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Equipment financiers leveraging global business centers for growth

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Evolution and growth

The European leasing market accounts for approximately 37% of world volume and is expected to grow in 2015, according to Leaseurope Index results for Q1 20151, which cites declining loan-loss provisions and new business volumes as primary drivers of growth.

Despite this rosy outlook, the industry today faces unprecedented challenges fueled by digitization, technological innovation, big data, and changing end-customer dynamics. As businesses seek to institute new sustainable growth strategies, they will require operating models that enable them to enter new markets, facilitate product and process innovation, and support technology transformation while holding down costs. Ultimately, success will depend on delivering quality service and creating a culture of service innovation.

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GBS centers as drivers of growth: A fundamental shift in the design of evolved operating models will come about through the creation of Global Business Services (GBS) centers. GBS centers are conglomerations encompassing multi-functional operating models which integrate internal capabilities and processes with those of strategic third-party vendors.

An emphasis on new asset classes, such as trucks, solar, 3D printing, and industrial equipment, combined with competition from industry disrupters like peer-to-peer lenders, suggest some of the ways in which the market will shift in the future. Yet most current operating models do not respond rapidly to change because they are optimized, not for scale and agility, but for stability. GBS centers, on the other hand, create scalable and rapidly deployable operating models inclusive of technology, process, and talent. 

Lenders will move away from pure-play leasing to usage-based models. GBS centers ease this transition by redesigning the overall operating model strategy, re-evaluating risk, and enhancing relationship management with original equipment manufacturers (OEMs). GBS centers also help reduce the overall cost of technology, aiding financiers in making investments in dealer portals, mobility solutions, self-service portals, and automated underwriting.

Big data and analytics: New growth and customer experience strategies—based on predictive analytics and data gathered from numerous resources, including social media—will lead the industry down an entirely new path. Asset financiers will have to partner with GBS centers (strategic vendors), leveraging their deep understanding of equipment finance processes and core technology platforms to fully unlock the potential of analytics and big data.

Technology as a differentiator and an enabler: Just as regulation impacts the capital-allocation strategies of financiers today, digitization-driven market innovation will surely bring still greater regulatory complexity in the future. Technology’s ability to drive down the cost of managing compliance, therefore, will be an important strategic differentiator. Alternative funding sources such as crowd funders, which have easy access to abundant capital, are offering newer, more efficient and cost-effective ways of financing; moreover, they are doing so without legacy platforms limiting their speed or ability to adapt. The equipment finance industry will profit by carefully studying, and in some cases adopting, best practices introduced by this new breed of competitor.

Ultimately, the primary market differentiator in the future will be end-customer service experience. A spate of innovations, such as automation of repeatable and rule-based equipment-lending processes, and the use of artificial intelligence to enhance the end-customer experience, is likely to play a vital role.

The fundamental shift in creating evolved operating models will come from the creation of “Global Business Services” centers

Meeting compliance requirements, driving data security, and achieving a variable cost structure, in sum, are the primary factors influencing decision-making around technology platforms. GBS centers enable end-to-end transformation in the technology space by introducing origination platforms that are not only highly configurable but meet evolving regulatory needs. These can also function as bolt-on solutions to SaaS technology platforms with transactional pricing structures inclusive of process management.

Process transformation to drive controllership: GBS centers drive process controllership and innovation by taking a systemic approach to enterprisewide operations, simultaneously curbing revenue leakage, improving deal conversion, and reducing cost to serve. GBS centers are organizationally efficient and reduce value leakage at interfaces by establishing clear linkages between process drivers and business outcomes.

Building competitive advantage by lowering cost of delivery: Investing in technology platforms and processes to meet ballooning regulatory requirements while maintaining robust data security against cyber risks requires large outlays of capital. By potentially reducing the cost of operations as much as 60%, GBS centers allow businesses to allocate investment where it is needed most.

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