Leasing Companies are not Exempt from Changes

 

Those in the technology industry face many challenges caused by innovation, new competitors, and changing buyer habits. Regardless of your core function in the technology deliverable whether you are a manufacturer, software provider, lessor or a reseller who delivers equipment and its services to the end-users, no one can assume yesterday’s circumstances will remain relevant tomorrow. 

Today all leasing companies in the channel are delivery models based on a monthly payment where hardware is financed, and monthly service cost is added to the payment. Service pass through in leasing is not new, it’s not innovative all leasing companies in all channels provide this service by many different names. Leasing or finance arrangements are critical to the deliverable of hardware, software, and their services and I believe it’s time someone challenged the status quo of Leasing. Leasing companies delivering like it’s still 1980 is fast becoming obsolete and frankly too costly for resellers.

Soon leasing will include consumption models or pure usage models. The Data available today is changing the finance world, and some progressive financial institutions and those technology companies with deep cash reserves are poised to shake up the status quo in leasing, and many of us would agree it’s about time.   

The smaller leasing companies who have survived in the channel by providing ancillary services allowing them to charge more interest will soon face challenges as resellers concentrate more on reducing their total delivery cost. The current lessors will also meet threats from technology companies with enormous cash reserves who could easily position themselves to challenge the status quo of end-user financing. As an example, Amazon could position themselves to sell the millions of SMB customers an entire technology suite and provide that service on an as a service model. A model which includes the financing to the end-users. Oh, and it might not even be a financing program. It could be the end user is delivered products and services and simply pays monthly.

All resellers currently delivering equipment and services to small companies must figure out a strategy to increase services by diversifying or, be prepared to lose the customer. There are millions of small companies who continue benefiting from the consolidations in technologies, advances in the reliability of those technologies, and the significant benefit of cloud services reducing the needs for onsite hardware. The B2B technology resellers will suffer if that large, portion of the small companies they service leave to the innovator who delivers a better experience. Keep in mind, that better experience could be lower cost, and those who believe you're worth more remember, the customer writes the check. That statement applies to all those in the custody chain of the final deliverable to the end user.

“Many of today’s disruptions are a result of innovators who understand your customer's realities of expectations better than you, and this knowledge allows the innovator to deliver to your ex-customer differently and many times at a lower cost.”   

Amazon will do more business B2B than B2C this year. This fact must serve as the alarm awakening complacency. So, WAKE UP, at the sounding alarm or continue hitting the snooze button and turn your dreams into nightmares.

Resellers must use their imaginations and respond to the threats they imagine. All those in technology who continue saying that will never happen should retire. 

Many manufacturers will partner with delivery systems which will include the as a Service model. Could we one day see an end-user pull to them the technology they need which used to be pushed. Equipment such as MFP’s directly from Amazon then pay a monthly subscription fee which includes everything? That scenario would eliminate the legacy leasing company, would challenge the local service provider, and displace the legacy distribution mechanism. These probabilities will challenge many of the tier one and two leasing companies. Consolidation will not be limited to manufactures, software platforms, or dealers. The pressures of consolidation could cause larger leasing organizations who are providing the money to the smaller tier one and two leasing companies to reevaluate that strategy.

Soon larger financial institutions will go directly to the large conglomerates and offer them the financial resources which will enable these conglomerates to cut out intermediaries as they build their internal leasing divisions. These large dealer conglomerates would be well positioned to borrow at prime rate and then lease out hardware themselves generating tremendous cash, cash which is currently going to leasing companies. With declining hardware revenue along with its margins, these large V.C. backed dealers or the large self -funded dealers would prosper well taking the finance interest instead of giving it to leasing companies.

In most every financed agreement the borrower pays interest based on risk or credit. In the office products leasing industry nearly every end user pays the same rate, and the buyer is either approved or denied. Next time you have an A credit customer tell your leasing partner you want a better rate. Currently, we all know the answer to that question. This fact is what will attract these large conglomerates and large dealers to borrow at prime and keep the difference which is in-fact substantial.

It does not seem logical to believe that with the consolidation of resellers, manufactures, and service providers that leasing companies will not be affected. Two thousand nineteen will see more and more mergers in the Imaging Channel and the IT Services channel. It will be interesting to see how the mega technology organizations implement their, as a service model. These larger organizations will not see any value in paying higher rates to legacy leasing companies who were built thirty years ago to provide additional services to their mostly small in size reseller partners. In all reality, today’s mega dealers do not need leasing partners teaching them how to sell and today’s smaller dealer will increasingly have to look for the cheapest money available to remain competitive. 

Today’s leasing organizations, will not be able to operate in the same manner as they did three decades ago. The question the leasing companies should answer is this. Today what is the reason their reseller customers engage them? Did we all answer the same? To facilitate monies to their end-users which affords those end-users the ability to acquire hardware through a finance program. That provides end users the ability to benefit from equipment without significant cash outlays. That is the deliverable of leasing companies; anything else they may do drives the cost up of that core deliverable, unless they charge separately for those added services and profit enough from those charges.  

Who in fact will survive in the leasing sector, and more importantly who will enter the space as an alternative competitor? I imagine new ways to finance and innovative platforms will challenge the current circumstances of leasing. In most disruptions, the old way can’t get out of their way. This fact is what fuels innovators.

Thirty years ago, the value of leasing was based on customer service, and frankly so were banks. But over those thirty years the value props changed, and today the value and expectations by those needing financing services are - speed, convenience, and low interest. There is no one reading this that would pay additional interest on an auto loan based on some added value from the financial institution to the car dealer, the same for a mortgage.

Let’s all be honest, all leasing companies regarding their core product of financing the resellers end user's equipment is all the same. So, as margins on hardware and service continue contracting resellers will not pay more for money regardless of today’s relationship. Everyone reading this have traded their banking relationships for lower rates. Otherwise, Quicken Loans would not be the largest mortgage company in the world, and the banking brink and mortar teller model would not be collapsing.

Now we must all admit that financing a house is a hell of a lot more complicated than financing a copier, or some technology. Quicken Loans decided their better experience had a lot to do with having great rates along with their speed and convince. Quicken Loans will more than likely not distract themselves by building real estate training schools as an example. Quicken Loans does not fool themselves into believing customers wanted to continue having a great person to person relationships with bankers, and their borrowers could care less about getting a free toaster. Quicken Loans decided to cut overhead cost and give customers an experience and rates they appreciated, and many, many, many, customers - appreciated it. So, many bankers lost some great relationships to a better experience. As I write this, I think, maybe I should reach out to Quicken Loans and discuss the B2B leasing space.  

Leasing companies must change their deliverable just like the resellers and manufactures they service - have had to do consistently. New finance options coming from new providers, or re-invented legacy players will challenge the stubbornness of those who believe today’s competitors are the same as yesterday and play by the same rules as yesterday. New competitors couldn't care less about yesterday.

Leasing laws are changing and as the changes take hold so, will new approaches to financing. Resellers will look for the cheapest fees, the lowest rates, and will not substitute their profit margins for the benefits of financing partners. Leasing companies the dealers and manufacturers they serve will all have to drive down their cost to deliver. Remember, the cost of borrowing money is rising while the end user's cost of hardware and service continues declining.

Resellers must ensure their end-users pay them more for their added value, and there simply is not enough revenue and profits to allow all the components of the technology deliverable to maximize their revenues from the resellers based on some unrealistic or unneeded added value. All the ingredients are commodities it’s the service form the reseller to the end-user where the higher margins live, and consolidation will force resellers to control their delivery cost. The reseller’s end-users will pressure their providers to compete with alternative choices, choices born of innovation and technology advancements.

The leasing component of technology sales is not exempt from being challenged and disrupted like all other components. Who will be the disrupted and who will be the disruptor time will tell, and the clock is ticking. There are many financing organizations some progressive inside the industry and some currently unfamiliar who live on its borders. Financing and leasing services are critical to my vision for the TEASRA’s Reseller community.

In Closing

My friends, there’s excitement in discovering what could be possible, as what should be possible, puts the pressure on what was once considered the only way possible. 

Status Quo is the Killer of all that will be invented.

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Lease Maestro posted:

Wow - that was quite the read.  While there are a few details that I have a differing opinion on, I cannot agree more with Ray on the the fact that change is coming and the Leasing industry has not choice but to change with it.   The question is not "will leasing companies change", but how much will they change and how much will they be able to change within their existing framework.  Many of these leasing companies are part of larger banking organizations and will the regulatory and legal framework allow this change (ever deal with a banking regulator like the FDIC, Fed, OCC - pure madness).  Will the industry help the Leasing companies adapt the these changing needs.   Will the Industry be willing to make tweaks to their plans to adapt to the requirements of the banking/leasing institutions?  Will the industry as a whole be willing to change their funding model?  The devil is in the details and the details will be big to move the needle in this area.

Grab a box of popcorn, put your seat belt on and hang on for the wild ride that is the future of delivering Technology to our customers

On a separate note - I'm a Detroiter and Quicken is in my backyard.  Quicken is  more expensive than my bank for their mortgage rates/fees, but they offer the best experience and they are easy to use.   The question that we have to ask is - is the increased cost worth the ease of use - based on their growth, it is!  Also, rumor has it that Quicken looked into the B2B leasing space in the recent past and they decided against moving into it at that time.  I'm not saying they won't in the future, but they have lots of Brains working there and are well aware of how this space works.  Timing is everything and they may be waiting for the right time to make that move.

 

Thanks for commenting the first step to change is the ability to discuss why you should.  As all of know change is usually a forced reaction unfortunately. I would say that the real disruptions to any deliverable are those which come from new places. too many see their competitors as someone like them. Today we all need to look in new places. Regarding Quicken I believe the mass market they attract are not 800 plus credit scores. The interest paid by end-users doesn't need to necessary be lower. The large resellers will look at ways they can capitilize on that. Meaning they will look for competitive money. 

Wow - that was quite the read.  While there are a few details that I have a differing opinion on, I cannot agree more with Ray on the the fact that change is coming and the Leasing industry has not choice but to change with it.   The question is not "will leasing companies change", but how much will they change and how much will they be able to change within their existing framework.  Many of these leasing companies are part of larger banking organizations and will the regulatory and legal framework allow this change (ever deal with a banking regulator like the FDIC, Fed, OCC - pure madness).  Will the industry help the Leasing companies adapt the these changing needs.   Will the Industry be willing to make tweaks to their plans to adapt to the requirements of the banking/leasing institutions?  Will the industry as a whole be willing to change their funding model?  The devil is in the details and the details will be big to move the needle in this area.

Grab a box of popcorn, put your seat belt on and hang on for the wild ride that is the future of delivering Technology to our customers

On a separate note - I'm a Detroiter and Quicken is in my backyard.  Quicken is  more expensive than my bank for their mortgage rates/fees, but they offer the best experience and they are easy to use.   The question that we have to ask is - is the increased cost worth the ease of use - based on their growth, it is!  Also, rumor has it that Quicken looked into the B2B leasing space in the recent past and they decided against moving into it at that time.  I'm not saying they won't in the future, but they have lots of Brains working there and are well aware of how this space works.  Timing is everything and they may be waiting for the right time to make that move.

 

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