Equipment Finance Webcast Reviews Managing change in equipment finance Published: 11th July 2024 Share Summary In the rapidly evolving landscape of equipment finance, managing change is a complex yet crucial task. Jochen Jehmlich, former CEO of Société Générale Equipment Finance (SGEF), shares his insights on the industry’s transformation, shaped by his leadership experience and deep understanding of the sector’s challenges and opportunities. Moderated by John Rees, AFC equipment finance community leader, Murad Baig from FIS discusses with Jehmlich the future of equipment finance in the context of technology and sustainability. The evolution and future of SGEF Société Générale’s decision to divest of SGEF whilst elevating its motor finance division, Avyens, and its mobility solutions to a key pillar within the bank, illustrates a strategic shift driven by profitability and manageability. Whilst he cannot speak for Société Générale, Jehmlich explains that operating in over 50 countries with diverse regulations and ESG policies would have created complexities for the bank. The equipment finance division’s size of profit was modest compared to the overall bank size, making it challenging to manage alongside other segments. In contrast, motor finance, with its single product line, proved easier to handle and more profitable. Looking ahead, Jehmlich remains optimistic about SGEF’s future under Groupe BPCE. “The equipment finance industry is well placed for the circular green economy.” Jochen Jehmlich He emphasizes the importance of increasing profitability while simultaneously advancing sustainability efforts. The accompanying webcast poll echoed Jehmlich’s thoughts with over 60% of delegates agreeing that sustainability is a big opportunity for asset finance divisions of banks without sacrificing margins. The equipment finance sector plays a crucial role in the transition to a circular economy. Jehmlich argues that the industry should initially focus on funding green assets and subsequently develop next-generation circular economy solutions through ecosystems. This shift requires time, effort, and robust partnerships to manage the lifecycle of assets effectively. Sustainability and profitability: a delicate balance In the sustainable future of equipment finance, various ownership structures—bank-owned lessors, captives, and private equity-funded businesses—each have their advantages and drawbacks. Bank-owned entities excel in risk control and liquidity but face regulatory burdens. Captives benefit from proximity to sales channels and manufacturers but struggle with funding pressures. Independents, backed by private equity, possess strong equity positions but may falter in securing consistent funding during economic downturns. All three models can coexist and work together in a sustainable future, each thriving under different economic conditions. Partnerships and collaborations seem a robust way forward. Jehmlich stresses the need for asset finance companies to provide robust sustainability data to meet regulatory requirements, contributing to the parent bank or manufacturer’s sustainability goals. However, the quality of data and outdated IT systems pose significant challenges. Legacy systems often involve manual data entry, leading to mistrust and underutilization of the data for decision-making. “Asset finance firms could play a similar role as fintechs in transitioning banks to becoming greener.”Murad Baig The role of technology in equipment finance: past, present and future Over the past decade, technology in equipment finance has evolved from merely streamlining processes to becoming integral in decision-making and customer interaction. Initially, investments aimed at making processes cheaper, more reliable, and faster. Today, technology such as artificial intelligence (AI), machine learning (ML), and advanced data analytics play a pivotal role in credit decisions, cost reduction, and enhancing asset and customer lifetime value. Jochen Jehmlich noted how SGEF’s journey involved re-platforming software to create a unified system across countries, a process that took many years to complete. This transition underscores the importance of developing systems that are configurable and flexible to adapt to varying processes across the globe. Murad Baig emphasises that the goal is to “build solutions for an evolving environment” that cross all clients, products, markets and regions, enabling future-proof and adaptive operations through APIs and other integrative technologies. “We need to build digital solutions for an evolving environment.” Murad Baig People: the heart of change The human element remains central to the successful implementation of technological and strategic changes within the equipment finance industry. Jochen Jehmlich emphasizes three key changes regarding the role of people in evolving equipment finance work environments. Firstly, the shift to home and then hybrid work models during and post COVID-19, referred to as the “drifting model” by Jehmlich, brought both positive and negative impacts, including less commuting time combined with less team cohesion and increased isolation. Secondly, there is a clear inter-generational shift towards valuing corporate purpose and positive societal impact. Jehmlich and Baig agree that a company’s purpose and culture are extremely important to the next generation of industry professionals. The leasing industry needs to make a clear point about their purpose and green agenda to attract and retain new talent. And finally, Jehmlich highlights the importance of blending AI with human expertise, ensuring that data is accurate and outcomes are trusted. Automating processes while retaining a human touch is vital. Selecting new talent in the industry now prioritises a growth mindset over technical experience, according to Baig, focusing on individuals who are passionate about both asset finance and technology, and who will embrace change. “More important than technology is to bring on people with a growth mindset.” Murad Baig Opportunities and challenges with AI The integration of emerging technologies, particularly AI, is set to revolutionise equipment finance. AI can enhance servitisation, digitalisation, and maximise the lifetime value of assets. But while AI offers numerous opportunities in equipment finance, it remains in its early stages and requires strong governance, according to Baig, especially as regulatory frameworks like the EU’s AI regulations take shape. “AI should be used for automation, but commercial application needs to be grounded with strong governance around process and data.”Murad Baig FIS’s Baig believes that companies must start with the basics—ensuring data quality—before moving towards more sophisticated AI applications. As products in the industry evolve towards service-based and subscription models, sales approaches must adapt accordingly. Automating sales processes for simpler deals and deploying experts for complex transactions can optimize efficiency. But questions remain as to whether today’s sales force are trained to sell such new products. Digital journeys in equipment finance should be omnichannel, according to Baig, allowing customers to engage through various touchpoints seamlessly. Concluding remarks Managing change in equipment finance involves navigating technological transformations, fostering sustainable ecosystems, and leveraging human capital. As the industry continues to evolve, the blend of technology and human expertise will drive future success, ensuring that equipment finance remains a vital component of the global financial landscape. Through strategic leadership and new talent, robust partnerships, and a commitment to innovation, the equipment finance sector can achieve sustainable profitability and contribute to a greener, more resilient future. Webcast with Jochen Jehmlich and Murad Baig with analysis from John Rees, Asset Finance Connect’s equipment finance leader Sustainability offers opportunities for asset finance divisions of banks to enable their parents to deliver on their ESG goals without sacrificing their margins due to good reporting tools and finance provided for ‘green assets’ AI and advanced technologies are revolutionizing equipment finance by enhancing decision-making, reducing costs, and improving asset and customer value. Unified, adaptable systems and strong data governance are essential for leveraging these technologies effectively Effective leadership and a growth mindset in new talent are crucial for managing change in the industry. Blending AI with human expertise and ensuring accurate data are vital Sponsored By "We must increase profitability while getting greener at the same time" Sign up to our newsletters Sustainability is an opportunity for asset finance division of banks to enable their parents to deliver on their ESG goals. Bank owned asset finance companies should focus on delivering sustainability without sacrificing margins (which are already low compared to alternative uses of bank capital) Over 60% of delegates see sustainability as a big opportunity for banks provided that they focus on their short-term margins Featured Stories Webcast ReviewsHow the European asset finance industry can address challenges and deliver opportunities for SMEs Webcast ReviewsESG webcast review: From good intentions to effective action Webcast ReviewsAFC leaders’ interview with Carlo van Kemenade, CEO of DLL Equipment Finance Find out about the future of equipment finance by reading the review of our webcast with Jochen Jehmlich and Murad Baig with analysis from John Rees Analysis from John ReesEquipment Finance Community Leader, Asset Finance Connect A fascinating conversation between a recent retired industry leader and a “technologist” discussing the future of the asset finance industry with a focus on technology and sustainability whilst always keeping a strong view on customer needs. Jochen Jehmlich, recently retired CEO of SGEF, brought a wealth of industry experience and practicality whilst Murad Baig from FIS contributed great ideas and input from the technologists that are supporting the asset finance industry. Clearly there remains a “conversation” about the importance of sustainability against profitability within the asset finance industry with Jehmlich clear that whilst a move to net zero remains high profile, ultimately it is profitability that remains the key factor for any asset finance company. There is also an ongoing discussion between suppliers of technology and practitioners about what value new technologies can bring to lenders. Does new technology bring better customer service, or does it seek to reduce costs of the lenders by automating processes such as credit decisioning and KYC? Or both perhaps? The use of technology is clearly critical in the future of the asset finance industry and implementation of new systems and technologies were well debated between Jehmlich and Baig. It is an ongoing discussion which AFC will be following as we move through the Summer and towards our Autumn conference. Vendor finance providers will invest in technology which enables them to collaborate with manufacturers and other participants in the complex ecosystems necessary to deliver comprehensive customer solutions (like those required in transition to green assets) Three quarters of delegates unanimously agree that investment in technology is vital to managing change in the equipment finance industry
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