Your software roadmap to circular vehicle financing

Several factors are driving new circular models in vehicle financing: increased focus on sustainability and lifetime asset value, as well as emerging mobility trends and the rapid adoption of EVs. Banqsoft’s Head of Products Asset Finance Christian Lärka explains how his company’s software helps you manage the transition.

The circular economy model is now taken as an established strategy for combatting our planet’s climate and environmental challenges. It’s a model based on the idea of retaining and recycling the utility in products and materials. By keeping resources in a circle of use, we minimise waste while maximising value.

This shift in thinking – which has been gathering pace for some decades now – has naturally led to the emergence of financing and business models that support circular operations. As a key supplier of software to the vehicle-financing industry, Banqsoft has been closely observing the impact on our clients’ business.  What we’ve seen is that our software is often better equipped than other systems to handle circular needs.

Before we get into the technical aspects, it’s worth looking at how and why circularity is manifesting in the automotive business. The most interesting aspect is that there is no contradiction between environmental and economic considerations. As the world has moved towards recycling and reuse, so too has business thinking in the automotive world shifted towards a view of wanting to retain the lifetime value of assets.

There are several reasons for this, chief among which is the evolving way that people and companies are viewing mobility. Environmental considerations and economic constraints – or opportunities – are motivating a clear shift to prioritising vehicle usage over vehicle ownership. Consumer behaviour among younger generations is characterised by a preference for pay-as-you-go, rather than buy-and-maintain. This is giving rise to subscription-type mobility models and the necessary financial mechanisms to handle them. 

Whether supporting stock financing, company leasing or private purchases, lenders now need to integrate their operations in a way that enables more control over the value of assets.

Christian Lärka, Head of Products Asset Finance, Banqsoft

The surge in electric vehicle (EV) adoption is also playing a pivotal role in shaping new business models and opportunities within vehicle financing. As stakeholders recognise the high residual value of EV batteries, strategies such as multi-cycle leasing are emerging. New EV batteries are in fact expected to outlast the vehicles themselves. By making secondary leases more financially accessible, the operational life of EV batteries is extended until they are eventually repurposed for other uses. Decommissioned EV batteries can be used to power homes, for example, or to provide components for fast-charging stations.

Another trend of note is that the automotive industry is undergoing a restructuring of the traditional vehicle-sales value chain. The sales process has historically involved a familiar sequence from factory to National Sales Company, then to the dealership and finally to the end customer. But the role of dealerships is now changing into that of agents who mediate sales on behalf of the importer. This is leading to a more streamlined chain with fewer intermediaries between manufacturers and end users. 

This trend towards direct sales allows manufacturers to maintain greater control over the distribution, sales and pricing of their vehicles. Manufacturers can engage more directly with customers, potentially enhancing brand loyalty and opening up opportunities for new offerings across markets – including different models for financing vehicles.

The main point to draw from this shifting industry picture is that vehicle-financing providers are increasingly working in more than one part of the value chain. Whether supporting stock financing, company leasing or private purchases, lenders now need to integrate their operations in a way that enables more control over the value of assets. By taking an active role in this market, vehicle-financing providers can deliver a 360-degree perspective on both customer financing cycles and asset value. Such input is greatly appreciated by the vehicle importer and the brand owner.

In order to enable this perspective, software must be able to handle the complexities of managing multiple assets and leasing/financing cycles across a wide variety of end-usage scenarios.

How system limitations can harm business growth

Let’s look at a typical example of the circularity in vehicle financing.

A vehicle is imported and immediately financed through leasing. This cycle could then repeat for a second term, or even a third. In between these periods, the vehicle might be under warehouse financing, where it is stored and awaits its next user. Eventually the vehicle could be sold through a loan arrangement. 

The software traditionally used for vehicle financing often falls short of being able to track and manage the many intricacies of these different arrangements in an integrated way. This is because in the old industry environment, each participant providing financing would have a system for their particular part of the value chain. Many banks and financial-services companies still work with these older systems, which are often based on standard banking software. Some providers also built their own legacy systems that are still in use.

As these older systems are often not standardised, integration with third-party software may be tricky or even impossible. Yet the modern circular-financing market demands software that can adapt to rapid changes and integrate smoothly with various stakeholders, including vehicle brands, National Sales Companies and direct-sales platforms. This integration is essential for keeping pace with the evolving market and for leveraging new opportunities as they appear.

To illustrate the point, consider a setup where one system manages asset-financing for stock, while another system manages retail-financing for end consumers. The same vehicle might be registered in both systems, thus requiring duplication of data entry or a complex data-migration process. This fragmentation fails to provide a comprehensive view of the vehicle’s history, thus complicating asset management and reducing operational efficiency. 

The modern circular-financing market demands software that can adapt to rapid changes and integrate smoothly with various stakeholders, including vehicle brands, National Sales Companies and direct-sales platforms.

The feedback that Banqsoft is now getting from our vehicle-financing customers indicates a significant shift in this IT landscape. Instead of acquiring systems for each need – one for stock financing, another for leasing, and yet another for reporting, etc. – companies are increasingly looking for holistic solutions that address all these needs simultaneously. With the shift towards circularity, the focus is on maximising the value of an asset with a solution that seamlessly tracks that asset throughout its entire lifecycle. 

Selecting a software vendor that specialises in supporting these multiple types of financing along the vehicle value chain brings significant advantages. By facilitating seamless transitions from one type of financing to another, such software provides a consistent and comprehensive view of the asset's usage history. Without interruptions and with no need to transfer data between systems, operations are streamlined and costs are reduced accordingly. Most importantly, the right software enables new circular needs in vehicle financing and thus contributes to business growth.

One software stack for every asset-financing operation

Banqsoft’s specialised asset-financing software is a standardised solution that addresses the emerging and evolving needs of the vehicle-financing industry. Our robust and feature-rich technology stack offers rich functionality for different financing models, with a system architecture that’s designed to integrate seamlessly across third-party software landscapes through our APIs. 

This integration capability is akin to replacing a puzzle piece; the software is tailored and configured to fit precisely within your operational framework – minimising disruption through maximised compatibility. By simply removing an existing piece of your operational puzzle and replacing it with Banqsoft’s vehicle-financing software, you can potentially decommission multiple legacy systems. You gain full control over your assets through a single solution.

Simplifying your IT infrastructure brings potentially massive cost benefits, as the need for manual intervention is radically reduced. A critical Key Performance Indicator (KPI) for financial institutions is the Cost to Income (C to I) ratio, which measures a financial institution's operational efficiency. Our vehicle-financing clients in the Nordics have found great success in optimising this KPI, underscoring the competitive advantage gained through streamlining and automating complex processes with our software.

Removing an existing piece of your operational puzzle and replacing it with Banqsoft’s vehicle-financing software enables you to decommission multiple legacy systems.

In conclusion, maintaining integrated control over vehicle assets throughout their lifetime brings significant operational efficiencies, while also opening the door to new circular-financing models. As with any industry, vehicle-financing companies that can adapt to market changes and consumer demands will remain more competitive over the longer run.

Banqsoft is ready to support any customer in building the infrastructure and capabilities to maximise vehicle lifetime value. By ensuring that every asset is utilised to its fullest potential for the duration of its economic life, we enable the circularity that brings both environmental and economic benefits with far-reaching impact.