European automotive

JBR Capital: accelerating the high-end vehicle financing market

Summary

Through a combination of a highly personalised approach and key strategic partnerships and channels, JBR Capital has immersed itself in the high-performance automotive community.

They understand the special relationship and passion that their customers have for their high-end dream cars and see their role as facilitating that dream and passion for luxury vehicles. Through this unique relationship, JBR place the customer at the heart of the business, from onboarding through the entire customer journey.

Chris Seaward, Chief Operating Officer at JBR Capital notes that, “at JBR we understand that the emotion for high-value cars exists with our customers and we are happy to help them achieve what they want to achieve.”

Rapidly developing relationships within their multi-channel network of dealers, brokers, franchises and direct customers, JBR Capital have achieved a reputation within the auto finance sector as the only specialised UK independent lender of high-value cars (from £25k to £750k) in the regulated and non-regulated space.

Building on significant momentum since the business was founded, JBR Capital has accelerated over the last 12 months – 2022 being the company’s most successful year with £279 million in lending alone – surpassing £1bn of lending since their inception in 2015.

Their growing business has seen their workforce rise from five to six ‘colleagues’ in 2015 to over 80 today. The maturing of the company allows them to look ahead and see growth for the future, aiming to repeat another £1bn in lending in just two years’ time by growing business across all channels.

Growth has been substantial and JBR has lofty ambitions. Over the past eight years, JBR Capital have shown that their model works, helping them to weather the economic challenges of Covid, Brexit, interest rate rises and rising inflation over the past few years.

“There is huge opportunity in our core business which we are looking to maximise all of the time.”

Multi-channel approach

JBR Capital operate through a multi-channel network – dealers, broker channel, franchise network, and direct to customer – and are constantly expanding all channels to reach their targets.

While these individual networks are all important to JBR, the strong broker market is the largest distribution channel with business soaring following the Covid pandemic. JBR also see significant future growth from the franchise channel presenting a big opportunity for expanding the market.

JBR works with its loyal introducers to maintain a ‘customer for life’ philosophy. As Chris Seaward notes, JBR’s introducer partners are strategic partners in the long-term vision of the business, and “the relationships with introducers are really important and the backbone of what JBR is built on.”

“Our introducer partners are our strategic partners in the long-term of the business.”

JBR believe that the direct to customer route is a more passive channel for JBR and will increase as the company grows and the brand becomes more visible through a number of initiatives:

  • Tactical marketing and PR strategy
  • Connection with luxury car enthusiasts by partnering with sector organisations and clubs
  • Car shows – supporting the community and demonstrating JBR’s expertise in the sector

JBR Capital’s expertise and knowledge in high-end cars and customers in this niche market is very prevalent and they are seen as the main expert in the field. As Chris Seaward confirms, “As the business grows and becomes more capable and more credible and can deal with larger volumes, we will have an increased appetite to talk to a range of people about where we can help them with financing options.”

JBR see one of their key strengths as continuing to be independent and brand agnostic so that they can serve the whole market rather than specialising on any particular sub-segment.

Product range

JBR offer a limited range of regulated and unregulated products which fit perfectly with their clientele’s financial objectives – fixed and variable rate loans and hire-purchase products (with and without a balloon payment).

New mobility finance solutions including pay-per-use and subscription products are not offered by JBR Capital as they feel that they won’t work effectively in their niche sector and will not suit the needs of their traditional-style customers who, as enthusiasts who want to love and own their car, want the pride of ownership.

As Chris Seaward highlights, “We have a specific niche market of customer who love their cars and love to own them and I don’t see the subscription model coming into this space in the near future.”

Value-added products

Currently JBR Capital do not offer any value-added products, but with a growing client base and a solid foundation, JBR are always interested to explore different revenue-generating opportunities and partners who can complement their existing platform.

However, with only a 5% market share in their current market segment, JBR’s main focus is to grow and increase their market share in the lending space in their core business. In the future, they see a huge opportunity in generating revenue through additional value-added products and partnerships.

JBR have a platform where customers can advertise their cars for sale. This is an additional customer service offering. JBR do not own the cars and do not offer a wholesale stocking facility.

Customer relationships

Digitally enabled onboarding with a human touch

JBR Capital are a digitally enabled lender with a human touch; a business that fully understands the special relationship that their customers have with their cars.

The JBR onboarding process is a mix of manual and digital. While they use digital interfaces and APIs, the key differentiator between JBR and other lenders is that they perform manual underwriting. While they have the ability to have automated decisions as a guideline for underwriters, they also have a manual process so that they can understand the ‘real’ risk and opportunity.

JBR operate a rate for risk criteria where each introducer has a price banding from JBR with a fixed commission.

JBR Capital currently have access to sufficient wholesale funding arrangements to enable them to exploit their growth ambitions and to help them meet their aspirational target of £1bn in the next two years. This lending comes from a number of sources: senior lenders, mezzanine lender and a private facility, and in the future JBR will hopefully look at a public ABS transaction.

Good customer experience

For repeat customer business, JBR will direct the client back to their original source channel to maintain a consistent customer experience and seamless journey. JBR can boast excellent levels of customer retention, especially through their broker and direct channels, with strategies in place to retain customer loyalty.

A key strategic project for the future of JBR Capital, according to Seaward, is a JBR customer portal, enabling customers to access their account digitally and therefore further enhancing the customer relationship.

COVID

During the turbulent times of the Covid pandemic, JBR Capital followed the necessary regulations and witnessed a good experience throughout with their customers, resulting in few negative outcomes.

The company offered payment holidays, which had a relatively small uptake of approximately 20% of their book during the peak of the pandemic in 2020.

Seaward highlights the needs during this time to liaise with funders, implement new processes and educate the work force. He believes that learning how to react and re-engineer processes during this time tested JBR as a business, but it was a challenge that provided a good learning experience.

Consumer Duty

At JBR Capital, the customer is at the heart of the business and customer service is particularly important. As such, JBR are effectively adhering to and are fully compliant with the new Consumer Duty guidelines.

According to Seaward, JBR want to fulfil the spirit and letter of the Consumer Duty regulation, with the guidelines embedded in the DNA of the company.

Plans for Consumer Duty at all levels of the business were formed four to five months ago and are now fully implemented throughout the whole business. Raising the standards from TCF, Consumer Duty can be found throughout the entire end-to-end customer journey.

“Consumer duty is in the DNA of the company.”

JBR are proud members of the Finance and Leasing Association.

ESG credentials

JBR have implemented their ESG programme over the last two years, making excellent progress across all divisions.

Launching an industry standard-setting sustainability initiative in 2022, JBR Capital partnered with Carbon Neutral Britain by offsetting 5,000 miles of carbon emissions for each car financed by its clients, greatly reducing the environmental impact of high-end vehicle ownership.

The programme allows JBR to offset the carbon emissions of the first 5,000 miles in the first year of ownership for the client and the client can then sign up to the initiative for subsequent years.

Previously focusing on Scope 1 and 2 emissions where JBR have offset all business emissions, the sustainability initiative looks at ‘sold services’ under Scope 3 emissions by offsetting customers’ carbon emissions, an example of JBR’s responsible lending approach.

Seaward highlighted that JBR have a rightful obligation to do this for their clients and the planet when they finance cars that omit the most carbon. JBR’s initiative is also in line with their specialist financial services private equity investor, Cabot Square Capital, who have a strong demand for ESG strategies in their portfolio companies.

Other ESG strategies include engaging with two local charities – City Harvest and Talent Rise – to stay connected to the local area in which JBR can try to make a difference.

This philosophy continues into the JBR workplace, with employee-led initiatives in D&I, mental health awareness, wellness champions, and various workshops. Seaward emphasised the importance of a positive culture at JBR Capital, in order to retain staff in a niche marketplace and have an engaged workforce, which translates to an engaged customer.

“We’ve tried really hard at JBR to build a positive culture to retain our staff as the niche expertise we have is really important to us.”

Analysis from David Betteley, head of Asset Finance Connect auto finance community

JBR is a great example of a business that really understands its customers, how to serve them and deliver industry leading satisfaction levels.

It has a clear strategy regarding its present-day operational scope and how to develop in the future by growing organically its existing channels to market, whilst at the same time innovating with new products that will first and foremost deliver value to customers, which will then, as a result, grow the revenue and profit base of the company.

The company has a thorough understanding of the challenges, risks and opportunities that it faces and it is managed by a core team of seasoned industry professionals. The go-to market strategy is an interesting mix of manual and digital which enables omni-channel delivery, which in the opinion of the writer will continue to be the preferred method for JBR’s customers to interact with the business.

I was particularly impressed with the engagement of the JBR staff that I met whilst researching for this article. The company has a clear message to its customers and also to its staff. In a people-oriented business dealing with high-net-worth individuals and their cars this has to be the correct recipe!

UK regulation

Review of the Consumer Credit reforms

The Edinburgh Reforms and the future of consumer credit in the UK

Summary

On 9th December, the Chancellor Jeremy Hunt introduced the Edinburgh Reforms, a package of 30 areas of reforms including a much-anticipated and long-awaited consultation on the 1974 Consumer Credit Act (CCA).

The package of reforms, not all affecting the asset and auto finance industries, builds on proposed and existing legislation and aligns with the Future Regulatory Framework in setting out the Treasury’s vision of the future financial services landscape. It is hoped that the Reforms will stimulate lending and growth in the UK, increase competition, and make the UK an international centre for overseas investment for financial services.

These generational reviews and reforms have been enabled because of the UK’s withdrawal from the EU, allowing greater flexibility and opportunity for change.

The financial services sector has faced unprecedented challenges over the last few years and continues to face macroeconomic challenges and customers continue to be pressured by the cost-of-living crisis. Such challenges have been faced against the backdrop of a global pandemic and fundamental regulatory form in the guise of the consumer duty.

At any other time, the sector would fully embrace the reform of the CCA, but for many the prospect of further change (especially after the recent introduction of the Consumer Duty guidelines) may leave them wondering how their already stretched teams will respond.

However, there is no doubt that the reform of the 1974 CCA is long overdue and for many parts of the market it is no longer fit for purpose for the diverse and demanding needs of customers and lenders in today’s market place.

The consultation and reform of the CCA will be a long process due to numerous areas covered in the Act which are clearly outdated against today’s society, economy, and financial services sector and products.

In the video below, Wayne Gibbard, Commercial Clients and Strategy at Shoosmiths provides an insight into the reform of the CCA and some specific areas related to the asset and auto finance industry.

The consultation is broken down into 30 questions, grouped around different categories, which are very wide in their nature and will require some considerable thought in responding to and also for the responses to be assimilated by the government; this is the central issue as to why reform has been difficult to achieve in the past.

The Consultation promises to seek alternatives which are proportionate; aligned (with the implementation of the Future Regulatory Framework); forward-looking; deliverable; and simplified.

In line with recent Consumer Duty guidelines, it seems both desirable and inevitable that there should be changes to the prescriptive nature of many aspects of the CCA (agreements, notices and information) to more customer centric and focused communications.

Another important aspect of the consultation relates to information requirements. Following BREXIT, the UK now has greater freedom to review aspects of the Consumer Credit Directive and reconsider information requirements for the UK market alone, free from harmonisation requirements.

Issues raised relating to the asset and auto finance marketplace include:

1. Lending to small business – there are many nuances relating to this in the CCA, with current CCA rules impairing the operation of lending in this market which is an engine for growth. If the government’s objective is to further stimulate the economy, lending to SMEs and small business has to be central to that ambition. They could possibly remove the £25k cap and provide that all lending for business purposes is unregulated, as occurred during the COVID pandemic. The government have acknowledged that supporting SMEs is critical for the survival and growth of the economy.

2. Innovation and new product development (such as subscription type products) – access to credit and use of technology is increasing and the current CCA rules cannot keep pace with these changes causing friction in the customer journey. On balance and, given the acceleration of product development and technology, having less prescription must be desirable.

3. The transfer of rules to the Financial Conduct Authority (FCA) and their powers – link to Consumer Duty guidelines which set the foundations of what the future state may look like, along with the FCA’s likely approach to oversight and enforcement in respect of the duty. Having both the rigidity of prescription and then the Consumer Duty will cause potential conflicts in the delivery to customers. Some general guides or baseline requirements may reduce some of the risk for lenders, without creating prescription.

Voluntary terminations

It is encouraging to note that the Treasury have specifically set aside consideration of the voluntary termination provisions of s.99 and s100 of the CCA.

With regulation and oversight constantly evolving since the implementation of the CCA in 1974, there are many questions about the applicability of voluntary terminations in the market place today and whether these offer any enhanced protection to vulnerable customers, or whether they are being adopted by consumers who do not really require the protection.

Wayne Gibbard believes that the removal of the right to voluntary termination, but preservation of some form of similar forbearance in CONC for vulnerable customers, may achieve a balance between this as a protection measure and balance for the lenders’ right.

Graham Wheeler, CEO of Advantage Finance sees that the biggest cost to businesses is currently voluntary terminations, which have been abused since the CCA was established. With Consumer Duty guidelines and changing rules, Wheeler strongly believes that “voluntary terminations rights are unworkable” and present a huge cost to lenders.

According to Graham Wheeler, a new set of rules are needed that the industry can work to as the current processes are unwieldy, with many consumers abusing the VT rights.

Commission disclosure

According to Shoosmiths’ Wayne Gibbard, the transfer of the remaining provisions of the CCA to FCA rules shouldn’t have any direct impact on commission itself. Commission disclosure rules are already set in CONC, requiring disclosure where it may affect the impartiality of the broker or where it could reasonably affect the decision of a customer if it were disclosed.

CONC also elaborates about the amount of commission to be paid (being commensurate with the cost of the transaction/activity being undertaken by the broker).

However, at the current time commission is constantly present in the background of the sector, particular in consideration of the customer understanding and price & value outcomes under Consumer Duty.

While commission disclosure may be a topic for further debate, in looking at the FCA’s previous reviews (in 2019 – Motor Finance Review), Consumer Duty and the current CMC activity, Wayne Gibbard sees that there is a compelling case for lenders to consider disclosure to the customer in line with practice in other market areas, such as insurance and mortgages. This is, of course, a big change, but one which the sector and individual lenders should form a view on by April, when they are required to provide information to distributors under Consumer Duty.

While the CCA reforms will be a long-term consultation and process, Advantage Finance’s Graham Wheeler sees commission disclosure reforms as much more imminent.

Regulated and unregulated business

There are many changes currently affecting the marketplace – commission disclosure, consumer duty, CCA reform – but will they bring regulated and unregulated business together? There will be a change, according to Shoosmiths’ Wayne Gibbard, as long as objectives to stimulate the economy are at the forefront of the government’s minds. While there won’t be a blurring of boundaries between regulated and unregulated business, Wayne Gibbard hopes that there will be clearer lines about business lending being excluded.

As highlighted in the video below, Wayne Gibbard is optimistic that the CCA reforms will clarify and simplify.

If we look at these markets in their purest forms, business and consumer, Wayne Gibbard would like to see the CCA keep them separate to allow for the needs of those customer bases to be served accordingly. Whilst there may be overlap across the marketplace, they clearly have different imperatives and require different outcomes. Trying to serve both these markets through one set of rules, on the face of it, doesn’t make sense.

As Wayne Gibbard notes below, we should strive to make the case that innovation will drive the economy and frictionless transactions with SMEs is a real enabler for growth.

Transfer of power to the FCA

The origins of this new consultation stem from the transfer of powers from the Office of Fair Trading to the FCA in 2014, when some provisions of the consumer credit act were transferred to the FCA rules, but this was limited in scope. Since then, there have been several reviews relating to consumer credit, including the Retained Provisions Review in 2019, which noted the complexity in transferring the remaining provisions of the CCA to the FCA.

The transfer of the remaining CCA rules to the FCA must be seen as a positive step for a number of reasons, according to Wayne Gibbard:

  • Opportunity for lenders to have greater flexibility to serve their customers through the channels and information they deem necessary and customers require.
  • FCA principle-based (not rules) approach is a good thing.
  • The FCA have been clear that they want to stop the constant cycle of remediation activity and for cultures to change to support that. This has to be welcomed and we can already see a move towards this through consumer duty and the more collaborative approach.

However, this is a learning period for the asset and auto finance industry, from a lender and FCA perspective, with many years of learning to be done on both sides. Longer term, the consultative and collaborative approach of the FCA has to be better for lenders, consumers and the regulator.

In the future, Wayne Gibbard believes that we will see this transfer of power to the FCA as a positive move, but the journey between now and then will be difficult for all involved as we learn about the FCA’s appetite and sector view going forward.

While Graham Wheeler agrees with Wayne Gibbard’s view, he feels that “any move towards a single source of truth is a good thing for the industry” and that the best thing for the industry is a merger of the new CCA and consumer duty and FCA rule book to a new book of rules.

“Any move towards a single source of truth is a good thing for the industry.”

Graham Wheeler, Advantage Finance

Role of FLA and other trade associations

In light of the increase in principles-based regulation, trade associations and similar bodies have a crucial role to play in setting the tone for a particular sector and providing some market interpretation. Industry guidance from these associations will be able to shine a light on particular market areas, e.g. motor finance, credit card, direct lending or broker introduced, and should give more confidence to lenders operating in these spaces.

Industry guidance is helpful and has a place in the market as the FCA look at these guidelines in their enforcement guidance or through their decision principles to assess the conduct of a firm. As Shoosmiths’ Wayne Gibbard notes, “there is definitely a place for well-crafted guidance.” This allow the niche and unique area of our market place to be explained and contextualised against general rules and guidelines which may be applicable to the financial services market as a whole.

“Having industry guidance is helpful for us to shine a light on the specifics of our marketplace and how we operate in the broader context of financial services.”

Wayne Gibbard, Shoosmiths

As a director of the Finance & Leasing Association (FLA), Advantage Finance’s Graham Wheeler noted that the dialogue between the FLA and the FCA is already underway, with the FLA taking on an advisory role.

Concluding remarks

The consultation of the Edinburgh Reforms is now open and is seeking views from all stakeholders on a number of reforms including the CCA. The consultation closes on 17th March 2023 and it will be interesting to see what points will be raised that will affect the asset finance industry. Following the closure, we enter the realms of uncertainty but can expect to see packages of reform, proposed through further specific consultations and new regulation, being brought forward. However, the new CCA rules will likely take several years to implement.

As the consultation acknowledges, reform is necessary for lenders, intermediaries and consumers and is seen as a key driver for economic stimulation over the coming years.

There remains a lot to consider and reflect upon before responding to the consultation, but this has to be something which the industry embraces. The generational opportunity to update and reform archaic and antiquated regulations and provide flexibility for new product innovation and changes for the future must be welcomed.

Analysis from Wayne Gibbard Commercial Clients and Strategy at Shoosmiths LLP

Whilst we are at the start of the process for reform of the Consumer Credit Act, it is encouraging to see the focus and desire of the sector to embrace this and recognise the value this could bring to customers and their businesses.

Through an engaging discussion, we were able to get a feel for some of the current friction and complexity caused by the interplay of the Consumer Credit Act and other FCA rules, such as CONC.

Right now, the sector is focused on the delivery of Consumer Duty and the assimilation of that into their businesses. This has to be the priority, but it is worth keeping an eye on the progress of the reforms and especially the outputs from the consultation, as this will guide the new pathways to follow. Also, where there are particular pain points, these should be articulated and rationalised to guide the progress of this reform.

There is a long way to go before we see a full reform and this all remains subject to parliamentary time, but nevertheless we are now at the starting line, prepared with the marathon ahead of us!

European equipment

Detected: Frictionless global business onboarding

AFC Autumn 2022 Conference: Fintech Innovator Award

Winner: Detected

The Fintech Innovator Award Winner for Autumn 2022, sponsored by Lendscape, was unanimously voted for by the Fintech Innovator judges and AFC conference delegates. The winner for Autumn 2022 was Detected.

Liam Chennells, Chief Executive Officer and Co-founder of Detected took to the stage at the AFC Autumn 2022 conference to pitch Detected to the Fintech Innovator judges and conference delegates.

Detected, which was founded in July 2020, is a London-based fintech that provides frictionless global business onboarding, the key to driving profitable customer relationships.

Detected believes that, up to now, business onboarding has been slow, complex, manual and unfit for purpose and that current Know Your Business (KYB) verification is ineffective for both the businesses who are doing the onboarding who have to connect with multiple data providers, take the information and manually upload to their system, as well as the businesses who are being onboarded and being asked for vast amounts of information that technology could support.

Detected has fixed this problem on both sides by focusing on how technology can make the process better. Detected think about KYB like e-commerce – how many businesses arrive, on one side, and how many are onboarded on the other side.

Detected utilises over 1,700 data sources – including big providers such as Orbis as well as local providers in different countries – to create a detailed and accurate profile of any business in the world. It supplements this with information that can be added by the business that is being onboarded.

Detected uses an advanced matching algorithm to simplify the process – the algorithm combines all the data to create the most up-to-date profile of a business. The level of matching is over 98% and the experience is connected via powerful APIs.

“We can’t innovate unless we are creating proprietary technology and the advanced matching algorithm is what defines our business.”

Using artificial intelligence (AI), Detected have built logic into their system so that genuine AI pulls the information together in a single source and creates AI insights, identifying fraudulent actors and determining risk categories at scale.

Ongoing management is an important aspect of the system according to Chennells, as the client is alerted when anything changes within the business.

Chennells sees Detected as “the world’s first fully end-to-end KYB software.”

“Detected is the world’s first fully end-to-end KYB software.”

Frictionless onboarding – Easily capture verified information about your business customers anywhere in the world, with just one link.

Why Detected?

A customer-first approach to business onboarding
Unlock growth – Achieve a faster time to revenue and lower churn rate
Improve efficiency – Reduce your operating expenses
Gather unrivalled global business data
Partnerships – The onboarding platform of choice for Fintech – Detected is an accredited Visa Fintech Connect partner
Business profiles – Capture and monitor exactly what you need
Technology that scales and is built for enterprise

      European automotive

      EV industry: supply issues and China’s dominance in raw materials

      Effects of economic and geopolitical uncertainty on the auto industry

      As the automotive industry faces a myriad of challenges, from adjusting to the changing dynamics of the economy in the aftermath of Covid-19 and rising inflation and interest rates from the current cost-of-living crisis, to equipping itself for the mobility revolution including connected and autonomous motoring, electrification and zero emissions, Professor Jim Saker, President of the Institute of the Motor Industry (IMI) discusses the economic and geopolitical uncertainty currently facing the sector.

      At the Asset Finance Connect Winter Conference 2022, Professor Jim Saker addressed rising concern around the lack of access to raw materials that are vital for the manufacture of batteries. These resources are largely controlled by China. It is the restrictions on access to these resources and our current lack of ready infrastructure for electric vehicles that Saker believes makes the planned ban on manufacture of ICE vehicles by 2030 unwise.

      Growing demand for EVs and shortage of raw materials

      With the deadline to carbon net zero looming, the number of electric vehicles (EVs) is increasing and manufacturers are racing to secure and strengthen their position in the battery supply chain, from mineral extraction and processing to battery and EV manufacturing.

      The International Energy Agency (IEA) has projected skyrocketing global demand for electric-vehicle-sized lithium-ion batteries increasing by over 40 times by 2030.

      However, to meet this ever-increasing demand, auto manufacturers are going to have to overcome a big obstacle: where to get enough of the raw materials, which have to be mined and refined, to power the batteries in all those electric vehicles?

      Batteries are one of the most important and expensive components of EVs, and over the past decade, China has deftly maneuvered to dominate the electric vehicle supply chain, particularly when it comes to the raw materials – cobalt and lithium.

      Chinese companies are poised to meet the surge in demand. In 2021, more than 3 million electric cars were sold in China — making it the largest market for the vehicles — and the country’s battery industry is growing exponentially to keep pace. China’s share of global lithium-ion battery production capacity was 76% in 2020, while the US share was a mere 8%, with China clearly in pole position.

      “With the deadline to carbon net zero looming, the number of EVs is increasing and manufacturers are racing to secure and strengthen their position in the battery supply chain.”

      China’s dominance in the battery supply chain

      China is the world’s biggest market for EVs and, in its quest to be the global leader in electric vehicle manufacturing, China has overtaken other countries as the world’s battery production capital, with Chinese battery manufacturers such as CATL enjoying a meteoric rise in recent years.

      Research into the “new energy” vehicle industry (electric and hydrogen fuel cell vehicles) has been funded by the Chinese government with more than $100bn, according to the Center for Strategic and International Studies. But the Chinese government didn’t stop at funding for the cars themselves; as early as 2012, they provided $214m in electric vehicle research funding primarily for battery technologies.

      Battery raw materials

      The EV revolution is ushering in a golden age for battery raw materials, reflected by a dramatic increase in price and demand for two key battery commodities, lithium and cobalt, over the past 24 months. China currently has the advantage, both in terms of sourcing lithium and cobalt, and the processing of the ‘blue’ metal. The global demand for cobalt is expected to surge to over 200,000 mt per year by 2025, according to Eurasian Resources Group (ERG), a leading producer for battery-use cobalt that is headquartered in Luxembourg.

      According to a 2019 working paper – Interconnected supply chains: a comprehensive look at due diligence challenges and opportunities sourcing cobalt and copper from the Democratic Republic of the Congo – by the Organisation for Economic Co-operation and Development (OECD), eight of the 14 largest cobalt mines in the Democratic Republic of the Congo (DRC) are Chinese-owned and account for almost half of the country’s output. And, most importantly, China represents 80% of the world’s production of cobalt chemicals and the vast majority of refining capacity.

      According to the OECD paper, “the dominant market position in the refining stage acquired by Chinese companies shows a good capacity to harness the expected rise in battery demand and the increased competitiveness of battery and component manufacturers in China and Korea, in the context of a growing importance of Chinese energy security and the opportunity to leapfrog internal combustion engine vehicles.”

      However, more importantly for global car manufacturers, Chinese companies have a controlling share of the market for the processed cobalt that is the critical battery ingredient that powers the majority of electric vehicle fleets

      “China has built a wide-ranging lithium battery strategy over the past decade and executed that strategy to powerful effect.”

      Chinese companies — often backed by the government — have secured lithium buying stakes in mining operations in Australia and South America where most of the world’s lithium reserves are found.

      China’s Tianqi Lithium owns 51% of the world’s largest lithium reserve, Australia’s Greenbushes lithium mine, and, in 2018, they paid approximately $4bn to become the second-largest shareholder in Sociedad Química y Minera (SQM), the largest lithium producer in Chile.

      Another Chinese company, Ganfeng Lithium, now has a long-term agreement to underwrite all lithium raw materials produced by Australia’s Mount Marion mine, the world’s second-biggest, high-grade lithium reserve.

      In short, China has built a wide-ranging lithium battery strategy over the past decade and executed that strategy to powerful effect.

      Chinese dominance in the supply chain is even clearer at the refining stage: BloombergNEF’s (BNEF) global lithium-ion battery supply chain ranking, released in November 2022, shows that China continues to dominate for the third ranking in a row, for both 2022 and its projection for 2027, thanks to continued support for the electric vehicle demand and raw materials investments.

      China’s dominance in the rankings shows that refining capacity is just as important, if not more, as access to raw materials and mining capacity.

      OEMs moving to China…or not?

      So, has China’s leading position in the EV market as well as their dominance in the battery supply chain led to UK and European car manufacturers moving production to China?

      The growth in China’s automotive industry was fuelled by European and US carmakers that farmed out the production of an increasing number of their components to China to save costs and establish links with the world’s largest car market.

      For example, in 2019, BMW Group announced that it would build future MINI E vehicles in China with Great Wall Motor by building a joint plant in China under the new joint venture, Spotlight Automotive Limited. Recently The Times reported that BMW is set to move production of its electric minis from the UK to China by the end of 2023. However, BMW has denied the report.

      Tesla’s factory in Shanghai now produces more cars than its plant in California, with some of the batteries that drive them being Chinese-made with the minerals that power the batteries being largely refined and mined by Chinese companies.

      However, China’s dominance over the world automotive market may be about to change. A recent Financial Times article noted that carmakers are beginning to cut ties with China, launching a “quiet yet concerted effort to cut their reliance on China’s sprawling network of components makers.”

      The article highlights two key developments that have prompted this move by international car manufacturing groups – (i) China’s zero Covid-19 policy which is causing uncertainty in the industry due to the extended closure of manufacturing plants at short notice; and (ii) a threat to trade caused by a “political decoupling” should there be a breakdown in the relationship between China and the international community.

      While foreign car manufacturers will not totally abandon China’s supply chain, they will slowly ease the flow of components from China to other international plants over time. However, the article suggests that foreign manufacturers will retain their connections with the Chinese supply chain purely for the manufacturer of cars that are exclusively for the Chinese market.

      Car manufacturers will increasingly be looking elsewhere for car parts and components, while ensuring a robustness and resilience in the supply chain and costs. This particularly applies to sourcing EV batteries, where it will become necessary to strengthen and diversify the battery supply chain away from China, especially where raw materials are concerned.

      “Car manufacturers will increasingly be looking elsewhere for car parts and components, while ensuring a robustness and resilience in the supply chain and costs.”

      Rising raw material costs

      In its Europe Autos 2023 Outlook report, Bloomberg Intelligence believes that rising battery costs and battery demand could be the industry’s next major complication, with escalating battery prices impacting the retail cost of an EV.

      The IEA forecasts that the automotive sector will require 50 new lithium projects, 60 nickel mines and 17 cobalt developments by 2030 to meet soaring global EV demand.

      In an effort to secure the supply of vital EV battery raw materials, away from China’s control, car manufacturers are beginning to invest upstream in the mining sector, with many OEMs making direct equity investments in mining companies or mining projects, or providing funding to make sure they can accelerate the development of new mines and get security of supply.

      While Tesla has led the way in securing raw materials for batteries, several car manufacturers who are increasingly frustrated by supply chain disruption, have stepped up their efforts to secure resources by going directly to producers.

      For example, General Motors has agreed to pre-pay $200m to secure supplies from Livent, a lithium mining group in the USA, while Ford is funding Australian Liontown Resources to develop a lithium mine, and Stellantis has taken a €50m equity stake in Vulcan Energy Resources, which aims to produce lithium in Germany.

      The automotive industry estimates that the battery accounts for between 40-60% of the price of a BEV, while 60% of the battery cost is estimated to be down to the minerals.

      Using technological innovation, car manufacturers are looking for a solution by trying to develop batteries which are less reliant on expensive raw materials such as cobalt, focusing instead on lithium, something Tesla has achieved in its batteries for the new Tesla 3 series.

      Selecting alternative cheaper raw materials and battery technologies must be adopted by all OEMs for two reasons, (i) to reduce the cost of EVs, putting them in line with internal combustion engine (ICE) vehicles; and (ii) to move away from raw materials predominantly owned by China and China’s dominance in the supply chain.

      “Selecting alternative cheaper raw materials and battery technologies must be adopted by all OEMs to reduce the cost of EVs and limit China’s dominance in the supply chain.”

      Find out Professor Jim Saker's rising concerns around the lack of access to raw materials that are vital for the manufacture of batteries by watching his Asset Finance Connect Conference Session
      UK asset finance

      Propel – Championing the SME

      Summary

      Propel Finance has enjoyed soaring growth of 92% over the last year. What is driving this growth as the economy faces headwinds that could challenge the asset finance industry once more?

      As an independent asset finance specialist lender, Propel has seen a rapid rise in delivering asset finance to SMEs; reflecting both the investment in its staff, its technology and its desire to work with its partners – whether financial or manufacturer – to provide SMEs with vital access to finance.

      Propel’s most recent partnership with Samsung Capital highlights Propel’s capabilities as an SME specialist. Samsung, like Barclays, introduce their SME customers to Propel in an accretive ecosystem business model, based on their confidence in Propel’s technology platform and customer service

      In a recent interview with Jon Maycock, Commercial Director of Propel, Asset Finance Connect discussed the main drivers of growth with Jon – robust funding, distribution partnerships and efficient customer centric systems.

      Samsung Capital

      In their strategic partnership with Propel, Samsung Capital are introducing their business customers to a specialist which is a mutually beneficial way of helping SMEs. Propel are particularly effective in performing this specialist role. The appetite for partners such as banks, brokers and technology providers to use this niche service seems clear, with the new collaboration with Samsung reinforcing its success. Customers are evidently appreciating this new way of connecting their business needs with a niche provider based on Propel’s customer satisfaction scores.

      This accretive ecosystem business model works particularly well because Propel have invested in excess of £4m in its proprietary platform, Propeller, to deliver a seamless end-to-end process for the customer journey. Propel have deployed their technology to their chosen distribution partners to enable Barclays, their broker partners and Samsung’s channel to connect via API or directly to obtain access to an asset finance service that is simple, smooth and seamless.

      As part of their partner model, based on the proprietary nature of their platform, Propel can tailor the application process and the specifics of the decision engine according to the needs of the partner and their customer flows.

      The Propel ecosystem

      Propel have been growing their business ecosystem by collaborating and partnering with several financial businesses to drive investment and support SME growth. Using the accretive ecosystem business model, Propel can help enable businesses to maximize their growth, driving productivity and performance.

      The accretive ecosystem model is generally an arrangement between two, or just a few entities, where all parties have a portion of an overall customer value proposition that combined is worth substantially more than the sum of its parts. In the accretive model, the members generally don’t compete. The most common example of an accretive ecosystem is where a company has developed some sort of distinct and valuable IP and/or substantial aggregation of valuable data because of their primary business activities.

      There is a realization that those assets present a monetization opportunity, but there is no appetite to invest internally to form a new business unit to create the platform and the channels to market. By selecting the right partner(s), these assets can quickly become revenue-generating without the deployment of significant capital.

      Partnerships

      Propel began to grow their ecosystem in 2020, when they partnered with Barclays Business Bank, to help SME business customers access best-in-class asset finance services to purchase equipment and vehicles.

      Barclays, who do not offer direct asset finance services to their Business Banking customer base, introduce them to Propel as they are specialists in SME asset finance with slick capabilities – including their own scorecards for specific types of customers and their own tech automation and processes.

      In 2021, they formed partnerships with UK accounting, tax and business advisory firm Azets and global payments service provider emerchantpay. The strategic partnership between Propel and Azets allows the latter’s business clients to access best-in-class asset finance solutions to obtain vital equipment and vehicles.

      Recently in October 2022, Propel announced a landmark strategic partnership with Samsung Capital, the finance division behind Samsung Electronics (UK) Limited, to provide asset finance solutions to UK SMEs through Samsung’s extensive distribution channels.

      While Samsung Capital will continue to serve the financial requirements of its larger business customers directly, they recognize that they can deliver better experience for the high volume, lower value transactions by partnering with Propel. It is these smaller value transactions where Propel will work with Samsung’s distribution partners and channel resellers to provide finance to Samsung’s channel partners’ business customers in the UK to acquire a wide range of equipment – including the latest phones, tablets and leading-edge audio-visual equipment.

      These and future partnerships point to Propel’s innovative business model whereby they can partner with a financial institution like Barclays – but can equally be used by manufacturers like Samsung who have cash reserves and can finance their own large-ticket deals but need the systems that Propel have to provide finance to SMEs with more small-ticket deals.

      The third distribution channel for Propel is to partner with a limited number of the largest UK brokers. The Propeller system brings efficiencies to the broker community, avoiding multiple input into disparate systems for the broker.

      Funding

      In August 2022, Propel announced its first private securitization, as part of a new £500 million financing round. As part of this competitive source of funding, Citi structured a £275 million private securitization facility, while Quilam Capital provided an additional £35 million mezzanine and working capital facility. This enabled the partial refinance of Propel’s existing British Business Bank ENABLE funding facility and support further growth. The British Business Bank will continue to be an important funding partner for Propel, with an ENABLE Funding facility that will allow Propel to provide c. £165 million of finance to SMEs across the UK.

      The financing supports Propel’s emergence as a leading force in UK asset finance; and supports the business generated by its strategic partnerships with Barclays Business Bank, accountancy firm Azets and global technology leader Samsung Capital. This allows Propel to provide more than one million SMEs with access to fast and flexible finance to acquire equipment and vehicles.

      Re-platforming Propel

      During the pandemic, from 2019 to 2021, Propel decided to look at their business ecosystem and began to make changes to effectively revitalise and grow the business. In 2019 they completely re-platformed the back-office accounting system and, in 2020 to 2022, invested around £4 million in developing its in-house proprietary technology platform – Propeller. The origination software is a proprietary end-to-end system providing a seamless and swift experience for distribution partners and customers, from proposal through credit scoring to document generation and e-sig. In 2021, this was coupled with a brand-new Microsoft Dynamics CRM which sits on top of the platform.

      Following this, in 2021, Propel streamlined its business origination model into three channels:

      1. Partnership model – with financial partners, Barclays and Azets, who look at their customers and identify any potential needs for asset finance. They send information through their CRM system via APIs to Propeller. Typically, Propel are processing 1,500 deals a month with same-day decision. Through 500 referrals a month from Barclays, Propel are receiving fantastic end customer feedback with a 9.7 out of 10 customer satisfaction score.

      2. Broker model – positioned Propeller into carefully chosen partnerships with UK asset finance brokers, where Propel can drive a similar partner approach and offer the same process. This is a growing channel for Propel, where they can embed tech through APIs into the broker front-end system.

      3. Vendor model – this is the historic core of the Propel business; and is where the tech focus has emanated from. Technology vendor distributors (i.e. phones, tablets, telephony, laptops, audio-visual with an average ticket size of £7,500) have access to Propeller – embedded tech by APIs into their models. Propel are looking at repositioning traditional vendor models and embedding the tech into the customer journey. The Samsung partnership is borne out of this technology vendor channel.

      Propel clients are all from business sectors and range from large corporates to micro-SMEs. Propel can offer regulated and unregulated agreements according to the profile of the customer.

      Propel believes that SMEs still need to be educated about the benefits of asset finance; and provided with an awareness of being able to deploy asset finance lending against non-traditional assets. Asset finance is not just available for cars and yellow goods – but for production systems, technology assets and a whole range of fixed assets.

      When asked about the credit profile of his customers Jon highlighted that all through the COVID pandemic, the cost of risk at Propel stayed consistently low and below industry average and continues to perform. The product range remains simple – either hire purchase or finance lease. Typically, HP is used for larger assets with a future value and finance leases are used for smaller deals for tech assets.

      Jon believes that the business is a success due to the “combination of technology and people”. Propel are still passionate about the face-to-face client experience, but we also understand how Propeller has changed the customer journey providing an end-to end and efficient experience.

      For more insights into the industry, see the Asset Finance International website

      Analysis from John Rees Asset Finance Connect’s equipment finance community leader

      Propeller has been a real ‘gamechanger’ in growing the Propel business, with an investment of over £4 million in developing a tech platform that makes the experience for distribution partners and customers swift and seamless.

      When developing Propeller for the vendor channel, Propel realised quite quickly that they could use their tech platform to process high volume low value deals, understanding the use of tech as the core aspect of Propel’s proposition.

      Barclays and other financial institutions have been quick to realise Propel’s expert capability at processing asset finance transactions, based on the combination of their tech platform and customer focused team.

      With various lenders withdrawal over time from the asset finance market, SMEs have been left with inefficient and limited funding options. The Propel model allows SMEs, through Propel’s partner, broker and vendor channels, easy access to a new asset finance provider.

      The Propeller tech platform enhances the partnerships within Propel’s ecosystem by being easily connected to a partner’s CRM platform via secure APIs, allowing the client direct access to Propel’s asset finance portal without any duplication – resulting in an efficient process that gives access to funds within 24 to 48 hours from start to finish.

      One of the most valuable attributes that digital technology offers a business is to give it an edge over its competitors, something every equipment supplier needs in today’s crowded marketplace, and which Propel is successfully implementing through an innovative and integrated asset finance portal – Propeller. Combine that with an understanding that people are still important and customer centricity can be human as well as technology based; and Propel has a great recipe for success.

      Note: Finance is subject to status. Terms and Conditions apply. Propel acts as a lender or a credit broker for business customers only.

       

      Register now for future related webcasts
      European automotive

      Connected car: Customer convenience or commercial reality?

      Summary

      The current business model of OEMs is under threat and they are increasingly turning to connected services as a way of increasing their margin.

      Large long-term projects such as the development of fully autonomous cars are no longer the focus. As we have seen in their decision to close down ARGO AI, Ford and VW see semi-autonomy as a bigger opportunity for more immediate revenue.

      Cars are increasingly being packed with technology making them expensive to buy, to service and repair, thus resulting in customers choosing the vehicle with the best in-car technology or add-on services and products, rather than a specific car brand.

      OEMs are seeking to find ways of using this technology and its associated revenue-enhancing data to increase their income. And while some OEMs are doing this successfully, such as Tesla, traditional car manufacturers are finding the transition from a product provider to a service provider more difficult.

      Connected car users

      The battle to control connectivity of car users has already been won by technology providers delivering services through smart phones. Consumers increasingly rely on the services delivered via smart phone connections that they consume both inside and away from their cars.

      Auto Trader’s Ian Plummer believes that the direction of travel is changing and we need convergence between car tech and phone tech in the car, with partnerships between OEMs and software tech companies. The use of smartphones and applications within the car is a necessity for most drivers who want to be in the car whilst accessing out-of-car experiences via their phone.

      Creating two different environments – one inside the car and one outside the car – makes little sense for consumers, and therefore OEMs need to focus on this and provide an “overarching experience” linking the smartphone experience with the car.

      “As users we want convenience, we want things to be easy to do from one environment to another.”

      Ian Plummer, Commercial Director, Auto Trader

      OEMs should therefore focus on partnering with non-car connection providers rather than seeking to develop their own separate ecosystem. Plummer believes that there is a need for OEMs to partner with software companies such as Google or Apple pointing out that, “there is a lot of benefit in manufacturers being realistic about who they should be partnering with.”

      At best, if OEMs successfully create separate systems this will create a fractured experience for consumers using one system in their cars and another elsewhere. Plummer feels that there is an increasing danger for OEMs who are trying to do everything themselves as a manufacturer and forcing the consumer in to a situation that isn’t particularly consumer friendly. The more likely outcome is that customers will continue to use their phones to access connected services and connected car alternatives will be ignored.

      Car companies should instead focus on the more achievable driver-specific services like parking and insurance, where it makes sense to connect the service to the car and not to the car user.

      Plummer believes that people are becoming less concerned about the car brand and spec and are choosing the vehicle with the best in-car technology and add-on services and products. The USP of cars is gradually moving towards the tech within it and the added value this can bring to the consumer.

      With this transition in the auto industry, John Ellis sees an opportunity for the OEMs to play a new role as “a trusted broker or a trusted transactable agent, where we think about the car having an account”.

      Culture change from product provider to service provider

      Traditional car companies are still focused on using additional technology features as a trigger to replace the vehicle and have not yet thought through the implications of a connected service model which allows them to turn new functionality on or off without replacing the car.

      OEMS need to understand the difference between this old model of triggering car replacements and the new service-focused model and to think about what this new ecosystem looks like.

      “OEMs need to enable the sort of functionalities that will create value for consumers which will make them want to have a long-term relationship with the OEM.”

      Ian Plummer

      The new consumer-value driven model will put the customer needs at the centre, rather than the need to increase revenue. This model becomes less about triggering a transaction, and more about building a relationship through supplying services over time.

      This reorientation from simply selling a vehicle as a product provider to entering into a long-term brand relationship with the consumer as a service provider is something that will not come naturally to the OEM according to Ellis.

      John Ellis believes that trust and reorientation are a different proposition for the OEM: “It comes down to the trust and reorientation of just trying to push the new car versus trying to help the consumer move from point A to point B consistently and safely, and with consideration to the environment; that’s a different prospect and a different brand proposition.”

      Tesla have achieved this most successfully with propositions that make sense to customers and build trust and loyalty.

      Many OEMs have tried to replicate Tesla’s model with subscription offerings, but in a number of cases (heated seats subscription by BMW and key fob debacle by Toyota) this has led to consumer frustration and potential legal action (in the US). Some OEMs need to change direction, with car brands responding if the customer base is loud enough and cohesive enough in what they are saying, according to Ellis.

      The auto industry is transitioning to a consumer-driven industry according to Ellis, who believes that profit for OEMs will follow from exceptional value given to consumers from data. Ellis sees the OEMs’ role changing to a service provider, but only if they gain the trust of the consumer.

      As Auto Trader’s Plummer highlights, “OEMs need to enable the sort of functionalities that will create value for consumers which will make them want to have a long-term relationship with the OEM.”

      OEMs and dealers need to maintain a relationship with the consumer throughout the lifecycle of the car, making the relationship longer and more durable according to Plummer. This relationship will make the consumer want to stay with the brand as it is creating value without charging the customer for it.

      Use cases for connected car data

      While connected car data has always been used to enhance the safety and the development of the car, recent examples of OEMs trying to monetise data through heated seats subscriptions and to enhance the performance of the car, for example, has not been implemented as a value-add product in a cost-effective way for the consumer.

      Car brands have a huge opportunity to sell more cars through value-add products and look at the data from a more positive angle rather than focusing on subscriptions. For example, connected car data can be used to reward safe driving through cheaper insurance.

      Connected car data provides an invaluable digital audit trail of a car. This is valuable data for used car valuations and can result in careful car drivers being rewarded and sharing the benefit of higher used car values. As Plummer remarks, “the more data you put into that mix, the stronger the model becomes, the more robust the analysis will be, and the more useful it will be.”

      An OEM will struggle to transition to become a data company but there is an opportunity potentially to partner with a data specialist who can provide that data and work out how to share it with the right people, to generate use cases that add value to each of the stakeholders involved. And this will, in turn, add value to the relationship between the OEM and the customer.

      As Plummer confirms, “the real opportunity is enabling a broader partnership-based ecosystem, which allows the manufacturers to tap into these use cases in a way that does add value to the consumer. And by doing that, that they will add value back into their own business.”

      “The more data you put into that mix, the stronger the model becomes, the more robust the analysis will be, and the more useful it will be.”

      Ian Plummer

      Concluding remarks

      Traditional car manufacturers are prioritising the rapid increase of their margin, and they see connected services as one route to achieving this. However, rather than trying to build new car technology themselves, OEMs should focus on partnership rather than competition with tech companies who are already delivering connected services through mobile devices, which are an invaluable necessity for consumers both inside and outside the car.

      The connected car service proposition requires a shift in mindset, however, moving the role of the OEM from a less transactional offering to a role that is more focused on building strong long-lasting customer relationships, with the OEM transitioning from a product provider to a service provider.

      The positive use of connected car data – from driving the car safely and in an environmentally friendly manner to reduce the carbon footprint to offering consumers convenience and value-add products such as insurance and higher used car valuations for careful driving – will result in an enduring relationship between the consumer and the car manufacturer.

      Find out whether connected cars are a customer convenience or commercial reality by reading the analysis of the Asset Finance Connect Webcast sponsored by Auto Trader

      Analysis from David Betteley AFC Auto content leader

      As the 19th century turned into the 20th century, car manufacturing companies were moving into mass production and they concentrated on this model up to and beyond the war, making cars, piling them high and selling them to a growing car owning population. This model persists, in a slightly changed format, even nowadays. However, a transition from being simply a manufacturer of mechanical products to being a manufacturer and, at the same time, a tech company is underway.

      Technology advances, particularly of late, have enabled the “connected car” to become a reality. Undoubtedly, “tech” and what it enables has the potential to disrupt the current automotive market, more fundamentally and more rapidly over the next few years than we have seen from the last couple of decades.

      The start point for connectivity was preventative maintenance, but tech advances and regulation that demands connectivity being constantly fitted to new vehicles, will ensure that by the end of this decade virtually every car produced will be fully connected.

      The focus for the OEMs has moved on from simply preventative maintenance to using “connected” to provide customer services, for both safety and convenience. However, this has meant that additional hardware had to be built into the car, increasing the purchase price. The big irony that has transpired is that customers are forced to pay for the hardware installed in their car but they don’t end up owning the data that it produces, or indeed in some cases have to pay extra for the already installed hardware to be switched on!

      “Who owns the data” is therefore the new battleground as the industry eventually starts to work out what data is relevant for safety, features, convenience and importantly for on-demand services, and crucially, what data they can monetise.

      Customer behaviour and demands are changing, driven by the dominance of the GAFA (Google, Amazon, Facebook/now meta and Apple) Customers are asking how they can use their smartphone to help drive their car. Customers are looking for a frictionless ownership experience, but mis-steps by many manufacturers in the connected journey (e.g. BMW charging for heated seats to be turned on when the hardware had already been purchased by the customer) have resulted in anything but a frictionless ownership experience!

      This creates a dilemma for the auto manufacturers. Do they develop their own in-house tech (there have already been some major mis-steps, e.g. VW and the launch of the ID range) or do they partner with the GAFA companies and risk losing their close relationship with the customer?

      There is no doubt that monetising connected car data is the new battleground and Asset Finance Connect will continue to feel the pulse on this important topic by continuing to interview industry leaders such as Ian and John in order to keep our auto community “connected”!

      Register now for future related webcasts
      European automotive

      Driving Drivalia’s planet mobility

      Summary

      In the transition from Leasys/FCA Bank, Drivalia was created with the ambition of becoming one of the leading European operators in the mobility sector of tomorrow.

      This ambition is summed up in the “Planet Mobility” concept. At the core of Drivalia’s vision is the development of a full range of mobility solutions and customisable plans, from electric car sharing to innovative car subscriptions and rental for all durations. The new company deals with mobility in all its facets, providing innovative mobility plans that combine flexibility, digital use, on-demand approach and sustainability.

      Omni channel approach

      Drivalia is moving along the path of transition, developing innovative solutions dedicated to green mobility and focusing on electric brands, with an omni channel approach encompassing both a digital and physical presence.

      Drivalia has an extensive international presence, with operations in seven European countries (Italy, France, United Kingdom, Spain, Portugal, Greece and Denmark), expanding in 2023 to Germany, the Netherlands, Belgium, Switzerland and Poland. The company’s presence in Europe unfolds through more than 650 Drivalia Mobility Stores, a network of physical outlets (expanding to 1,300 by 2025) where the company displays all its mobility solutions.

      Drivalia are also investing heavily in the digital side of the business, despite recent reports that the digital element of mobility solutions has seen a decline with more people walking into physical car branches. Merli understands that post-Covid, trends changed and people wanted to go out and interact with people. However, she feels that their solutions offer the customer a mix of both physical and an easy-to-use digital tool for convenience and speed.

      Mobility solutions

      Drivalia have integrated their whole spectrum of mobility solutions under one umbrella, which can all be accessed via the Drivalia app.

      The most innovative product gaining the most traction, according to Merli, is subscription. This view was echoed by the webcast poll result with 81.4% of participants believing that subscription will emerge as the most important mobility product for the fleet and/or retail sectors by 2025.

      Drivalia have integrated subscription with their other mobility products, while some companies are working on a stand-alone subscription model which Merli believes cannot be profitable. Integrating products gives added value and fleets can be used for the changing needs of the customer.

      While Volkswagen is reported to be selling its car sharing service WeShare to Miles Mobility, Merli sees car sharing as a “must-have” product that can be integrated with other products. Car sharing fits into Drivalia’s overall concept of mobility solutions. Merli feels that, whilst not as profitable currently, car sharing will be increasingly important from an environmental point of view, especially in cities where it will be harder to own a car.

      According to Merli, the benefits for Drivalia in offering the full mobility product range allows their customers to grow with the company, moving between products as their circumstances evolve and their preferences change. Integrating all Drivalia’s mobility products allows the fleet to become more manageable and profitable.

      Connected car

      Merli sees the connected car as extremely important for providing customer data although sharing data rights must be considered between the OEM and mobility company. Merli sees the benefits as:

      • Using customer data to enhance customer convenience, choice and safety
      • Can offer the best products for the customer’s needs
      • Providing pay-by-use products
      • Can offer additional services

      For car sharing, connected car is very important as a full digital experience can be offered to the customer and the car is therefore simpler and more convenient to use. As Merli remarks, “the connected car allows you to serve the customer better.”

      “Connected car allows you to serve the customer better.”

      Recent bad press surrounding the use of connected car data highlights that there has been a move away from the customer experience and convenience and more focus on how to make money. In New Jersey, USA, a class action lawsuit has even been taken against BMW for charging a subscription fee to receive the core functionality of an option (heated seats) that was installed/ordered from the factory. BMW poured cold water on the criticisms saying that BMW Functions on Demand are [generally] designed to offer premium features through software upload that use data and sensors from factory option hardware already built into BMW vehicles.

      Merli believes that you have to find the right balance with connected car data and, when accessing data, this must be enabled in a positive way for the customer and services. Analysis of data is the crucial key which then allows you to adapt products accordingly. Merli feels that the key to being successful is to satisfy the customer, which in turn leads to greater profit. The old saying is ‘sort the wheat from the chaff’ and in this case with the massive amount of data available, deciding what data is relevant is the key.

      ESG and the circular economy

      FCA Bank want to be a mobility bank for a better planet, linking to environmental support and electrification and other technologies in the market. Drivalia was designed to democratise green mobility, making it accessible to the greatest possible number of people by offering flexible and different solutions. Their financing and mobility solutions maximise the usage of the car, with fleets being reused after their first lifecycle by being re-sold, re-rented, or used for subscription and car sharing, leading to increased efficiency and flexibility.

      Drivalia currently see BEVs as core to their sustainability package and product range, striving for all vehicles at Drivalia to be 100% electric by 2030. However, Credit Agricole, their soon-to-be parent company, is investing heavily in hydrogen leading to a possible conflict of ideals. The goal for Drivalia is to sustain any low-impact technology, which Merli feels in the present reality is electric vehicles, with hydrogen possibly becoming reality in the future.

      Vision for the future

      During this period of rapid change, Drivalia have been listening, first and foremost, to the customer, with continuous customer feedback leading to development and adjustment of their products.

      While many auto financial service companies are merging their retail and fleet products, Merli feels that there are different demands and regulation from the two markets. Drivalia offers 20 different subscription packages – to both business and private markets – depending on customer needs. In the subscription market, 20% of business is from B2B while 80% is from the retail market, with more tailored packages for the B2B market and more standardised products for the retail sector.

      Partnerships

      Drivalia is open to new opportunities and partnerships in their ecosystem.

      FCA Bank have been experimenting with Amazon for the past six to seven years. The Amazon partnership has a focus on the retail online channel, with Amazon being widely regarded as customer-focused and oriented and, importantly, trusted.

      The CarCloud subscription service has been offered using the trusted Amazon platform, where the customer can purchase a voucher through the Amazon entry point and then go to Drivalia’s online platform to process through their app.

      “The business model of dealers will change.”

      Merli sees dealers as part of Drivalia’s business model as they move down the transition path. However, do the Drivalia Mobility Stores conflict with the dealer model?

      Merli believes that the business model of dealers will change, with a Drivalia partnership for mobility purposes as an opportunity for dealers. In addition to their standard roles, dealers can engage with customers about mobility and become a mobility provider, providing new income opportunities that can help offset those lost as dealers become agents.

      As a partner, dealers can share in the profit of re-selling used cars or leveraging in re-renting the car. As part of Drivalia’s business model, dealers can be used to sell different mobility solutions in a physical location, with many customers still looking for a physical connection (meet people, pick up car), with all time-consuming paperwork completed efficiently and effectively online.

      Staffing impacts of transition

      During a period of transition and change, staffing issues are some of the most difficult to resolve. Is it easier to keep and retrain existing staff or simply recruit new young talent?

      “People are the real asset of the company.”

      Merli sees “people as the real asset of the company” in a period of change, and strongly believes that you must retain and motivate experienced staff while also attracting new talent from outside the sector with ‘out of the box’ thinking who can bring an innovative valuation of the products.

      Merli observes that you need to share the strategy of the company in the short, medium and long term when recruiting new talent, as young people want to be challenged, motivated and successful, all while having fun!

      During such a transition, some existing staff will not want to go on the journey towards mobility or will need to be retrained, and while the cost for retraining, especially in economically challenging times, can be expensive, Merli believes that first and foremost “we must invest in people and invest in technology”.

      “We must invest in people and invest in technology.”

      Merli is convinced that motivational training can come from experienced staff to young people, with motivation shared across the team encouraging greater collaboration amongst staff.

      While Merli finds that a good mix across gender is needed to bring your strategy to fruition, there are still extremely low figures of women in the auto industry. Merli feels that this needs to change and a good balance is needed, with women bringing added value to the mobility and financial service areas of the auto industry.

      Following the Covid pandemic, working and office dynamics changed, leading to hybrid working conditions for many. FCA Bank are trying to find the right balance for employees to make strategies successful. Merli points to the need for compromise when working in a more flexible way.

      Merli believes that happy employees and happy customers leads to success and, while looking at employees’ specific needs, a good mix between home and office working is the best.

      “Happy customers and happy employees lead to success.”

      So, what motivates Marcella Merli, a successful business woman in a male dominated industry? She goes to work to have fun and pass on her passion for the auto industry to her team, reinforcing her motto of: “Be happy and have fun in what you are doing!”

      Find out how Drivalia was created with the ambition of becoming one of the leading European operators in the mobility sector by reading the analysis of the Asset Finance Connect Webcast sponsored by Bynx

      Analysis from David Betteley AFC Auto content leader

      It was a real pleasure to interview Marcella at such an interesting time in the FCA Bank story. FCA Bank is undergoing a major transformation early next year when Credit Agricole will become the sole shareholder and the launch of Drivalia at the Paris Motor show last month was one major step in that journey.

      Drivalia aims to be one of the major European players in the “Mobility” market, whilst at the same time doing this in a more accessible way and also ensuring that everything is achieved sustainably. So, a challenging year or two ahead for Marcella and her team!

      Drivalia, as part of FCA Bank certainly have all the products that will be necessary to achieve the objectives of the combined group. FCA Bank with its new found independence can offer a wide range of ownership products direct and via intermediaries whilst Drivalia will offer a full range of mobility solutions, including electric car, car subscriptions and rental for all durations. The new company deals with mobility in all its facets, providing innovative mobility plans that combine flexibility, digital use, an on-demand approach and sustainability.

      A further piece of the FCA Bank transformation as outlined by Marcella are Partnerships. FCA Bank has already entered into partnerships with such innovative brands as Tesla and Mazda for 4 wheeled vehicles and Harley-Davidson on two, and on heavy commercial vehicles, joining forces with Ford Trucks. Additionally, and a great example of their innovation, they are partnered with a great trusted brand; Amazon, where customers can become a member of the Drivalia family simply by purchasing a voucher.

      However, some partnerships have been lost as the company changes its relationship with Stellantis, but the new found independence will enable FCA Bank to innovate more quickly and develop new relationships with other similarly innovative brands.

      Often these corporate changes in direction throw up forseen (and unforeseen) conflicts of interest and we did talk about potential challenges between Stellantis’ plans to set up a multi-marque leasing business in a 50/50 partnership with Credit Agricole and Drivalia. Marcella acknowledged this but with her usual confidence and ambition suggested that there was enough business for everyone!

      Turning to their go to market strategy, in addition to the many partnerships they have (and as mentioned above, they are on the hunt for more!) Marcella explained that despite the growth of Drivalia mobility stores, dealers will remain very important to the group as it develops all its new products and delivers them via an omni-channel platform.

      Overall, I was left with the impression that FCA Bank and Drivalia are a new combined enterprise in a hurry to ride the wave of new mobility whilst not forgetting their roots and continuing to support also their traditional dealer partners. In closing the interview, Marcella left us with a great quote, that summed up her approach to life in general and business in particular: “Happy customers and happy employees are the key to success”.

      I believe that all this is a recipe for success and, with the charismatic Giacomo Carelli at the helm supported by gifted lieutenants like Marcella Merli, FCA Bank and Drivalia deserve to achieve their challenging goals.

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      UK asset finance

      Building a new asset finance broker-customer journey   

      Summary

      The Asset Finance Connect Summer conference brought together various members of the asset finance community – hybrid broker funder, broker, bank-owned funder, technology provider – to discuss the future of the broker in an increasingly digital world.

      As borrowers’ expectations around the customer journey change, the pace of regulation accelerates and the competitive landscape develops the future of the asset finance broker looks increasingly unpredictable in the face of three key challenges:

      • Competition
      • Regulation
      • Technology

      Guidance from brokers or advisers is as essential as ever in supporting small and medium-sized businesses in the pandemic recovery period, providing their expert knowledge on products, providers and the industry as a whole.

      However, post Covid lockdowns, many consumers have become more comfortable with a digital approach to finance, while many traditional firms that might look for asset financing have moved their businesses online.

      Technology is progressing and apps and mobile technology can now handle everything from quoting to CRM and proposal management, at the expense of face-to-face customer service and support.

      To capture online businesses looking for asset financing, brokers need to provide the experience and relationship customers expect but in a seamless, digital approach. Many brokers are therefore having to add or update their technological systems to stay compliant and competitive.

      As Christian Roelofs, CEO of Finativ noted, “the broker market itself is a very fragmented market”. There are a few very large brokers with teams of people and managing directors who have time to discuss technology and strategy, but a large segment of the market is made up of smaller managed or owned businesses with limited capacity to handle future innovation and digitalisation.

      Competition

      For the asset finance broker, competition is less about broker-to-broker competition, as brokers have their own ‘patch’ and client base, and more on new, often technology-enabled, entrants that are coming into the market and, in particular, on digital aggregators.

      Jim Higginbotham, Group CEO of Star Asset Finance, points out below that in the customer-broker-funder value chain, there are competitors who are better or worse at different parts of that value chain throughout the industry

      Higginbotham points to those businesses who can combine technology with the customer interface, providing the value add in a seamless customer experience, as the real winners in the competition: “Working together in partnership with the people who best serve different parts of the value chain is going to create the best customer outcome.”

      Steve Dexter, Sales Director at Clear Business Finance highlights that no one in the market is afraid of the competition as long as it is fair and equal for all, and notes that regular communication is vital to brokers in maintaining their relationship with the funder, the supplier and the end user.

      Dexter argues that while digital disruptors will enter the market, they are unlikely to stand the test of time, as they will not be capable of building similar relationships. It’s a point echoed by Neil Davies, CEO, Commercial at Close Brothers who sees the broker as having the most agile response to a changing market.

      The ownership of the customer is essentially the critical piece of the puzzle that needs to be understood in terms of how competition is changing, according to Katrin Herrling, CEO & Co-Founder of Funding Xchange. All sectors are thinking about their relationship to the customers and how they can serve customers better using access to the information that they have.

      Regulation

      Brokers cite excessive red tape as one factor which is driving them out of business, although many independent brokers find that FCA regulation does deliver some benefits too.

      The indirect regulation which reaches the broker and customer via banks is having an increasing impact on the broker and the funder-broker relationship, as opposed to direct regulation on the broker themselves. And as recent discussions on commission disclosure have demonstrated, brokers lack a voice when it comes to the creation and application of regulation.

      The recent publication of the new Consumer Duty rules and guidelines will undoubtedly have an impact on brokers with implications for fees, commission disclosure and quantum of commission. The new Consumer Duty principle will expect all members of the value chain to take responsibility for achieving good outcomes for customers. Any lack of clarity about the value that brokers deliver to their customer is likely to attract increased scrutiny.

      From Davies’ perspective as a lender, there will be increasing pressure to question whether the broker is sufficiently looking after the customer and providing a good customer outcome, and whether they helped to identify a vulnerable customer.

      In his experience, Higginbotham believes that “delivering regulation properly is a partnership piece,” where having a genuine partnership with people in the value chain who align their approach to create a good customer outcome can only be a positive because “if any part of the process breaks down and doesn’t create a good customer outcome, everyone’s a loser”.

      From Dexter’s perspective as a broker, regulations are there to protect the customer, which can only be a positive for businesses. However, when there is a supplier in the chain it becomes more complicated because often it is the supplier that is dealing with the customer. So, brokers have to make sure that the supplier understands what their commitments are and what they should be doing with the customer. Brokers should therefore be more involved in the introduction of new regulation and their impact on brokers.

      Higginbotham from a hybrid-broker-funder perspective, sees the principle-based Consumer Duty as a positive for the longevity of asset finance business due to the focus on good outcomes for customers.

      However, the challenge comes from distinguishing where the responsibility and the principal lies if things go wrong. Higginbotham has noticed a definite trend in relationships with funders where a lot of the financial pain for non-compliance is being passed through trading agreements back to the broker and notes “While you can’t abdicate responsibility, you can offset it through an indemnity clause.”

      “Delivering regulation properly is a partnership piece.”

      Jim Higginbotham, Group CEO, Star Asset Finance

      Herrling does not want asset finance to be an industry “where we compete based on whether we’re compliant or not…a key principle has to be that we as an industry need to find a way that we can demonstrate we’re compliant, and not try and out compete each other by skirting around the edges.”

      Herrling demonstrates that at Funding Xchange, “the way we operated from day one is that for every single customer who comes to us, we have a trail of evidence of how they’ve been treated, what offers they’ve been shown how they’ve interacted with us, who they’ve progressed with us what’s been the outcome. And that trail of evidence of interactions is providing the backbone of how we can demonstrate that we’re treating every single customer actually fairly, and fulfilling our customer duty.”

      Herrling sees that this use of technology helps to remove barriers, enabling brokers to stay compliant and fulfil their customer relationship duties.

      Technology

      For brokers looking to stand out in the market, it will become increasingly important to adopt a digital solution that adds value across the entire asset finance lifecycle and facilitates a frictionless customer journey on a single tech platform.

      The motor finance industry has been working with an enabled and efficient platform connecting brokers and lenders via API for the past 20 years, so why are asset finance brokers not following suit and investing in technology?

      In asset finance, many brokers are much more comfortable sending a proposal to their customer contact, rather than going into a digital broker portal and sending something through the portal and then waiting for an outcome.

      In addition to the lack of investment by brokers themselves into new digital platforms, there is also a lack of consistency between lenders of what they want brokers to supply, with brokers are left to key in an application into multiple forms that are all slightly different for each of the lenders they work with.

      “Technology is not going to replace the broker in terms of customer engagement and relationships.”

      Katrin Herrling, CEO & Co-Founder, Funding Xchange

      Technology is not going to replace the broker in terms of customer engagement and relationships. It will, however, as Herrling notes, be there as a problem-solving tool to assess a proposal and data: “Technology has to be very, very clear about the problem they’re solving, which is reducing the time it takes to assess a proposal that comes in from a book or on a different channel.”

      As a broker, Clear Business Finance’s Dexter has considered using a digital solution for delivering a service, but not to manage the regulatory burden. Dexter confesses that his view on technology is that, “as a broker, you ignore at your peril”.

      However, as the next generation of business owners will be technologically proficient, brokers need to invest now to update and develop digital platforms. To provide a complete customer experience, the technology and the speed is needed to provide quick and slick customer service and a good relationship.

      Star Asset Finance’s Higginbotham sees the technology solution as part of an end-to-end solution with built-in compliance creating an evidence trail automatically. Herrling agrees that a self-serve solution only works for very simplistic deals and won’t serve the customer, or the funder, in the right way. For brokers who are using technology, the digital platform can support the advisory services that they provide to their clients and can evidence that they have viewed different funders and have made a decision about which funders are suitable for their customers.

      Is there a future for brokers?

      The UK’s changing asset finance and regulatory landscape has presented a number of challenges for growth for brokers, as well as the tools and processes they can adapt and use to succeed. Unfortunately, the falling number of brokers across the UK is resulting in the loss of face-to-face customer support and specialist knowledge and experience.

      The customer engagement and relationship which is key to the role of the broker is vital for the industry going forward. However, technology will become just as important in the modern broker’s day-to-day role to increase customer conversion, retention and profitability. Not only can digital tools help manage the repetitive manual work, but they can also manage the sales, compliance and governance processes, making brokers more compliant and data driven.

      Brokers will need to adopt a seamless customer journey on a digital platform to stay ahead in the asset finance market and to remain compliant and competitive.

      For more insights from this June's conference, see the Asset Finance International website

      Analysis from Stephen Bassett Asset Finance Connect community head for asset finance

      The debate around these elements; competition; regulation and the application of technology is not going to stop anytime soon. In my simplistic mind, until our customers all become robots, there will always be a place for human interaction; taking an interest, understanding the issues, building trust over time, answering questions, clearing up misunderstandings, providing appropriate solutions, caring etc., are all things that automated systems tend to struggle with. Most people like to work with other people, not machines, so of course there is always a place for intermediaries, like brokers, whose specialized skills enable them to help their customers fulfil their particular needs in a more timely and less resource hungry manner.

      As in most other sectors, competition is a healthy thing, it tends to keep prices on the straight and narrow and it sparks innovation. When combined with the sensible use of emerging technologies to speed up processes and keep costs down, it keeps the incumbent players on their toes, defending ‘their’ territory from new approaches, and sometimes it forces them to adapt.

      The element that concerns me most in this discussion, is the regulatory piece. Some regulation is clearly necessary in order to prevent excesses and ensure fairness, but I do wonder if constantly trying to adapt the existing rules to deal with yet more symptoms arising from new and sometimes inappropriate or unfair products, unreasonable costs and poor selling methods, is really the most sensible approach.

      The somewhat tenuous lines drawn between what is seen as Consumer or Retail, or Business or Corporate, confuse things even further, would the same general set of ethics not apply in each area?

      We seem to be building an edifice which continually adds new risks and sometimes unintended consequences for providers and also layers of significant extra costs, all of which in the end have to be paid for by the customers they are there to protect. At the same time, the options available to those same customers are beginning to decrease and the numbers of suppliers of potential support are seemingly shrinking. However, I suppose that is a much wider debate.

      In the meantime, anything that technology can do to ease the burden of ensuring and evidencing compliance, due diligence and fairness, in both the regulated and unregulated arenas, has got to be a good thing, but it does need to be cost effective. There are still niches for manual systems and growing spaces for automation. In my view, those who can create the slickest combination of computer and human interfaces will have the competitive edge.

       

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      UK regulation

      Challenges arising from the new Consumer Duty

      Summary

      On July 27, 2022, the Financial Conduct Authority (FCA) introduced a new Consumer Duty to shift the industry’s mindset and culture, focusing on an outcomes-based proactive approach. Achieving ‘good outcomes’ is the primary focus of the new Consumer Duty, moving away from simply treating customers fairly.

      The recent Asset Finance Connect Consumer Duty Unconference, moderated by Shoosmiths, brought together a broad range of participants from the lending, sales, compliance and legal communities to reflect on how the asset and auto finance sectors should be addressing and implementing the new Consumer Duty principle and rules.

      “The regulators are opening up Pandora’s box.”

      Wayne Gibbard, Commercial Clients and Strategy at Shoosmiths called the new Consumer Duty a process of “continuous learning” as it will require firms to constantly review and challenge processes and policy to ensure it is delivering good customer outcomes.

      Wayne Gibbard emphasised that “the customer must be at the heart of everything” and there must be a change in culture with Consumer Duty embedded in a company from top to bottom.

      All firms need to have completed their implementation plans (deadline was the end of October) along with supporting evidence of discussions and critical challenges to the plan. Companies should currently be conducting their gap analysis, business mapping, identifying key individuals in the company and designing regulatory processes.

      Price and value

      Under the new Consumer Duty rules, the focus is on the relationship between the price the customer pays to the overall benefits they can reasonably be expected to obtain from a product. The price and value outcome rules seem to be one of the most challenging aspects of the new principle.

      In Consumer Duty particular attention must be paid to the key words of the price and value outcome — “assess”, “consider” and “evidence” — when assessing the relationship between price and fair value.

      Many participants questioned if the price and value of a product had to be reassessed part way through a contract due to changing market conditions or a changing consumer situation. The FCA has proposed that firms will review the value of a product or service throughout its lifecycle. The frequency of reviews depends on the nature and complexity of the product or service, any indications of customer harm, the distribution strategy, the cycle of product or service review under the product and service outcome rules and other factors. A range of information will be taken into account and firms will need to ensure they have systems in place to collect whatever information they consider is needed.

      When assessing value, the FCA noted that companies need to assess that the value the customer is taking from the product is reasonable, but is value different for each customer? For each customer, value may indeed have a different meaning. Companies need to consider whether there is fair value to consumers in respect of all products and services and differential pricing increases the risk that products and services do not represent fair value, particularly where consumer groups include customers in vulnerable circumstances and customers with protected characteristics. In this respect, it is critical to ensure there is a defined market for products and the sales are targeted to them, with value being assessed to ensure this is delivered to these customers.

      With many financial sectors seeing a change in product type from product to a service, most notably in the motor finance sector from ownership to usership to membership (or subscription), many participants wondered if the same rules of price and value would apply. Would the customer be looking for different definitions of price and value between delivering a service and an asset? The price and value outcome of the Consumer Duty focuses on the relationship between the price the consumer pays and the overall benefits of a product, whether it be an asset or a service.

      Finance products

      The Consumer Duty applies to a vast array of regulated financial products from short-term low-risk to long-term high-risk products. All products must be analysed and deconstructed under the Consumer Duty with all rationale and evidence recorded.

      The FCA want parity between the way a product is originated (at the front-end) and the way the customer is supported (at the back-end) throughout their journey.

      Many participants noted that familiar long-standing simple products, especially those from the motor finance sector, become more complex when adding a Consumer Duty lens. When analysing products, companies should constantly refer back to the cross-cutting rules to see how they apply to each product. Data points must also be reviewed and added to product reviews, and tailored to different groups of customers. This must all be evidenced in the implementation plan.

      New products to the auto and asset finance markets such as subscription and pay-per-use models are not specifically mentioned in the Consumer Duty. However, due to the flexible short-term features such as easy to onboard and easy to leave or switch, subscription is seen as a low-risk transitional product.

      Other products with long-term commitment, high exit fees and ancillary products are highlighted and scrutinised in more detail by the FCA as they are seen as high risk. The FCA is focused on ‘sludge’ practices which include a number of imbalances and can cause potential harm to the consumer.

      It is recommended that customers are contacted throughout long-term contracts, showing that the company have thought about possible changing situations for the customer and potential harm for the customer and how to mitigate it.

      One participant noted that a company must now provide limitless information to the customer to cover every and any eventuality. Some problems arise as consumers do not read all of the legally required terms and conditions of an agreement. The information therefore must be streamlined to be understandable for different consumer groups; for the same products you will need different communication going out to different groups of customers.

      With the current cost-of-living crisis, people’s circumstances can change quickly as they did during the Covid pandemic. However, the FCA have noted that not all harm is foreseeable especially during such unknown eventualities.

      “The FCA have noted that not all harm is foreseeable especially during such unknown eventualities.”

      Managing the distribution chain

      At this stage in the Consumer Duty journey, companies should be mapping out their distribution chain and identifying any problems or concerns. Consumer Duty responsibility extends to the value chain with certain firms taking a higher level than others, e.g., captives and finance companies.

      All companies in the distribution chain must know where all products originate, the components of a product and if all parts of the chain are compliant.

      The main problems noted in the value chain include companies who do not have that consumer loyalty and instead purely focus on the commercial side, as well as the presence of unregulated companies who may not bound by Consumer Duty but who still need to provide information to other members of the chain.

      Consumer Duty has highlighted that any detrimental activity or non-compliance with Consumer Duty within the chain can be reported by another company in the chain; this is the oversight of other parties in the chain to call out others, but this could generate friction between the parties of the distribution chain.

      Many participants noted the extreme complexity of introducing a unique company process for Consumer Duty, with one participant highlighting the “challenging timeline and complexity, with no single prescribed process” within the value chain.

      A recurring issue raised in the sessions was that brokers and retailers in the value chain are not receiving product information from lenders/funders/manufacturers regarding their products. They are naturally concerned that such companies might leave this transfer of information until April 2023 when companies will only have a couple of months to implement the information.

      Participants found that some lenders have no urgency in providing product information and unregulated lenders won’t provide information at all, and therefore the broker or retailer will have to make a decision whether or not to use that lender going forward.

      While the Consumer Duty applies to regulated activities, there was a general consensus among the unconference participants that there should be an aspiration to apply the same standards and approach to both regulated and unregulated business in the value chain, with the same culture across all businesses.

      “All companies in the distribution chain must know where all products originate, the components of a product and if all parts of the chain are compliant.”

      Communication

      In the Consumer Duty guidance, PRIN 2A.5.3R(1) notes that a firm must support retail customer understanding so that its communications:

      (a) meet the information needs of retail customers;

      (b) are likely to be understood by retail customers; and

      (c) equip retail customers to make decisions that are effective, timely and properly informed.

      Wayne Gibbard highlighted the importance of the words “support” to enhance the customers’ understanding and “equip” so that the retail customer can make a decision that is effective and timely.

      If we focus on the language, companies need to demonstrate that they are “supporting” and “equipping” their customers at a higher level than currently exists to comply with principle 12.

      Many questions and issues were raised during the session focusing on communication ranging from commission disclosure to communicating risk.

      The first issue when discussing consumer understanding is that it is critical to identify the target market so that the product design, communications, etc., can be built to meet the target markets’ needs. The original concept of the ‘average customer’ was removed by the FCA in the final Consumer Duty paper so it is fundamental for an organisation to know their target market and the characteristics of those specific customers, not a general population. The vulnerable customer was also a key point in the principle with communication to be adapted accordingly so as to prevent harm and mitigate risk.

      Communication must be clear and transparent to the customer when detailing the product offering. It is critical to evidence all customer communication and its effectiveness as this will be measured by the FCA.

      With regards to risk, many Unconference participants asked at what point should a customer be informed about product risks and should these risks be reinforced throughout the contract? The main point with risk is that if it is not communicated with the customer, then the company has not met their obligation to avoid unforeseeable harm to the customer.

      While there can be an enormous amount of information for the customer to digest, they still need to be made aware of certain elements and risks within a product contract e.g., termination process and exit fees, excess mileage fee, and refurbishment charges.

      There are a number of steps to analyse to mitigate risk and that involves looking at where the responsibility lies. The lender must equip the intermediary/broker with information within the distribution chain where everybody has an element of responsibility.

      However, while Consumer Duty can be followed to the highest standard, there may still be risk as the company cannot totally insulate the customer. The company must highlight the risks and convey to the customer to “equip” them.

      Following a change in a customer’s circumstances, the communication to the customer should be adapted to account for the changing customer’s needs. During the lifecycle of a contract, customer communication can change. There needs to be more discussions with the customer so that the company can really understand the customer and their needs and circumstances so that communication can be tailored accordingly.

      Commission disclosure

      Despite the fact that commission disclosure was not mentioned in the Consumer Duty guidelines, the issue was inevitably raised during the Unconference with many participants asking how a customer will see that earning commission is value for money.

      Shoosmiths’ Wayne Gibbard pointed to existing rules on commission, including the Consumer Credit sourcebook (CONC) which provides guidance around what is reasonable for intermediary commission and the FCA review around commission in motor finance sector (in particular), banning certain models of commission payment.

      With Consumer Duty, when analysing all elements of distribution and communication, we must ask how commission may influence or change a customer’s decision? One participant noted that commission increases competition because there is a choice.

      “We must keep the customer at the heart of everything.”

      Looking forward

      Wayne Gibbard notes that Consumer Duty is a “challenging implementation”. With implementation plans being completed by the end of October 2022, all companies within a distribution chain must be prepared with supporting evidence available of discussions surrounding the gap analysis and the implementation plans. Any challenges to the plan must also be documented and available for the FCA.

      Businesses need to mobilise on the implementation of the Consumer Duty immediately. While there will be challenges ahead, businesses must complete a full and critical review of their products and services, remain focused on the deliverables and ensure engagement with boards, senior managers and the distribution chain, but above all they must “keep the customer at the heart of everything”.

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      Analysis from Wayne Gibbard Commercial Clients and Strategy at Shoosmiths LLP

      It was fascinating to bring together industry experts and commentors to discuss the Consumer Duty. It was clear from the discussions that firms are taking this seriously and are seeking to implement the requirements within their business. It is also evident, however, that there are many challenges for firms to consider and wrestle with throughout the implementation process.

      During the discussions it was clear that there are some common challenges already being encountered, particularly as businesses start to undertake their gap analysis and present findings to the boards. These challenges will continue over the coming months and it is important to create a realistic implementation plan and not expect to have all of the answers straight away.

      The FCA have noted that there are likely to be many questions and issues raised by different sectors and have promised to provide information updates and “common issues” to assist implementation. Whilst this was widely endorsed by in the discussions, it is also clear that firms will be required to be nimble in their implementation and continuously seek information and critically challenge their plans.

      In addition to the work on reviewing existing products and processes, businesses need to be mindful of the future ongoing monitoring and assurance activity and any realignment of business models. The FCA have been clear that they expect businesses to be able to assess their compliance with the requirement and are likely to increase their scrutiny of this after implementation. As such, it is important to consider this and also ensure there is sufficient resource and expertise dedicated to this after implementation. This should form a critical element of the plan.

      Whilst there is much work to follow, it is encouraging to see the industry step up to the challenge and critically review existing models and products in light of the Consumer Duty. Most of all, there was general consensus that putting the customer at the heart of the business is the right approach, even if the Consumer Duty implementation is challenging.

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      European equipment

      The race to attract, develop and retain industry talent 

      Summary

      The importance of inclusion and diversity in recruiting and retaining the skills and talent needed in the asset finance industry was a prominent issue raised in a number of sessions at the AFC June conference, with a group of young ambassadors discussing the components of diversity strategies that are crucial in attracting and retaining a pool of talented people.

      Building and growing the right relationships between staff and clients and partners is of paramount importance to the auto, asset and equipment finance industry.

      SGEF’s Florence Roussel-Pollet pointed to some historical long-term partnerships of over 20 years at SGEF, stressing the importance of building these relationships by shifting together as a company’s business model transforms. Developing strong and close relationships helps lenders and partners overcome adversity and address the current economic situation.

      To meet these growing challenges and changes in our societies and economies, companies must create diverse teams, to reflect the wider diversity of business and society at large.

      “There is a war for talent and it is really an employee’s market at the moment.”

      Ylva Oertengren, Chief Operating Officer, Simply Asset Finance

      Within the UK market, the number of job vacancies currently exceeds the number of job seekers. According to McKinsey, 53% of employers are experiencing greater voluntary turnover than they have in previous years. And 64% expect this to get worse over the next six to 12 months.

      Therefore, companies now more than ever are in a talent war to attract new talent to a company and retain new recruits and hires. Ylva Oertengren, Chief Operating Officer at Simply Asset Finance agrees: “there is a war for talent and it is really an employee’s market at the moment”.

      Businesses need to consider corporate responsibility in the context of diversity as social exclusion and low economic activity rates can limit business markets and their growth. Corporate responsibility was previously centred on environmental issues, but an increasing number of employers now take a wider view, seeing the overall image of an organisation as important in attracting and retaining both customers and employees.

      Oertengren highlights that many new young employees have a passion to work for a purposeful company in a purposeful industry: “unless you can explain why the company’s values are important, then you won’t get the best out of people”.

      People want to work for employers with good employment practices and they also want to feel valued at work. It is important to create open and inclusive workplace cultures in which everyone feels valued, respects colleagues, and where their contribution is recognised.

      As Nathan Mollett, Head of Asset Finance at United Trust Bank points out, “The next generation of talent put greater emphasis and importance on working for an organisation that has common values and common purpose.”

      Matthias Grossman, CEO Commercial Finance at Siemens Financial Services believes that a company’s values are increasingly important to future employees.

      Key areas of debate

      Four young ambassadors from the asset finance industry – Alex McWilliams, Communications Manager at Simply; Lauren McQuilken, Business Development Manager at United Trust Bank; Jessica Hall, Business and Performance Manager at NatWest Group; and Ricky McNeil, Director of Operations at MAF Finance Group – discussed the topic in greater depth at the AFC June conference.

      They considered the three key areas highlighted in McKinsey’s 2021 research entitled, ‘Great Attrition’ or ‘Great Attraction’? The choice is yours’:

      • avoiding transactional relationship
      • career development and progression
      • providing a sense of community

      According to McKinsey, if companies make a concerted effort to better understand why employees are leaving and take meaningful action to retain them, the Great Attrition could become the Great Attraction: “By seizing this unique moment, companies could gain an edge in the race to attract, develop, and retain the talent they need to create a thriving post-pandemic organisation.”

      “The next generation of talent put greater emphasis and importance on working for an organisation that has common values and common purpose.”

      Nathan Mollett, Head of Asset Finance at United Trust Bank

      Avoiding transactional relationships

      McWilliams believes that while work is always going to be transactional, a transactional relationship can only take an employer so far with their employees. People want to be valued and credited for their experience in ways other than remuneration.

      However, over the last two and a half years, a lot of people have been affected by the Covid pandemic which created a slight separation between employees and employers, and relationships were no longer going to be enough. According to McWilliams, this can be resolved “through good culture, making sure that your employees feel like they’re in a sort of a safe space where they can communicate properly, making sure that there’s career development opportunities as personal and professional development opportunities.”

      By keeping communication open, reducing separation and creating a good culture where people feel valued and able to talk freely about their aspirations, enabling employers to understand their employees, the relationship will start to feel less transactional resulting in increased productivity and employee engagement.

      As stated in the 2021 McKinsey article, “employees want meaningful—though not necessarily in-person—interactions, not just transactions.”

      In McNeil’s experience, salary and bonuses have only ever been a short-term retention plan. If a company is using financial incentives as a key retention strategy, then they are going to struggle to create any long-term relationship or loyalty with employees.

      Reverse mentoring has been frequently highlighted as a tool to help companies understand the next generation’s culture and values, and to improve employer-employee relationships. This is a two-way benefit as the young ambassadors get a rewarding working environment within a purposeful company that helps them develop, while the senior management that the young talent is reverse mentoring gain huge benefit as well. As Roussel-Pollet highlighted, there are many initiatives going on inside organisations like SGEF that the young ambassadors and young talent have bought to management and that have since been implemented.

      Career development and progression

      McNeil believes that career development and progression is an extremely important part of retaining talent, and a key area of most employee’s strategies. When a company has the right culture in place, they are able to empower employees to take ownership of their own development by signposting people to routes of opportunity, highlighting success stories and resources.

      Nathan Mollett agrees that “giving younger people within the organisation project management responsibility is also viewed as a promotion in terms of career progression and keeping them interested”.

      Employees are increasingly focused on opportunities for development and progression in their role, as well as striving to find an employer who has similar ideals to them, with a sense of responsibility, culture and teamwork.

      Having the right conversations with employees to understand their development ideas and where they want to go in their career is vital for employers, according to Hall, so that they can help and support their employees, and point them in the right direction.

      As McWilliams concludes, “it’s about having an open dialogue and creating a space where employers listen to what it is that employees want.”

      “It’s about having an open dialogue and creating a space where employers listen to what it is that employees want.”

      Alex McWilliams, Communications Manager, Simply

      Sense of community

      Most young people entering a new role in a new organisation want to enter an industry that has a sense of community within the company and within the industry as a whole. Hall believes the asset finance industry offers a lot of opportunities to do this.

      McWilliams points to the innovative work carried out by the Leasing Foundation’s Next Generation Network in boosting community and encouraging businesses and lenders to push their employees to network and collaborate with their peers in an open and inclusive environment, giving them a significant advantage when it comes to seeking advice and guidance. She reports, “it is gaining traction and that community is getting bigger.”

      Socialising with the competition was previously frowned upon, recalls Mollett, but things have changed and “the more you can do to empower colleagues within your organisation to build a network outside of your own, that actually plays into colleague retention, rather than increasing the risk of them leaving.”

      As United Trust Bank’s McQuilken states, “retention is one thing, but attraction is another.” Attracting young people to the asset finance industry is something that must be addressed according to MAF Finance Group’s McNeil: “initiatives and schemes that can be implemented through the Leasing Foundation, for example, to help look at how we attract more talent, through graduate schemes, apprenticeship schemes, even looking at school leavers. The more that the Foundation can do to support this the better and that’s one of the ways we’ll tackle the attraction issue.”

      Jeff Lezinski, SVP, Solution Architecture at Odessa discusses Odessa’s thoughts and initiatives on attraction and retention of new talent within the industry.

      As Nathan Mollett, who is also Chair of the Leasing Foundation, notes turning attrition into attraction isn’t easy in any industry because it requires companies to really understand their employees.

      Simply’s McWilliams believes that a good company culture is the key to successful employer-employee relationships.

      Looking to the future

      To create a healthy future for the asset finance industry, time and investment is needed to attract and retain a pool of talented people who can pass on their culture and values to companies and the industry as a whole in these changing times. Without the proper tools, such as career advancement and providing a sense of community, the industry will be unable to recruit a team of diverse individuals who can relate to an increasingly diverse client base.

      Organisations such as the Leasing Foundation have launched a number of projects and initiatives to help the asset finance industry attract, develop and retain a new generation of employees, including the Next Generation Network, a network for the next generation of business financial professionals, the Diversity & Inclusion Initiative, and 30 Under 30, an annual list of individuals who are driving forward the asset finance world today.

      For more insights from this June's conference, see the Asset Finance International website

      Analysis from Nathan Mollett Chair of the Leasing Foundation

      The discussion with the Next Generation Network young ambassadors raised a number of key points and strategies that are particularly important when attracting and retaining talent to the industry.

      Companies must provide new and current employees with development opportunities, which should be discussed in the recruitment process so that candidates can visualise progression. However, feel free to be creative about these development opportunities! They don’t have to simply be promotions; development can also come in the form of project responsibility. Any exposure you can give your new talent to make a change or IT related projects are of high value.

      Company culture is particularly important to the next generation of talented professionals coming into the industry and this needs to be emphasised at the initial stages of recruitment. Companies should double check that their culture and values are relevant and appealing to younger people. Environmental issues and inclusivity need to feature here, as these important issues help to create common values and goals with a younger generation.

      Another area that I feel is particularly important when recruiting new talent is language and tone. Words and terminology should be used that reinforce the greater good that is achieved through their activity in the organisation. Rather than focusing on how many deals they have helped transact and how much profit they have made, the emphasis should be on areas of positivity relating to the company’s culture and values such as focusing on how they have helped SMEs grow or potentially helped drive the green agenda. This is a different type of messaging to that seen and experienced in the industry 10 or 20 years ago, but this type of authenticity is particularly important to a company’s culture and values as we move forward.

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