Relationship Exchanges…What Vendor Lessors Want In An Online Model

By Susan Carol
Monitor Correspondent
Published in the October convention issue of the Monitor,
a Molloy Associates publication (www.monitordaily.com).

If a vendor lessor were to write a want ad for the kind of online model it needs to help its equipment dealers close sales, that ad might read: "Seeking online model that is much more appealing than a portal--one that will serve as our exclusive online electronic marketplace and be able to respond consistently and reliably to our customers' comprehensive needs. It must provide value-added services and support human interaction in conjunction with the automation of every phase of the lease transaction, from origination through asset tracking and upgrades and buyouts."

Executives of vendor leasing companies say that new online models almost fit the above description but still lack the human-interaction element, which is critical in vendor finance. Further, although Internet-based technology is valuable for streamlining business operations and helping to close more transactions, these executives warn that end users may wind up with even more administrative burdens if they rely solely on e-market exchanges (electronic marketplaces).

For example, an online exchange, functioning within established parameters, may spew out multiple bids or financial terms from various funding sources; however, it also forces the user to work with different companies, an approach which is far more complex and time-consuming than a master lease with one lessor. And, transaction speed is not their only need. Many equipment dealers also want access to tracking information to know the status of all of their leases in real time.

Nevertheless online exchanges continue to proliferate—Forrester Research of Cambridge, MA noted recently that 1,000 new ones sprang up in one month alone. Many of the ones catering to the leasing industry are also evolving and don't easily fit into categories for easy comparison. Because many duplicate the services of others, much consolidation is expected. Consequently, vendor leasing executives wonder how many of these electronic marketplaces will last.

Vendor lessors are committing more resources to analyze what's available, determine competitor activities and make sure they understand where their customers want to be with e-business in the next few years, not just today.

Executives of such vendor leasing companies as Heller Financial, CIT Equipment Finance, De Lage Landen Financial Services and El Camino Resources know that vendors need tools that do more than speed up and simplify the leasing process—they also need tools that help them penetrate markets quickly and efficiently and respond consistently and reliably to their customers.

These requirements are pressuring vendor leasing companies to evaluate emerging e-business models and formulate their strategies as quickly as possible. They need to determine partners and what piece of the e-commerce engine they must build themselves. Aziz Khan, senior vice president of Heller, says, "If you are in a high-tech space, [vendors] are definitely going to ask you about your e-commerce engine." Furthermore, vendors aren't willing to wait. One lessor says if he were to tell a vendor it may be another year before he has an e-business strategy in place, he would lose that vendor's business. Obviously, e-business planning must occur in Internet time. Not surprisingly, these competitive pressures are prompting many lessors to look for partners that either can help them establish their own exchanges or provide a full-service online experience for their [vendor] customers.

Vendor Needs Vary

Yet vendors obviously won't settle for just any e-business solution. Solutions must be customer-focused and ensure consistent treatment of their customers. "If a customer company is sent to one of the new electronic marketplaces, it could receive five different leasing bids from five different sources," Khan says, "and the vendor loses control over the handling of that customer."

Another way they threaten the vendor leasing business is by forcing the lessors to compete more on rates. The vendors' customers are using online marketplaces to compare rates, which forces vendor leasing companies to add more value or reduce their rates.

For vendors outside of the United States the expectations for speed are lower and the need for market-specific knowledge is valued. Arnaldo Rodriquez, an El Camino managing director, says vendors obviously want fast turnarounds on credit approvals and vendor payments, but they still need contracts modifications to accommodate different local laws and regulations. Web expectations are lower in his territories of Mexico, Brazil and Argentina, where a three-day to five-day response time is considered "impressive," he says.

Solutions based on Partnerships

Heller is looking at the electronic-exchange concept, but Khan says his company is being very selective when it comes to choosing partners. Currently, Heller is using eCredit's tools for automated credit decisioning and also has formed an alliance with Pivotal to provide customer relationship management (CRM) capabilities. Most large lessors "are dabbling with dot.coms to try and get a sense of where the land lies," Khan explains. "They will view the online exchange as an additional distribution channel, not a major source of business."

Lessors also are trying striving to make their e-strategies compatible with those of their customers. For this reason, CIT has been exploring e-business capabilities on a vendor-by-vendor basis. Rich Masulli, executive vice president of technology financing services, explains such an approach is necessary "because there are still no uniform standards." Where there is a great need for servicing customers, the new leasing exchanges may not be suitable, Masulli says. CIT management also believes that e-commerce is not just for the small-ticket arena; rather, CIT wants to tailor its e-commerce capabilities to all of its customers. Jack Camarda, a vice president in charge of e-commerce for the CIT Equipment Finance Group, says CIT has been in the vendor business for a long time and has relationships that extend over 40 years. Lasting relationships depend on the company's servicing capability and reliability. "Vendors want to know that you are going to be there. They don't want any hiccups in the process," he says.

With an e-commerce expert heading every one of its industry segments, CIT management has learned what's important to its customers. High on their priorities is information management. CIT customers want to track lease processing in real time.

E-commerce Marketplaces Are Not All Alike

The number of online marketplaces is growing rapidly and the first ones to emerge are evolving to incorporate new technology and meet vendors' needs. Some of these exchanges, which began by tailoring their services to end users, are now licensing their technology to leasing companies or vendors. Application Service Providers (ASPs) are emerging as hosts for end-to-end leasing solutions that can be used by vendors on a rental basis.

eLease is described as an application service provider (ASP). Ron Bannerman, eLease vice president of vendor and lessor programs, says the company currently targets lessors and vendors which may wish to use and pay for its technology on an as-needed basis. Although it started out as an exchange a year ago, eLease managers soon realized the more profitable path was to license its solution, Bannerman says. The eLease ASP model gives the vendor two benefits: the vendor is the only provider in the marketplace, and it doesn't have to keep updating the technology. The latter is the responsibility of eLease, the Web-hosting agent.

Others like LeaseExchange, are based on an auction model, in which users receive bids that can be negotiated.

LeaseExchange features a multi-lender leasing platform for equipment sellers, along with sales tools and an engine for online transactions. Equipment sellers can offer financing through LeaseExchange or via their existing funding sources. Either way, the vendor maintains control, says CEO Aaron Ross. He adds that the basic ideas behind LeaseExchange are to reduce the time required to secure multiple competitive bids for an equipment lease and to increase the chances that a leasing customer will get approved.

Paula McBride, a controller with GTI, a $1.6-million telecommunications equipment dealer based in Southfield, Mich., began using the exchange three months ago and describes it as "awesome" because of its "ease and facility." It's like working with a broker only faster, she says. "They approve or disapprove quickly and then they pay quickly." Speed is a big issue--when smaller companies don't fit the credit profile of a traditional lessor, LeaseExchange provides an alternative, McBride says.

Although Ross declines to reveal the number of LeaseExchange transactions, he says transaction volume is growing by 30 percent per month. He also points out that 1,200 vendors are online-most in the office and high-tech equipment industries. Within those two industries, Ross says most of the transactions are valued at $150,000 or less and that associated documents are fairly standard.

Formerly a product manager with Pandesic LLC, the e-business joint venture between Intel and SAP, Ross says the LeaseExchange suite of products and services is more technology-heavy than competing systems. Larger vendors simply want to license the technology for their own use. Captives, on the other hand, often partner with LeaseExchange and commit to a certain volume of business over time.

Other exchanges are described as online brokers. In fact, broker models are common. AccessLease was labeled by some as an online broker when it emerged, but AccessLease's spokesman, Joseph Loll, says his company's offering is actually better described as a "transaction processing" company. While many of the leasing exchanges are simply an online version of the traditional leasing process, he says his company actually takes out the need for a broker in the process and puts the customer or vendor in charge.

Rather than being a threat to the vendor lessor, Loll says AccessLease offers "an additional revenue channel via the Internet which can complement a vendor's existing leasing capabilities and provide a new means for offering additional leases at lower costs to their customers-enabling increased sales.

The 50 lessors using AccessLease's network as of late September were funding about 25 percent more deals, Lolls says, because his company can distribute risk across the aggregated small ticket equipment deals processed.

Pure Markets, described as an online marketplace for equipment finance, targets lessors, lessees and vendors that want to expand in the new economy. In addition to offering speed and ease, the company emphasizes that it provides human support services. The company is also widening its distribution channels. In September it announced a strategic alliance with Ariba, which provides a business-to-business e-commerce platform. According to the announcement, users of Ariba's technology will have "seamless" access to Pure Markets' equipment-finance marketplace and tools.

Industry executives are not yet certain which exchanges, portals and ASPs will succeed in the marketplace and how various technologies will further transform business transactions. Steve Grosso, president and CEO of De Lange Landen, says the relationship interface will be critical. In fact, he expects the Internet eventually will function as a kind of interactive television. "I will be sitting across the desk from our customers, face to face, via the Web," he says, but adds that the infrastructure "is not in place for this yet."

Susan Carol is president and CEO of Susan Carol Associates Public Relations (technologywriters.com), a virtual PR agency specializing in business-to-business communication on healthcare, leasing and e-commerce subjects.