Leaders and influencers in Europe’s auto and equipment finance industry have identified the key obstacles facing the market in 2018.
White Clarke Group, the world-leading provider of end-to-end finance software has gathered the views of nearly 30 industry leaders to pinpoint the major areas of focus for the sector in the coming year, in the new European Auto and Equipment Finance Report, which is available for download here.
During 2017, there has been a relatively buoyant market, but finance companies will face a series of disruptive influences over the next 12 months that could have a significant impact.
Many industry sectors have reported strong growth during most of this year, following very healthy rises in 2016, when new leasing business in Europe reached €333.7bn, a rise of 10.3%.
With France, Italy, Germany and the UK accounting for around 60% of new business, the European leasing market is now in its third year of robust recovery.
However, growth should not be an opportunity for complacency, as there is significant work ahead to maintain this positive trajectory in the coming years.
The Euro area is expected to grow 2% in 2017, its strongest expansion since 2010, but this will fall to 1.75% for 2018-19.
Furthermore, there are several disruptive influences on the horizon and these need to be considered during forward-planning, both for their impact on businesses, but also for any disruption they may have on customer and consumer behaviour.
The major areas of focus cover five key themes: Legislation, Digitalisation, Mobility, Brexit and the industry also needs to maintain a focus on Training to maximise opportunities as they develop.
Legislation is one of the major challenges for 2018, with significant changes ahead.
The arrival of the General Data Protection Regulation promises to shake-up industry processes and create business disruption.
It brings enhanced consumer rights and tougher penalties when companies breach regulations and aims to give control back to citizens and residents over their personal data.
It becomes enforceable from 25 May 2018 and does not require national governments to pass any enabling legislation, so it immediately becomes applicable in all EU countries including the United Kingdom.
According to the European Commission, personal data is ‘any information relating to an individual, whether it relates to his or her private, professional or public life. It can be anything from a name, a home address, a photo, an email address, bank details, posts on social networking websites, medical information, or a computer’s IP address’.
Importantly, in addition to data protection legislation, automated individual decision-making, including profiling, is made contestable.
Citizens will have the right to question and fight decisions that affect them that have been made on a purely algorithmic basis.
There is also a legal obligation to notify the authorities of data breaches within 72 hours of the breach and individuals if their personal data has been affected.
Non-compliance poses a greater operational risk for many businesses, as infringements are punishable by fines of up to €20m or 4% of the company’s total worldwide annual turnover, whichever is higher.
With data breaches becoming increasingly common, companies are being warned of the potential financial consequences from legal action taken by the authorities and by consumers whose data has been exposed.
Data security will continue to be a key factor as the industry further embraces digitalisation.
Digitalisation promises to be a key innovation factor in 2018, as new services and suppliers emerge to meet the developing needs of customers, supported by technology innovation, as well as new open banking legislation.
In a digital era, traditional methods of doing business are being challenged, as customers experience the latest developments in online services in other service areas, through expanded delivery methods such as smartphones.
At the same time, new market entrants will bring fresh ideas and streamlined products that highlight any lack of innovation amongst incumbent players.
The industry will have to adapt, without alienating customers who prefer more traditional ways of doing business, which could lead to a blend of human and web-based solutions.
Disruptors are already at work in the industry with a focus on the pain points of current ways of doing business, particularly for consumers. Other technologies also aim to improve the full lifecycle of the finance process, making it faster, easier, paperless and highly personalised.
Industry leaders such as Richard Jones, managing director of Black Horse, say the finance sector needs to embrace open digital interfaces, which allow the widest range of product developers to interact with their own services when creating new services.
Technology is also at the heart of another challenge facing the industry, as mobility services threaten to disrupt traditional lending requirements.
Consumers are predicted to rapidly move from vehicle ownership to payment patterns based on usage, which will make owning or operating a car very similar to owning a mobile phone.
This will change funding requirements and create a much more diverse pattern of spending among myriad providers, which adds complexity that customers expect to be hidden, as they enjoy a seamless multi-modal transport experience.
But disruption in the auto and equipment finance industry is not simply focused around technological challenges; there is also the deep political divide in Europe that is growing as the deadline for Brexit nears.
There is little over a year left until Brexit, but analysis in the White Clarke Group report shows little evidence of common ground between the two negotiating parties.
There is now growing concern of a ‘hard Brexit’, with no trade deal being agreed, which would leave the finance industry and its customer base entering an unprecedented period of uncertainty, leading to drastically reduced ongoing investment.
Therefore, a focus on future professionalism and training will be important to ensure the industry adapts and improves to meet future challenges and opportunities that 2018 will bring.
There are a number of initiatives which are designed to promote the best the auto and equipment finance industry has to offer and also develop future talent.
These include Leaseurope’s Future Group, which developed from an initial idea in 2013 and launched in partnership with Invigors EMEA.
Its official aims are to provide promising individuals with an environment in which they can develop innovative ideas to benefit the industry and help participants discover the multiple facets of the industry beyond their daily activities.
And, of course, there are the experts at White Clarke Group, who are always on hand to offer their advice and expertise on how customers can adapt to emerging trends in the auto and equipment finance market.
These are exciting and interesting times for the industry and the next year will provide new opportunities to innovate to overcome market changes and capitalise on the opportunities they bring.
For a detailed overview of the European auto and equipment finance market, read our latest report or watch this short summary video.