Nick Leader, Acquis CEO, discusses the key industry trends to watch at the start of the new decade:
The last decade certainly wasn’t a quiet one: we saw no less than four prime ministers in the UK, lived through the impact of the financial crisis, and witnessed several new words enter the Oxford English Dictionary with big impact for leasing: namely ‘credit-crunch’ and ‘Brexit’.
But the ‘10’s’ also brought some very positive growth in leasing, cementing its value as an essential business enabler; according to the FLA, the asset finance market in the UK experienced nine consecutive years of growth and was on track to reach £35 billion of new business volume by the end of 2019, the highest level of annual new business on record. And certain sectors have seen record breaking growth: the IT equipment finance sector reported new business growth of 43% in October 2019 compared with the same period the previous year. This strong growth has been reflected right across Europe with total new leasing volumes increasing by 7% Q3 2019 compared with 2018 (LeaseEurope Index results).
And while it’s impossible to predict with certainty what’s to come, particularly as Brexit negotiations rumble on, there are some key trends that Acquis will be monitoring closely as we move into the twenties:
1. Technology developments
Rapid developments in digital technology have seen a steady shift in the type of equipment being leased. At the start of the decade photocopiers made up a substantial part of leasing portfolios, and while we’ve seen usage steadily decline and renew rates slow, at the same time the use of scanning and digital copying has increased. In recent years the growth of renewable energy means that solar panels and electric car chargers now represent a huge opportunity for the leasing industry.
2. The move towards servitization
We are witnessing a strong increase in demand for pay per use services as well as services such as maintenance and upgrades bundled in with the lease agreement. While this is not a new concept, (Xerox was offering fixed-term financing contracts for copiers on a cost-per-copy basis as far back as the 1980s), the trend has spread to other asset classes, including technology, transport and healthcare. Today, servitization options exist for just about every asset class. For customers, Servitization as a leasing model can help keep costs low and provide valuable flexibility. For lessors it’s a valuable revenue enhancer, providing an opportunity to generate additional income rather than just from the sale of equipment, and it provides an opportunity to control the asset through its entire lifecycle.
While so much of our culture is still engrained in a throw-away mindset which chooses to own, use, and dispose of products in an increasingly shorter cycle, the movement towards re-programming our behaviour and embracing the ‘circular economy’ gains momentum daily. The leasing industry is already well positioned to be a front runner in supporting the growth of the ‘circular economy’, promoting a model which focuses on allowing customers to efficiently access the equipment they need to run their business, rather than owning it outright. Because lessors retain ownership of an asset throughout its lifecycle, they can take responsibility for extending its useable life, recovering it for reuse and remanufacturing and in doing so maximise its economic utility while minimising its environmental impact.
It would, of course, be remiss not to mention that Brexit will be a key focal point over the next year, but it remains to be seen how much consumer confidence will be affected. It always pays to be prudent, and Acquis has seen a growth in companies looking to maximise return from lease portfolios in order to counteract margin compression elsewhere, and at the same time there is a desire to make leasing businesses more robust by using equipment insurance as a key strategy to mitigate risk. With prudent planning based on a foundation of ten years of strong growth, there is good cause to believe the new decade can be ‘roaring’ for the leasing industry.