Managing change in equipment finance

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.