
By Ian Nelson, Q2, Managing Director EMEA
Before 2020 the leasing market was already changing. Smaller fintechs were disrupting incumbent financialservices providers by using technology to improve customer experiences and revenues in a sector with typically tight margins. But leasing incumbents were responding to the challenge by planning digital transformations of their business. Few had made much progress by the time coronavirus struck.
The pandemic forced a kind of digital transformation on almost every business. And the leasing sector did well, sending its staff home to deal remotely with a surge in contact from concerned customers. Many implemented digital solutions and saw that the transition to technology that they had spent years struggling to plan for or embed was possible within a matter of months, if not weeks.
But while this discovery was undoubtedly a positive development, the emergency digital transformation at these lessors went in no way as far or as deep as their competition – the fintechs – had taken it. And as many countries emerge from the worst of the pandemic, into an uncertain socioeconomic landscape, the old imperative to look beyond transformation itself, to a fully digitally-enabled sector, remains.
Businesses who were already on this journey in March 2020 must continue to refine their approach to digital, in order to meet new risks and volatilities. They must consolidate their digital gains and be strategic about new implementation. And those who have not yet started must start now.
In this article we are going to cover:
- What digital transformation should look like, and why many lessors find it hard
- Why it is important to look beyond the process of transformation and toward the end goal of a thriving and sustainable business model backed by digital, and
- The four key principles for transforming and sustaining a leasing business fit for the future
Personal, flexible, expedient – but difficult
So, what does transformation mean in practice? In the leasing business, digital transformation typically means rolling out cloud-based solutions that focus on improving lease origination, underwriting, management, and collection, for both the customer and the company.
Increasingly discerning customers want a more personal, flexible, and expedient experience. But many companies find that the transformation required to deliver this is hard. Why? Because these are legacy businesses, operating using a recipe that has been ‘good enough’ for years. And they often don’t have the experts in-house to help steer them towards appropriate technology, or to prepare the ground for its implementation. For many of these companies, these digital solutions are mysterious, complicated, expensive, and threatening. It is easier for them to ignore.
Go beyond transformation
But this is exactly why it’s so important to look beyond the transformation process itself, and to understand how digital fits into the company’s long-term strategy. Reactive digital systems based on short-lived problems like mass regulator-requested forbearance aren’t going to help the business in five years. Newly digital-oriented lessors must use their pandemic experiences as a starting point to reimagine the leasing experience start to finish.
We believe that there are four key pillars that support the kind of digital transformation that delivers business goals, keeps pace with the competition and delights your customers.
Those key pillars are:
- A strategic focus on customer experience,
- Technology that ensures operational excellence,
- A modern lease origination and management system, and
- An open technology infrastructure
Pillar 1: Reimagine the customer experience: Most lessors are only just coming up for air after at least a year of providing emergency support for their customers. Many have implemented essential but piecemeal digital solutions. It’s now time for lessors to reimagine their customers’ entire experience, from first contact to last payment. Expectations have transformed: we have all become used to the online-only, one-touch, predictive, data-accretive services of the leading tech providers. But many lessors entered the pandemic with a blend of time-consuming manual processes and outdated legacy systems. The result was a clunky and disjointed leasing experience that leant heavily on paperwork and lengthy approval times. So, they need to up their game.
Digital solutions offer ways for lessors to manage the whole process much more efficiently. This doesn’t mean automating everything you can lay your hands on, but observing the customer journey and automating intelligently. Select simple, high-volume tasks for automation, and understand where your staff can add the most value with their expertise.
Keeping the customer at the centre of your transformation decision-making means you will end up with solutions that delight them, and which augment and empower your experts. The end result? Loyalty in a noisy marketplace.
Pillar 2: Behind the scenes – operational excellence: The benefits of operational excellence are clear: better experiences, reduced costs, lower risks, and higher profits. Operational excellence is also what allows the business to be flexible, responsive, and empathetic.
But what does operational excellence actually mean in this context? We think it means building and using a solid, nimble, cloud-based platform covering everything from lease origination, through management, and to collections. And as we said earlier, automation should exist to increase one-on-one time with customers.
Such a platform means teams can also configure their workflows to manage costs and due diligence, and share data across the business that makes customer conversations easier, increasingly in-depth, and more empathetic – an important factor in an economy that’s likely to have higher numbers of vulnerable customers in coming years.
It’s key that any platform you build be matched to your business and revenue goals. And it’s a good idea to partner early, since you likely don’t have the experts in-house for this kind of job. In today’s open technology climate, there’s a lot of experts who specialise in key areas of the leasing and lending lifecycle, and they can help construct, iteratively test, and scale an agile system. Look beyond transformation means building a system where employees can focus on customer relationships first, rather than running the business.
Pillar 3: Purpose-build: Leasing is a traditionally manual job that leaves customers vulnerable to error, fraud, and delays. Even those companies who have digitised their leasing systems have ended up repurposing lending software for their leasing business. We don’t think that’s a good idea. Why? Because leasing requires its own approach. Lessors have unique needs such as equipment supply chain management, and equipment valuation, including residuals and maintenance. This cannot be managed effectively either manually or with a repurposed loans system.
A purpose-built leasing system is a must. These systems use automation and data (machine learning) sensibly to allow you to, for example, develop your risk tolerance factors to suit a range of scenarios. This technology will be critical in the emerging dynamic risk environment. Crucially, a purpose-built platform also allows you to establish a financial ecosystem with other partnerships so that the customer journey is seamless from start to finish.
Pillar 4: Open infrastructure: We have noticed that one of the hardest parts of the transformation journey for our clients has been understanding and accepting that not every element of the leasing process has to be on their plate. In a burgeoning technology economy, there are plenty of options to augment your leasing system with application programming interfaces (APIs) that handle specific parts of the job for you, such as e-signing, or valuations.
Open banking is an emerging API that’s set to rock the boat. Lessors will be able to look through bank statements in detail, at the touch of a button. This means that pricing and planning repayment will be much more accurate – something leasing businesses don’t want to miss out on.
The benefits of APIs are clear – faster innovation, greater scale, appeal to wider customer segments, and easy integration of back-end systems. But they can also go wrong if they are not sufficiently integrated and secure, or if staff aren’t trained in how to handle the data for the benefit of both customer and business.
Covid-19 has shown lessors that it’s possible to rapidly digitise in a sector that’s previously been reticent to transform. But transformation is only part of the story.
If your business has transformed to meet Covid needs, it is likely that you’ve learned a lot, and that’s great. But it’s time to revisit your whole technology strategy. Look at your customer journey in ordinary times, and plan for emerging risks. Make sure the digital moves you make next are there to empower your staff to deliver better service, rather than to prop them up or replace them.
If you are just starting out on your digital journey, it’s wise to partner up, to lean on expertise and use this opportunity to engage with your staff over digital transformation. This is no longer about responding to an emergency, but about the future of your business and its capacity to meet customer expectations that have been developing for a long time.
Discover how a sound digital strategy can transform your leasing business by exploring more content in our special series, Beyond Transformation. We highlight everything from expert opinions to customer success stories to make the process as flexible, collaborative, and seamless as possible.
Ian Nelson, Managing Director EMEA
1-2 Paris Garden, London SE1 8ND, UK
Tel: +44 (0)7703 600860