The Next Leap Forward In Leasing

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1. SPECIAL REPORT The next leap forward in leasing Leasing , as an industry, is fairly well developed. Countless hours, across various disciplines, have been invested to perfect its product offerings. So much so that if you were to ask individuals at random about the internal workings of a lease, you will get, more often than not, a concise answer. And although such standardization of leasing is understandable, from the acceptability and increased transactional flow points of view, continuing to constrict the scope of leasing will result in its demise. YOUSSEF ABOUL-NAJA writes. LEASING By Youssef Aboul-Naja In today’s world, customizability is the name of the game. Coincidentally, if one were to analyze the DNA of leasing, one would be impressed by its extensibility. The following are three trends, out of many, that leasing companies should incorporate within their operations: 1. Big data This term has been floating around for some time now, and what it means is: “Data sets that are so large or complex that traditional data processing applications are inadequate [to analyze].” In today’s leasing practices, collected data is generally reactive (defensive) in nature, for example, GPS tracking information. Though such data is important, companies should strive to identify and collect data that is proactive; in other words, data that would anticipate a lessee’s future preferences. Once such forward-looking data is obtained, leasing companies will be able to better tailor their leases in accordance with their client’s needs. Take for example the supermarket industry. It has harnessed the power of big data to customize the contents of weekly promotional flyers relative to a customer’s purchase history. In one incident, a supermarket chain in New York figured out that a lady was pregnant, and subsequently mailed her baby-oriented promotions, before she even knew of the fact; the lady was purchasing beauty products bought mostly by pregnant women. Imagine how such insightful data can add benefit to the leasing industry. 2. Crowdfunding When leasing companies require funding, they usually revert to banking facilities or an injection of additional equity. Considering the higher costs associated with equity, banks become the only available avenue. But there is yet another option seldom exercised by leasing companies, which is © crowdfunding. With technology’s rapid advancements, securitizing transactions via internet-mediated registries could not be any simpler, albeit leasing companies should be allowed by its operational jurisdiction to perform such an activity. Securitizing a company’s portfolio via crowdfunding is likened to lease-rental bonds or Sukuk Ijarah, but targeting the masses. As such, leasing companies may access cheaper funds while diversifying investment options for individuals. 3. Cycle economy This topic has been discussed thoroughly in a previous article titled ‘Circular economy and Islamic finance: An Ijarah way forward’ (See Special Report Vol 12 Issue 37), but basically individuals are seeking consumption-type models, a payfor-what-you-use approach. Suppliers who are a bit more open-minded, and provide such flexibility, are outpacing their competitors. Examples that come to mind include automakers’ carsharing programs, Xerox photocopying machines, soft drink machines, Desso’s carpet-sharing program, IKEA’s secondhand goods service, Philips’s pay-per-lux model, etc. The heart of the cycle economy is the leasing model. As such, leasing companies are encouraged to reach out to the various suppliers to collaborate on offering sharing-oriented solutions. Long gone are the days where owning an asset is a necessity to benefit from its functionality. It must be said that the auto industry has exemplified the stretching of the leasing model. The following are some examples: • Ford Motor Company and Audi both introduced group-leasing options, whereby a number of customers (three to six) would lease the same vehicle. The logistics associated with vehicle-sharing and costs are all managed by computer-based software; the monthly lease payment of each client is correlated with their amount of use. This unique leasing solution addresses the issue of owning a vehicle at a time of 17 economic uncertainty. Additionally, it accommodates the millennials’ unique requirements of convenience and affordability when it comes to big purchases; millennials, also known as Generation Y, are individuals born between the years 1982 and 1994. • Lincoln Motor Company released its ‘Lincoln Miles’ program in the 2016 Detroit Auto Show, offering “current lease customers credits of US$100 to US$1,000 for unused miles” toward new vehicles. Such perks lock customers into the Lincoln brand, promoting recurring leases. • Xchange Leasing: This is Uber’s latest offering, being rolled out initially in the US. As long as an individual is qualified to be an Uber driver, they may lease vehicles from specific car dealerships with very competitive benefits that include: 30-day leasing trial period, unlimited mileage and automatic lease payments deducted from an individual’s Uber earnings. By providing such leasing benefits, potential clients may be willing to pay a slightly higher premium, while Uber strengthens its main offering of ride-sharing services. The next leap forward in leasing is to reinvent its offerings from product-based to solution-based. This revitalizing step will be faced with a whole new set of financial risks and corporate culture resistance, but then again, nothing great ever came from being in the comfort zone. Customers know that they require tools to address their problems, but the onus is on leasing companies to lead the way. Steve Jobs once said: “People don’t know what they want until you show it to them.” Any public opinion or media appearance is the author’s independent personal opinion and should not be construed to represent any institution with whom the author is affiliated. Youssef Aboul-Naja is an Ijarah specialist at a supranational banking institution. He can be contacted at yaboulnaja@gmail.com. 13th April 2016