Why the digital revolution needs a human touch

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The combined challenges of digitalisation and updating employee skills to enhance the benefits of new technology are the key priorities of industry leaders, according to research carried out by Sword Apak. 

Its research reveals digitalisation is the term most frequently referred to by business leaders as they consider the challenges and opportunities they face over the coming years.

Subjects relating to digitalisation accounted for 30% of the issues raised by industry leaders, closely followed by the critical role of employees in managing and adapting to change.

Industry thought-leaders, speaking to Sword Apak at the recent International Asset Finance Network conference in London, identified three broad themes in the digitalisation debate.

These covered:

Developing new services – how digitalisation will drive new products, such as more personalised finance offerings and flexible finance

Accelerating service delivery – the role of digital processes in automating the administrative burden to remove errors and speed up the legislative compliance process

Improving customer outcomes – providing a digital experience for customers, with reduced paperwork, quicker decisions and faster customer support, enhanced by self-service capabilities

A lot of the key challenges facing the finance sector at the moment relate to data, according to Jon Maycock, managing director of asset finance for Hampshire Trust Bank.

He adds: “Some of the key challenges relates to how we share that data and how we get better information to provide better services to our customers.

“One of the key opportunities that I see in the asset finance market place, which has perhaps under-invested in technology compared to some other aspects of the auto leasing or consumer lending sector, is around how we use technology to deliver services to our customers.

“The products themselves have been well established and work well, so it’s the delivery mechanisms that I see as a key opportunity for lenders to be able to access the customer base and for customers to be able to access the lenders and provide for the provision of a service that is swifter, faster and more in line with the SME’s needs.”

Changing expectations

Customer expectations are changing as they are exposed to an increasingly digitalised world when it comes to other services, from film subscriptions to everyday banking, but there is also a legislative factor that is altering the business landscape.

The sheer complexity and cost of meeting legislative requirements, from Know Your Customer to affordability and forthcoming changes to lease accounting standards make a strong case for the increased use of software and digital services.

Carmen Ene, CEO of 3 Step IT, refers to a ‘tsunami’ of regulation and compliance legislation as a key mega-trend for the industry.

She adds: “The legislators are, rightly, very active and we have to help ourselves and our clients to both comply with the current regulations and anticipate the future requirements, because regulations are not going to stop anytime soon. I believe intelligent digitalisation of everything we do is the only way to manage this avalanche. The better we digitalise, the better we can cope ourselves and add value for our clients.”

The introduction of new technology should allow asset finance companies to be more agile and flexible in responding to changing market and customer demands, while minimising internal costs.

There is already clear evidence of change in the market, but Simon Goldie, head of asset finance at the Finance and Leasing Association, argues there is much more to come.

“They’re already doing it, I talk to a lot of lenders about it, but there’s probably more that can be done or more that will be done in the future as technology changes and speeds up even more than it is at the moment,” he says.

Adapting to a changing economy

This may be an important factor for business resilience if the economy becomes more difficult in the coming years.

After years of a relatively benign economic environment, change is on the horizon, with rising interest rates and an unclear outcome to current Brexit negotiations.

Maycock adds: “I think the businesses and the lenders that use data best will be best served to ride through a more difficult economic environment.”

But while digitalisation promises a wealth of efficiencies and improved customer relationships, this doesn’t suggest that the future will be an idyllic, automated utopia for the asset finance sector.

For example, what impact does digitalisation have on differentiation?

3 Step IT’s Ene suggests this is where a key connection between human and digital worlds is formed, as there is only so much progress that can be made through digitalisation alone.

She says: “So much is changing; digitalisation, news business models, new offerings, regulations and the opportunity that we get from the circular economy.

“My obsession is understanding how well prepared are our people for the new digital age. We need to attract the talent that will take our industry forward. We must continuously develop the skills of our people and provide them with the right digital tools.

“As we become more digitalised, having highly-skilled and creative people will be key if we want to make a difference. Machines will not do the thinking for us.”

It is an issue that many companies are considering, as they need to develop employees with new skills, but at the same time retain the historic knowledge that is at the heart of a strong asset finance business.

This is a view shared by Gavin Wraith-Carter, managing director of Hitachi Capital Business Finance, who raises concerns that a decade of relative economic stability may have left the industry lacking in skills that will be essential if there is a downturn.

He adds: “We haven’t had any downturn for a decade. A lot of those skills have gone out of the industry – a lot of collection skills, recovery skills and ways of engaging with our customers in difficult times to make sure we are true partners. We’ve had a really good run, but I expect it not to be quite so good for the next two or three years.”

His views are echoed by George Ashworth, managing director of Santander Asset Finance, who adds: “Over the last few years we’ve had an incredibly stable risk cost position, in fact probably echoing Harold MacMillan’s words that “we’ve never had it so good”. But risk costs are beginning to move, and move north.”

Their comments highlight the growing range of pressures being placed on business leaders and employees, amid unprecedented uncertainty about the future shape of the industry in a post-Brexit economy.

Employee development is key

The key is for employees to be performing at their highest level, with clarity about their role, even as business prospects are unclear.

Andy Follows, managing director of industry consultancy Aquilae, suggests that leaders ask four questions in relation to every person in the organisation.

  • How well equipped are they to do their role?
  • How clear is it to them what they’re supposed to be doing?
  • How is the behaviour of the people around them supporting them to perform at their highest level?
  • How much does it mean to them, the work that they’re doing?

“We can use our findings from those questions to inform improvements that will help everyone in the organisation to raise their level of performance,” he says.

This view is supported by George Ashworth, who says: “The number one opportunity in the industry today is talent identification and development.”

This focus on ensuring employees are performing at their best can also ensure that they play a key role in business development areas.

For example, the march toward digitalisation increases the importance of effective cyber-security measures and data handling.

It will be a major issue for the industry going forward, according to Ashworth.

He adds: “I think financial institutions are increasingly being driven to utilise cloud-hosted solutions and being driven down that route for the sake of speed and convenience and cost. This means that information security is right at the top of their agenda, particularly in the wake of the GDPR implementation, where the penalties for data breaches are up to 4% of global turnover.”

Asset finance businesses need to respond by developing new talent to offset an aging workforce, he argues, in addition to developing new skills, such as asset management capability to support new funding models.

Balancing competing internal requirements

This presents a final challenge, as there will be competition between competing internal needs for business funding.

Ian Dewsnap, managing director of Benchmark Consulting International, cautions: “Where you place your investments will be important. Companies have a limited budget and there is an awful lot going on, so it’s tough to provide your hierarchy of investments and where you make those investment decisions in the current climate.”

However, with a good balance of investment, asset finance companies will adapt to serve the omni-channel consumer cost effectively and profitably through a variety of digital and human channels.

Graham Filmer, managing director of Rocket Associates, explains: “The increasing commoditisation of finance, and decrease in margins mean that some players will be squeezed in the market place.

“The other factor is going to be the increasing use of digitisation and how that echoes against what consumers want, whether they all want digitised solutions or whether they prefer a human touch.

“The final issue is going to be the rise of new brands. So as people come to know brands they know and trust, like Amazon and Apple, will those places start to have an emerging face in the industry.”

For the industry, an important response will be engagement and education, raising awareness of the benefits of asset finance to a wider audience to create a larger population of customers.

The FLA’s Simon Goldie adds: “An ongoing challenge is ensuring that customers, particularly SMEs, understand what asset finance is and understand its benefits.

“The majority of FLA members’ funding goes to SMEs and there’s a lot of money, a lot of liquidity there to support members, but there’s more that can be done.

“We’ve done a huge amount of work over the last few years, talking to directly SMEs, to representative bodies of the SMEs, to the British Business Bank, to the Government, but there’s still more to do to ensure that they really are comfortable with, and understanding what asset finance is, and then great opportunities for asset finance funders.”

A key factor in this growth will be the strategic priorities of digitalisation and employee development, to create a proposition that attracts new customers to ensure the sector thrives no matter how the business landscape develops.