Global Lending & Leasing Survey. Back to a new normal? A survey carried out by Linedata Edition

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1 Global Lending & Leasing Survey Back to a new normal? A survey carried out by Linedata Edition

2 Executive Summary Economic figures and analyst surveys show that growth is back in the lending & leasing industry. Growth is back, but it is not the environment we knew before Regulation pressures, client behavior, bank governance: they all have changed. The survey we deployed recently resonates with those trends, and highlights the challenges and opportunities for lending & leasing professionals in this new normal market. If regulation remains the top challenge during 2014, the 2 nd and 3 rd biggest concerns demonstrate that we reached an important milestone: in 2013, financial companies were extending risk management capabilities and cutting costs; in 2014, they will focus increasing attention to client relationship management and developing new offerings and services. The IT priorities also answer the need to be more focused on business development while streamlining processes and mastering risk: Business Intelligence tools, Origination & Front Office platforms, and Portfolio and Risk Management will be the major investments. Regarding the use of mobile applications, we observe a significant difference between leasing and consumer finance businesses. The majority of lessors who answered the survey have not developed mobile applications to run their business and do not plan to in the short term; captive finance companies and banks responded with a resounding yes. Global Lending & Leasing Survey 3

3 Growth is back! Loans outstanding from 2012 to 2015 In 2015, the global loans outstanding volume is predicted to be 26.3 trillion USD Dollars (19 trillion euros) in Western Europe (WEU) as in North America (NA). In terms of growth, North America has the higher growth projection for the 2012 to 2015 period (5% to 8% compared to 1.4% to 2.1% in Europe). Consumer credit (incl. auto, credit-cards and non-auto) is very large and fast growing in NA, which contrasts with WEU. The auto segment alone is 7x larger in NA than in WEU. Commercial lending is the only segment larger in WEU than in NA, despite a 8.2% CAGR (compound annual growth rate) in NA. Leasing is a market of 2.90 trillion USD Dollars (2.12 trillion euros) for NA and WEU combined, though growing very fast in NA (7.1% CAGR). Back to growth, but in a new environment Growth is back, but in a new environment with new challenges and new opportunities. First, the regulators role is becoming more central and the regulations are numerous and more and more complex. The banks governance is more focused on corporate responsibility. Ethics, personal liability of top management and board roles are becoming more crucial. As a consequence, need for risk monitoring and legal compliance is increased. Finally, the end customers (both B2B and B2C) are requiring more transparency on financial products, including visibility of risk exposure, credit position, reporting, etc. Corporate clients are asking for reliable compliance and robust processes. Endcustomers (B2B and B2C) Regulators Banks governance 4 Global Lending & Leasing Survey

4 Focus on regulatory environment The attention and pressure from regulators on all the banking activities, including credit and leasing, is increasing and will continue for the foreseeable future. Therefore, regulation has become a priority for banks: Banks keep on investing in regulation (in average, a global investment bank can spend up to 1.37 billion USD Dollars (1 billion euros) over the next 5 years to adjust all its systems and strengthen its risk IT capabilities); Banks need to have information system able to manage regulation requirements and proactively respond to new demands. These constraints are burdensome but could also bring opportunities: good risk management can become a real competitive advantage. This new environment will lead financial companies to streamline their operations and centralize their project capabilities: in turn they will consolidate their systems and reduce their costs. By implementing consistent and comprehensive risk management, they will automate their front to back processes for better client responsiveness while enforcing consistent operational and credit risk policies. The regulatory context is driven by both topdown and bottom-up initiatives. On the one hand to increase industry capabilities in risk management and control and provide high level directions, and on the other hand, to define specific regulations and requirements for supervised banks and monitor their compliance. The regulatory environment is more and more complex as noted with nearly 9,000 pages for only 30% of Dodd-Frank regulation written compared to 22 pages for Basel I. This increasing attention from regulators will continue for the foreseeable future. Global Lending & Leasing Survey 5

5 Main 2013 & 2014 challenges to be addressed We first asked survey respondents What would you say were your company s main challenges in 2013? and, not surprisingly, 24% chose implementing new regulations as one of their top 3 challenges following by extending risk management capabilities (17%) and cutting costs (16%). What is interesting to note is that in the meantime, the financial companies indicate priorities as improving client relationship management (15%), and expanding product and service offerings (12%). So the challenge is managing compliance, risk and containing the expenses while assuring a good and innovative client service. If we look closely at each kind of financial company: retail banks, commercial banks, lessors, captives the trends remain the same. Number of Responses Main 2013 & 2014 Challenges Base: All respondents (137) Source: Linedata 3rd Annual Global Lending & Leasing Survey In 2014, staying abreast of the many regulations and their deployment will again challenge lending & leasing companies but the trend has been inverted. The main regulations cited as big concerns with deploying in 2014 are: In North America: Dodd-Frank Act and especially Dodd-Frank Act stress tests, CFPB (Consumer Financial Protection Bureau), FASB (Financial Accounting Standards Board), FATCA (Foreign Account Tax Compliance Act) In Europe: Basel III, SEPA Part II, FCA (Financial Conduct Authority), Lease Accounting Reform Looking at the 2 nd and 3 rd concerns is very interesting as it shows that the industry reached a significant milestone and is getting back to growth: increased attention to client relationship management and investment to develop new offerings and services. This trend is confirmed by the answers for the following open question What are your top 3 strategic goals for the coming year? Exciting to read in the top goals were many words such as growth, increase market penetration, international expansion, expanding product offerings 6 Global Lending & Leasing Survey

6 IT Priorities When asked to name the key IT priorities, Reporting & Business Intelligence came out on top, followed closely by Origination & Front Office and Portfolio & Risk Management. This resonates with the trend to be more focused on business development while streamlining processes and mastering risk. Investment in Compliance systems continues to be an important focus for lending & leasing firms in order to provide transparency and meet on-going regulatory requirements which are numerous and complex. Mobile applications play an important role and we will learn more on that trend in the dedicated section on page 9. Average rate IT Priorities Base: All respondents (137) Source: Linedata 3rd Annual Global Lending & leasing Survey Average rate calculation: for each item, the respondent could choose priority 1 (highest, 4 pts) - 2 (3 pts) - 1 (lowest, 2 pts) We also asked to our respondents their technical improvement priorities for the coming 12 months. Information System security came out on top, followed by high-availability. Server s virtualization and cloud computing are well ranked but were a bit behind. Average rate Technical improvement priorities Base: 124 respondents Source: Linedata 3rd Annual Global Lending & leasing Survey Average rate calculation: for each item, the respondent could choose priority 1 (highest, 4 pts) - 2 (3 pts) - 1 (lowest, 2 pts) Global Lending & Leasing Survey 7

7 To SaaS or not to SaaS When we asked if some business processes are currently or planned to be hosted, 53% answered yes and 47% no. If we look at the answers, business by business, there are some differences. For example, 61% of Lessors answered no, when 67% of Captive Finance Company answered yes. Hosted business processes Base: 127 respondents Source: Linedata 3rd Annual Global Lending & leasing Survey The business processes concerned cover the entire credit lifecycle from the front to the back-office: web sales front end, lease & loan origination & processing, vendor management, accounting, collection, recovery, reporting and risk management. 8 Global Lending & Leasing Survey

8 Mobile Applications When we asked if some mobile applications are currently or planned to be used to run the business, 62% of the global sample answered positively. Mobile Applications' use Base: 132 respondents Source: Linedata 3rd Annual Global Lending & leasing Survey If we look at the answers business by business, the trends are varied. For lessors, mobile applications are not deployed as 65% have not developed mobile applications to run their business and don t plan to in the short term. At the opposite end, 80% of Captive Finance companies answered yes. Same trend in retail and commercial banking, with more than 70%. Mobile Applications' use by type of business Base: 132 respondents Source: Linedata 3rd Annual Global Lending & leasing Survey The mobile applications deployed are mostly for mobile banking, account management, sales origination and CRM. Global Lending & Leasing Survey 9

9 METHODOLOGY OF THE SURVEY The survey was deployed online during the first quarter of The respondents included general management, IT, finance and sales & marketing departments of retail and commercial banks, lessors, captive finance companies and specialized financial companies. The businesses covered in this sample are diversified (in order of importance): vehicle finance, equipment leasing, commercial lending, consumer finance, real estate finance, dealer inventory financing, fleet management. In terms of geography, 65% of respondents are North America-based, 37% Europe, 4% Asia and 4% across Africa and South America. In terms of sizes, the panel is very interesting as it s made up of SME s as well as big financial institutions. 41% of respondents belong to companies with less than 250 employees, 13% from , 10% from 500-1,000, 15% from 1,000-2,500, 5% from 2,500-5,000 and 16% superior to 5, % manage less than 10,000 contracts and 19% more than 1 million. In terms of portfolio size (in USD Dollars), 15% are under 250 million assets, 18% between 250 to 500 million, 20% between 500 million to 2 billion, 24% between 2 to 10 billion and 23% over 10 billion. 10 Global Lending & Leasing Survey

10 Linedata Serving the Lending & Leasing community As financing professionals, your aim is to develop your business and optimize your productivity while adapting to changing regulations and new customer requirements. Linedata is a key global player in the lending and leasing industry, assisting specialized financing companies with the development of their business worldwide. Linedata offers a comprehensive range of solutions that covers all consumer and corporate financing activities, from origination to accounting, delivering the latest technology as well as in-depth expertise in the financing businesses. With over 450 professionals focused on lending and leasing, Linedata serves more than 130 institutions in Europe, Africa and North America. Legal Reporting Contract Credit Evaluation Full Service Rental Multi channel Origination Asset Finance Dealer Financing Fleet Leasing Billing Payments Vendor Management Real Estate Leasing Mortgages Diverse Product Categories Auto Lease Commercial Lending Collections Dealer Management Revolving Credit Consumer Lending Litigation Asset Management End of Termination Diverse Product Coverage with Complete Lifecycle Management Global Lending & Leasing Survey 11

11 ABOUT LINEDATA Linedata is a global solutions provider dedicated to the investment management and credit community, with close to 1000 employees in 16 offices across the globe. Linedata has been at the service of the financial industry from day one, and applies its market and client insight to provide innovative and flexible mission-critical software and services that help its clients grow in over 50 countries. As a pioneer for over 15 years with the set-up of SaaS infrastructure for the financial industry, Linedata remains committed to this model throughout the global financial community and for its full range of products. LINEDATA LENDING & LEASING Seattle: Irvine: Paris: +33 (1) getinfo@linedata.com or visit: