October 28, 2022

FINATIV: INSIGHT

October 2022

These are indeed interesting times, combining challenging economic conditions with an ongoing stream of commercial and corporate opportunities. Five months since the birth of Finativ, our first newsletter reflects that mix. 

Read about renewables financing, an emerging lending market with its fair share of challenges but also with significant potential and increasingly important in the context of funders' ESG strategies. 

You can also learn how a change in customer contact strategy represents a low-cost, low-risk opportunity for profit growth in the motor finance market. On the flip-side, we also consider the questions you may ask of your business to prevent the worst of an economic downturn.   

Looking to the future, we’re delighted to be part of the Asset Finance Connect CTO Forum and suggest senior technology decision-makers join this fledgling community of peers.  

Looking to the past, we’re also delighted to be helping to reconnect leasing professionals through AFPA Lombard Reunion.

So lots going on and exciting times ahead.  Please be in touch if there’s anything you’d like to discuss further.

renewable energy financing advice

“No ESG, no capital” – the case for renewables financing

The provocative title of a recent blog by KPMG’s UK Head of Debt Advisory highlights the growing centrality of ESG in lending; already extending to situations within the broader financial services sector where third-party equity and debt providers are refusing to provide capital to downstream lenders unable to demonstrate suitable ESG credentials in their business and lending activities.

We’ve spoken to a number of lenders lately and ESG is definitely a strategic priority for many. We break this into two areas - firstly, broader ESG management and reporting for the business and, secondly, your lending strategy as part of your carbon reduction programme.

Lenders venturing anew into renewables financing have found it is not always straightforward.  For example, the funding of small-ticket EV charging points can include planning permission, groundworks, and compliance with building regulations. Payback on the asset itself can be short but ancillary works can represent the lion’s share of the lend, for which there is no asset cover.

As with any emerging sector, the competence of installers can be variable and needs to be taken into account when considering both installation and ongoing asset maintenance. At the same time, grants and subsidies remain unreliable and at the whim of fickle politicians.

Nonetheless, there are significant opportunities for those with the insight and tenacity to get it right. Renewables financing will continue to grow and its specialist nature offers defendability for good operators. 

To learn more about building an effective renewables financing lending strategy, contact Phil Gerrard.

motor finance

Building better motor finance relationships – the importance of customer retention 

More than ever, during this period of high inflation, rising interest rates and continued supply challenges with new vehicles, motor finance companies should be considering the effectiveness of their customer interactions.

We know from experience - and our observations of the market continue to tell us - that retention strategies work, as well as being less expensive than new customer acquisition activities. Nonetheless, they are a much under-developed area for finance providers, who tend to focus on the front-end transaction with the result that customer leakage is unchecked and in-life or end-of-contract business opportunities are lost.

Funders sometimes have no end-of-agreement contact strategy for HP customers and while PCP customers may be contacted in the final six months before end-of-term, that is often either too late (especially given current supply shortages) to order a new vehicle or the customer has already made a decision to switch elsewhere. A more effective process is periodic contact through the life of the contract, building a rapport that drives good customer outcomes and pays for itself with improved retention, not to mention upsell or extension opportunities.  With so many customers choosing to settle their agreement well before the end-of-term, having no interaction is highly disadvantageous to the current finance provider.

Of course, higher interest charges and asset inflation will both impact the customer’s next mobility and financing decision – in many cases, the customer may need help making the right choice for both car and finance product. 

Especially now, in the context of Consumer Duty, surely it’s right that finance companies proactively support better outcomes in this area?

To discuss how your business could benefit, please contact Peter Cottle or Simon Harris.

impact of economic downturn

Impact of economic downturn - hope for the best, prepare for the worst

These are indeed turbulent times.  Every day there seems to be a new political or fiscal announcement. Markets have been spooked and trust may be slow to regain. Borrowing costs which were under 1% in 2020 are now over 4%. The pound’s recent fall to $1.03 was its lowest level on record. Inflation remains over 10%. Company insolvencies are now running at 42% above 2019 levels. 46% of large UK companies are reported to be at material risk of debt repayment difficulty.

So what’s in store for the asset finance market? We hear mixed views. 

Some lenders continue to do well, with confidence in their future. Others are more circumspect, nervous that a downturn is just around the corner. 

If they’re right, what does that mean? Probing questions you may wish to ask of your business could include:

  • How can I manage a 2-5 fold increase in delinquencies?
  • Are systems and processes up to the task?
  • What is my cash flow break-even point?
  • Do I have enough liquidity? Can I access more if needed?
  • How can I pass on increased costs?

In managing business risk, hoping for the best but preparing for the worst appears a sensible approach. Subject to the nature of your business model, a review of key aspects and risks in your business – such as funding strategy, portfolio stress testing, credit appetite and key operational processes – done now and followed by risk mitigation planning could be of value. A strategic review, shaking loose any non-core activities, should also be contemplated.

To discuss financial risks and funding strategies to survive an economic downturn, please contact Christian Roelofs.

Asset Finance Connect launches CTO Forum

As the range and complexity of solutions available to the auto and equipment finance market expands, chief technology officers are increasingly being called upon to make difficult decisions about which technologies to adopt.

Asset Finance Connect has teamed up with Finativ to establish the CTO Forum, where senior technology decision-makers can get together with peers to discuss emerging technologies, digital adoption, key trends and issues facing the industry.

The inaugural meeting of the CTO Forum will be held in London on 5th December. Prior to the meeting, participants will take part in a short one-to-one remote meeting to identify the trends, challenges, and technologies on which the community will focus discussions during the day.

If you are a senior technology decision-maker who is interested in joining this community and would like to participate in the inaugural meeting, please contact edwardpeck@assetfinanceconnect.com for more details.

Lombard Reunion 26 January 2023

Date changed due to transport workers' strike

An opportunity to catch up with old colleagues, reminisce and network, the Lombard reunion organised by the AFPA Trust takes place on 26 January in London at Old St Sports Bar & Grill, a few minutes from Old St tube. 

A similar event was held three years ago and was a big success, with a lot of people catching up with old friends.

The cost of admission is £22.50 (£18.50 for AFPA members), which includes a burger and drink (soft drink, wine, cider or beer). Any profit from the evening goes directly to AFPA’s chosen charities.

For current and past Lombard employees only. More details and how to book are at https://www.afpatrust.com/events/.

See you there?

Over the coming weeks, members of the team will be attending the following events. Hopefully, we’ll see you there.

  • 9 December: AFPA Trust Christmas Lunch, London (tickets sold out)

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