What this year’s AF50 tells us about the future

This year’s Asset Finance 50 report published this week – which as usual I have prepared the data for – should be a particularly useful one for anyone interested in the future of the UK industry.

In addition to the data on the top 50 firms, based on published financial reports for year-ends in 2023 or early 2024, there’s a collection of articles by industry leaders setting out a long-term plan for the industry – a manifesto of what we need to do to maximize our industry’s potential to support the UK economy.

Knowing just how busy everyone in the industry is, here I bring together some highlights from the contributions, together with comments on why the points made are so important (comments are entirely my own views, not discussed with the AF50 contributors). If you find these highlights interesting, please do take a look at the full articles by downloading the AF50.

Growth is about productivity as well as sustainability

Ian Isaac, Lombard, suggests that businesses now face an imperative to invest in more efficient production processes, including robotics and automation. Investment is needed to improve productivity as well as to move to a low-carbon operating model.

Alexandra Tait, Lombard, adds that ‘powerful partnerships and collaboration remain central to our efforts as not only do they help mitigate the costs and risks of investing in emerging technologies, but they enable us to partner with specialists who provide us with expertise on a range of climate concerns’.

Why it’s important: The biggest driver of increased investment is likely to be the need to increase UK productivity, which is widely reported to lag behind other large economies including France and Germany. Sustainability goes hand in hand with that, but many assets that might not be seen as ‘green’ still have a vital role to play. For more on this, see this paper from Leaseurope on transition finance.

Understanding customer needs

Ian Isaac, Lombard, refers to understanding customers’ unique challenges and needs being more critical than ever, to help explore ‘agile solutions’ such as usage-based lease agreements, and the development of strategic partnerships (such as the recently announced NatWest arrangement for farms supplying to Tesco).

Julie Warren, Propel Finance, describes how Propel is partnering with organisations with large customer franchises and networks to ensure SMEs have access to a wider range of financing options tailored to their needs, with the company’s £8m investment in end-to-end digital technology.

Mike Randall, Simply Asset FInance, notes the need to look beyond the balance sheet and assess each application on an individual basis to support the most positive growth. This is achieved with technology that delivers robust and fast support, and people dedicated to understanding each business.

Why it’s important: These trends raise many questions about working with intermediaries that will need to be worked out by lenders over the next few years:

• Should banks focus on direct relationships with customers – If the customer is ‘owned’ by a broker or vendor, can a bank be confident it is adding value to the customer’s business?
• Will independent finance companies come to lead the broker channel?
• Alternatively, if banks are to work successfully with brokers, does it suggest a new type of partnership relationship with the intermediary, rather than operating more at arms-length?
• Does online ’embedded finance’ remove, or complement, the role of brokers?

Intense competition

Nathan Mollett, United Trust Bank, notes that competition in the market remains intense, particularly for smaller banks. Solutions can include using technology to offer superior service to customers, and vertical market specialisms.

Why it’s important: Asset finance is an (unusually) unconcentrated and highly competitive part of the financial services industry, which leads to low prices and high quality (firms with poor service or weak underwriting don’t survive). There’s always a need to ensure compliance with all relevant regulations and good practices. But in any sector, it’s competition, not regulation, that is the most effective way of delivering value and the best customer outcomes – and the AF50 shows we have plenty of it.

No ‘sit back and wait’

Geoff Maleham, Novuna, sets out the need for a concerted effort by the asset finance industry to develop channels and products which actively encourage more sustainable businesses.  It’s not enough for the industry to ‘sit back and wait’ or government policies to lead to demand for asset finance, instead the asset finance industry needs to ‘keep pushing the sustainability agenda and championing change’. He cites Novuna’s new sustainable project finance product that supports customers’ sustainable projects from early development through to operation.

Why it’s important: It’s almost so obvious we tend to forget that the asset finance industry is the single largest buyer of almost (every?) business asset type in the UK. And of course, lessors cannot force customers to select particular assets. But there are still substantive ways of supporting business customers in their journeys to sustainability as Novuna and others have identified.

Broker-lender relationships

Andy Taylor, Haydock Finance, calls for the industry collectively to look at an agreed training plan for asset finance brokers as many of the most experienced brokers in the market start to retire.

Why it’s important: There’s currently plenty of options, but perhaps a degree of hiatus, in the support available to asset finance brokers, whether it’s training or other support. The NACFB proposition for asset finance brokers has improved significantly. Many brokers have yet to fully appreciate the new broker accreditation and associate membership of the FLA. The new Guild of Business Finance Professionals has recently been launched promoting the highest standards. Asset Finance Solutions continues to successfully offer its Broker Academy. The Broker Hub brings mentoring and other support. Numerous funders offer their various educational options to their broker partners.

Using a mixture of approaches, experienced brokers get on with their vital jobs, but it’s increasingly difficult for new entrants, and it doesn’t help that the costs of obtaining FCA authorisation for a new small firm have become prohibitive.  Focusing on education feels the right place to start to help improve the situation.

Untapped opportunity

Matt Roper, Close Brothers Commercial, supports the idea of key funders coming together to raise the sector’s profile – both to support recruiting more diverse teams, and attracting businesses who haven’t considered using asset finance in the past. Close’s market research suggests that only 45% of business owners have heard about asset finance products, leading to a great deal of untapped opportunity.

Why it’s important: Many will have seen TV adverts from Raylo, the consumer technology leasing business, that attempt to explain leasing.  Do we need something like this to raise awareness of business leasing? I’m not sure about that, and some other surveys report higher awareness levels, but certainly some coordination of messages could be very useful. When the new lease accounting rules start being applied in 2025 for year-ends from January 2026, boosting awareness of the benefits of leasing (the benefits aren’t affected by the accounting, but there’s room for confusion) will become more important than ever.

For lots more detailed data comparing the AF50 firms together with around 20 smaller lessors, please contact me for details of my financial benchmarking database.