What’s next for leasing?
By Andrew Denton, Alfa
Andrew Denton, CEO of Alfa, discusses with various Alfa specialists what might be around the corner for asset finance and leasing.
At Alfa we think of our service to our customers as being an exercise in futureproofing; not just fixing their problems and making them more efficient now, but giving them the means to react and adapt to market changes, and be ready for the ones they see coming.
I’ve been speaking to a few of the many experts we have around the company to find out what they think will happen in the industry, in business but especially with respect to technology, over the next five or ten years.
One of the clear developments already in full swing is the disruption of the traditional car finance business model, as end customers look for more flexible car usage and loan solutions, such as ridesharing/carpooling, fractional ownership and vehicle subscription.
Sam Attias, one of our analysts, explains: “As consumers look for alternative mobility options, car ownership will continue to decline, particularly in urban areas. We anticipate that our captive customers will have to evolve their business and service models within the next five to 10 years in order to remain relevant.”
Auto finance in the US
US auto is an area we know well at Alfa. I spoke to Robert Johnson, our Global Head of Auto Finance, to get the lowdown on the future for the sector.
“There are a lot of changes afoot,” says Robert, who echoes the point on usage-based leasing. “Fractional ownership and ridesharing will become more and more prevalent, and fleets will increase, while the numbers of personally owned or leased vehicles will plummet. There will be increasing emphasis on mobility and of course autonomous vehicles.”
He goes on: “I think all this will lead auto OEM companies to transition from being known as manufacturers to being technology companies. As this progresses, many non-traditional auto companies will emerge as insurgents or disruptors to the incumbents. Today’s incumbents are strong and stable, while the insurgents are fast and agile – tomorrow’s insurgents will be both.”
Robert explains the potential value of vehicle data, including telematics. “Data will become monetised, and could be more valuable than the car itself.
“Captives will gain more market share by 2030, as cash and other payments drop and leasing and credit grow. Services such as mobility, charging and parking will grow to become an important and leading revenue stream for the leasing industry, outgrowing asset-based services.”
Graham Crockford, one of our architects who specialises in the area, describes Business Intelligence as a field where the best players are usually half a decade or more ahead of the industry average. “While web heavyweights such as Google base entire business models off the bleeding edge of data,” he explains, “Fields such as asset finance move comfortably slower, adopting some way behind the hype curve.”
Graham describes how many in the industry are now routinely making use of dashboards, data discovery and analytics in key areas such as sales, credit and customer service, in order to gain insight into current or historic performance. “More data-driven organisations have begun to take a step further, hungrily gathering data and looking for fresh ways to leverage it, identifying patterns and trends in order to impact future strategy directly.”
Immediately on the horizon, says Graham, are digital self-serve applications, in which retail users can interact independently with agreements with one or more finance company, without intermediaries. “We believe this is where the next set of challenges for BI will arise. Critical in achieving customer loyalty and opportunity conversion through these applications will be the high volumes of user interaction data they can generate; potentially tracking every single gesture – button clicks, touches or time spent on each screen.”
He explains that this data will be vital for fine-tuning the user experience, but only with the right BI strategy to manage the high volume and constantly-shifting landscape of public behaviour. “Big data technologies will become necessary to capture, store and query the data, and machine learning and AI will be needed to curate and analyse the raw data in order to extract recurring patterns and identify areas for improvement.”
Data, IoT and blockchains
Heading further into the future of the data-driven world, Luigi Iannone, another of our architects who has a keen interest in the subject, says it would be remiss to ignore the potential effects of IoT (Internet of Things) and blockchain technology.
“IoT will present more challenges in terms of data volume and integration, particularly in auto finance where finance providers might need to gather data from thousands of remote sources in order to track usage, location and other metrics.” Such data should be considered to be an untapped goldmine, he says.
Luigi reports that the possibilities of blockchain technology are touted in fields as varied as credit reporting, criminal records checks, asset authenticity, proof of ownership, supply line management and usage tracking, all touching different areas of the finance industry with their own unique challenges. “As we start to see recognised or even dominant technologies rising out of the hype in the coming years, we expect incumbent BI technology providers to step up to integrate these with their existing toolsets, and new blockchain-based startups ready to step in with interoperability features. We foresee fresh challenges in terms of how consensus, liveness and performance are managed when analysing distributed data.”
More on blockchains
Martyn Tamerlane, a senior software engineer, says blockchain and distributed ledger technology has gained rapid interest over recent years, transforming the way we think about storing data. “Across all industries there is a paradigm shift from storing data in a central location under one organisation’s governance, to sharing data between organisations in a way that ensures that it’s tamperproof.”
While solutions in this space are still in their infancy, there have already been successes. “Maersk has recently completed its blockchain platform TradeLens, which manages and tracks its global shipping ecosystem in an effort to automate verification, provide visibility of the supply chain, and eliminate cross-border currency conversion fees.” Recent demonstrations have proven a significant reduction in costs, as well as a near 40% reduction in time taken for materials to reach the production line.
Martyn explains that industry-specific consortiums have also been forming; for example, the Mobility Open Blockchain Initiative (www.dlt.mobi), which is addressing three key use cases – personal identification, payments and vehicle tracking.
“With increasing interest in managing fleets of autonomous vehicles and commercial sharing of vehicles and other assets, blockchains are set to play a central role in leasing’s underlying technology.”
The Internet of Things (IoT) has the potential to be a truly transformative technology in asset finance, asserts Stephen Nicholas, another of our development leads who has a passion in this area of technology.
“IoT is all about extending our ability to sense and act remotely, through instrumenting the world around us. Building the nervous system of a smarter world, by adding billions of tiny sensors and actuators to our everyday lives. All interacting, measuring and controlling our world at a distance.
“Imagine what finance providers would be able to achieve if they always knew exactly where their assets were, how they were being used, what condition they were in, and whether they needed maintenance.” And even more, Stephen says, if they could turn them on or off in an instant, or enable new features or push out real-time updates.
He explains that IoT is not about providing a solution, but rather is a foundation on which to build new solutions, enhanced business models and richer client experiences.
“Initial use cases are typically similar in concept to telematics, focusing on pre-emptive maintenance, intelligent usage monitoring and residual value calculations, security features such as geofencing and dial-home-devices, and the benefits and cost-reductions that automation can provide.” But, says Stephen, with the potential of a whole new level of scale, pervasiveness and integration, the possibilities don’t end there.
“Imagine being able to ask Alexa: ‘How much is my next monthly payment for my car?’, having a rich conversation around ‘Can I arrange a payment holiday?’, or even just being able to say ‘Alexa, I need a car tomorrow from 12 – 3’.
“We’re already seeing the evolution of new leasing models through services such as ZipCar, Ofo bikes, or Mercedes car2go, which have brought on-demand micro-leasing to our streets. Moving away from a model of asset ‘ownership’ through leasing, to Product-as-a-Service, underpinned by IoT (tracking the location of the asset, enabling or disabling it remotely, charging dynamically based on real-time usage); and doing all of this automatically, managed through a smartphone app.”
Stephen explains that this kind of model could work just as well to unlock a secondary derivative leasing market, where customers become the finance provider, sub-leasing existing assets when they’re not in use, by simply instrumenting them and exposing them through a common platform that allows them to be booked, handles the billing, takes a commission, and so on.
“You could then imagine rich integrations between multiple services, where a single request ‘Alexa, arrange someone to fix the washing machine tomorrow when I’m out’ becomes a series of automated calls to your calendar to check your schedule, then a service where tradesmen advertise their location, availability, and tool requirements, then to a service to lease the required tools, then one to rent a van for an afternoon. This is when things start to get really powerful, and leasing has the potential to play a key part of our ‘on-demand’ future.”
Virtual and augmented reality
“Virtual reality in its current form won’t be particularly relevant to our industry,” says Peter Smith, one of our Associate Directors and a keen VR developer (and not just in his spare time – see our VR app Alfa 360, which was written by Peter). “I see the future of VR primarily in fully immersive experiences such as simulation and entertainment, although I imagine a niche place will remain for VR sales ‘experiences’ – virtual test drives, house tours and so on.”
“AR, on the other hand, is likely to have a big impact on everyone’s lives – when the technology gets there. We’ve had a glimpse of what is possible with AR with the likes of seeing how a car would look on your drive, or Ikea allowing you to place furniture in your home. These are great sales tools but, right now, having to hold a phone up is awkward and tiring, and the technology is still somewhat flaky – especially on older phones.”
Peter says he agrees with Microsoft’s view that wearable AR (such as AR glasses) look to be the longer term future of the technology. “It’s an area where lots of investment is taking place but we’re still some way off a mass market consumer product that will really change things. But inside the next 10 years I think we can expect to see this as a widespread thing.”
With the ‘mixed reality’ Hololens, Microsoft is openly pushing the technology hardest to business. According to Peter, the cost of devices like AR headsets is hard to bring down and therefore market at volume. “They also have a limited field of view, and they’re heavy, but you’d expect the leading players to overcome these obstacles.”
Once they do, says Peter, we will see various benefits as a result. He uses the common car example. “There can be augmented sales assistance through model visualisation, placement and interaction; and easier face-to-face conversations with sales reps. People will be able to fetch a quote on a vehicle just when they see it in the street, or customise its colour and trim in real time.
“Remote in-life assistance and after-sales care could be improved by sharing your visual surroundings through your headset with a support person, and you could receive instant training on a car’s controls without needing to read the manual, just by sitting and looking around.”
Add to that the idea that much more asset inspection and reporting can be achieved remotely and automatically, and AR looks to be another one to watch.
By 2025 or 2030, a lot of what we’ve talked about could be commonplace in our lives and work. But our industry has always been risk-averse, particularly when it comes to technology. As technology providers, we at Alfa have always pushed our clients to innovate, but the cautious nature of large-scale lenders obliges them to wait for other markets to mature before moving forward themselves. So, don’t expect a quick adoption!
I hope you’ll be ready for everything that’s coming our way – we’ll do our best.
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