Re-molding leasing industry shapes: new trends, threats and possibilities with leasing software
As financing comes as a supporting activity for the automotive and equipment manufacturing industries, so the asset finance software helps to ease leasing operations and make them more efficient. Therefore, when the automotive or equipment industry goes through major changes, for example in purchasing models, it will create new financing models, and in turn, will affect the development of leasing and equipment leasing software.
So why not to take our crystal ball and try to foresee what the next 20 years could bring to the leasing industry, what the role of the leasing software during these changes will be, and how it could help in new challenges and opportunities. And if you‘re skeptical about various oracles, take any fiction book from the 1950s and see how many things mentioned in it have become commodities today…
MaaS, CaaS and other “as a service” realities
For several years the vehicle industry has been going through supreme changes; it has a foggy future in the three biggest markets: United States, China, and Europe. New and restrictive CO2 regulations appeared in this period, and many manufacturers faced the challenge to complete their transition to electric cars faster than expected. By 2040, electric cars could make up 57% of all passenger car sales worldwide, as Bloomberg New Energy Finance research states.
As vehicle electrification and digitalization increased demand, many car manufacturers started to move toward mobility services such as carpools and ride sharing, bicycle sharing, scooter sharing and car sharing, which is already seen as a commodity rather than innovation these days—a very good speed of business development if we think that the first grounded discussions on mobility as a service (MaaS) started back in 2012, and more intensive actions took place as recently as 2015-2017.
Toyota declares that “cars spend 95% of the time parked and cities are crowded with parked cars, whereas space could be used for better purposes. That is proof of a need for car sharing and the automotive industry is in the middle of finding the right way to achieve that. It will be an evolution, and the industry is at an early stage.” But it’s not only about saving the space, time and costs or getting greener. The vehicle buyer’s picture has been recently changing, too: People no longer tend to own a car, but they still need to go places and want to receive a full-service package. This trend, seen as the car-as-a-service (CaaS) business model, means moving from traditional asset-oriented, long-term financing and commitments towards flexible, subscription-oriented mobility solutions with full-service operating leases.
The concept is new only to the car service industry though: Software as a service (SaaS) has been a growing trend in the IT software industry for the last 10 years. Customers tend to like the new SaaS trend for the same reasons we believe that CaaS will continue to grow in the short term: No upfront investment, no IT experts in-house needed, no headache on support, highest security standards and efficient service guaranteed. Maybe that’s why revenue from SaaS is expected to grow by 77% from 2018 to 2022, as Gartner states. According to PwC, by 2030 mobility services will represent a larger percentage of profits than new car sales.
What might be different in the leasing industry and leasing systems after 20 years?
Recently I had a conversation with one leasing company, the CEO of which has drawn the near future picture for me: The customer enters the dealership and presents ID; the credit check is completed in a minute, a loan is granted or refused and signatures acquired. Then she rides away on her new motorbike 15 minutes after entering the store. Sounds like Utopia? Well, some of SOFT4Leasing customers are already able to grant a loan in a few minutes, auto-approve applications or run complex scorecards in seconds, because of the loan management software. And with growing hype of artificial intelligence (AI) tools, we expect them to become very important for entities such as credit agencies, gathering lots of data to set the trends for the market. For leasing software, it will be important to have open interfaces to receive that data easily and adjust for the leasing company’s needs to make a well-informed decision.
The CaaS model will possibly affect cashflow and therefore may be tricky for dealers and financiers in the short-term. This ascent of car subscription ruins the existing financing and leasing model, bringing full-service operating leases up to the front. More flexible financing types will be necessary as financing companies try to fulfill more varied customer needs. Most current finance software solutions are limited to the traditional 36/48/60-month contract model, and in some cases, lack the ability to provide the additional services and vehicle financing controls required, therefore the finance software providers will need to change fast, too, in order to adapt to their customers’ (financiers) business needs. It will also require deeper pockets from the players in the market until they completely understand how the new business model works and start growing profits. When customers pay for a car subscription but not for owning a car in the long term, they can commit to four/six/eight months rather than 48 months. Can it be that the leasing business will become more akin to short-term rentals? This would mean that companies would need to be able to analyze tons of data, as well as adapt various new pricing models, such as pay-per-use. Without equipment leasing software it is basically impossible to do.
Business intelligence and reporting tools allow investigation of the efficiency of leasing business today, and in the future this will become even more important. Today, advanced analytical software tools pull data together and process it, turning it into intelligible insights, with visually compelling and easy-to-process charts and graphs. For example, new sales reports should give an early sight of any peaks in the application flow, which may require higher effort in credit and settlement teams, and may affect current cash flows. In the future, with the growing CaaS trend and the need for OEMs to differentiate even more in order to get sales, car manufacturers will need highly sophisticated data warehouses and analytical tools to get information on customer’s creditability, personal preferences, and risk factors, and even the possibility of evaluating health and attention levels while driving! There will also be a need to provide the answers and evaluations very quickly.
The front office software providers will likely invest in the technology, allowing them to capture the customer‘s interest at any point of time, on any platform used—be that the leasing companies’ website, social networks, the dealers‘ website or anywhere else. This will require major technology of leasing system and a shift in approach. Technology will also allow the financing companies to understand their customers’; behavior and purchase path better, and to compete for their attention more efficiently.
COVID-19 impact on vehicle industry digitalization: leasing software becomes more important
The COVID-19 crisis has also added its impact so that already weak car sales have dropped even more, and a new stage of the digitalization era has started.
The COVID-19 crisis induced digitalization in probably every market; the vehicle industry also had to adapt to it. Online sales are relatively new to the vehicle industry. Still, already many OEMs and captives, such as Mercedes or Mitsubishi started selling, financing, and leasing cars online. Even though a car is a serious purchase, and buyers must take a lot into consideration before purchasing, online platforms quickly came in handy for price calculations and for viewing available configurations. With this in mind, buyers should start to conduct many more transactions online during the next few years.
It is likely that geography will become less important in the following decades when speaking about a leasing software vendor’s location. With travel restrictions, even for the local players, it will become commonplace to talk to the leasing companies remotely. On the other hand, this trend will expand leasing companies’ choice to find a reliable partner in other regions, even other countries, to negotiate better conditions for their project or to enjoy more sophisticated software solutions, thus increasing competition for local software players. For example, for the period March – October 2020, the SOFT4 team completed the first two 100%-remote SOFT4Leasing software implementations. This was done from Lithuania to captive automotive and independent leasing companies in Australia!
To summarize, life is here to challenge us, and that shouldn’t be news to anyone. With new leasing industry trends, not only will challenges but also opportunities come. It is important to spend some time away from daily routines trying to see the bigger picture, evaluating where your business could be heading next and understanding how you could benefit from the new trends. Efficient leasing software will play an inevitable role if you plan to achieve more. Let’s have a virtual coffee to discuss how SOFT4 could be a part of this journey of yours during the next 20 years!