UPS Hopes Loans Deliver Customers: Finance Unit Makes Asset-Based Loans to New and Small Businesses
Stock, Helen, American Banker
When a group of executives at United Parcel Service Inc. first approached senior management about starting a finance business, it was not an easy sell.
The executives had been charged with finding ideas that would keep the world's largest transportation company fresh and competitive. But finance? Somehow, the image of bankers making loans was hard to square with the corporate identity of UPS, of deliverymen in brown uniforms hoisting brown boxes from brown trucks.
"We had to plant a seed," said Michael Tobin, one of the strategists. "It took several passes. It was a matter of, is this the right thing for our future? Is this the right thing for our customers?"
In May 1998, after lots of market research and customer interviews, senior management was persuaded, and the seed sprouted into UPS Capital Corp., a subsidiary of the Atlanta package delivery company that lends to new and small businesses.
The idea was that UPS would nurture its corporate lending customers as they grew and when they blossomed they would need more financial services -- as well as more deliveries.
"If they grow, quite frankly, the UPS parent grows as well as UPS Capital," said Mr. Tobin, a 24-year veteran of UPS who became chief operating officer of the subsidiary, which is also in Atlanta. "The reality was that the marketplace didn't need another company just throwing capital at it, but if we could bundle our core-package offerings with financial services, then we had something that was unique."
The subsidiary -- which says its mission is to "provide a comprehensive menu of integrated financial products and services" for companies -- is already growing. On Thursday it named four experienced financial services executives to its senior management team and announced an alliance with the North American operations of ABN Amro Bank NV to develop enhanced international trade services.
ABN Amro and UPS Capital Global Trade Finance intend to establish back-end technology and trade services (such as letters of credit) for companies doing business internationally.
The four executives -- who were named to head business units in credit, leasing services, distribution finance, and payment solutions -- have worked at such companies as First Union Corp., FleetBoston Financial Corp., Allstate Financial Corp., and Heller Financial Inc. One of them, Charles G. Johnson, is president of the Commercial Finance Association, the trade association of the asset-based lending and factoring industry.
UPS, which reported $23 billion of assets and $27 billion of revenues last year, has set up its capital arm much like a commercial finance company or division of a bank. UPS Capital began rolling out the bulk of its products in mid-1999 and now has nearly 2,000 customers.
The new unit acts as an asset-based lender, advancing monies secured by a business' accounts receivable and inventories. Businesses that want to shed the risk and cost of collecting their receivables can sell them to UPS at a discount. UPS then acts as a factor, taking on the responsibility of managing the receivables.
In other instances, UPS Capital leases equipment and automatically deposits C.O.D. remittances so that businesses can get their money faster. In conjunction with two Web technology companies -- Princeton eCom and Bottomline Technologies -- the subsidiary is also developing online bill payment software so that companies can electronically invoice their customers.
Asset-based lenders and factors are intrigued by UPS' new venture, and some of them applaud the concept.
"They have the ability to warehouse inventory, to do fulfillment on inventory, which fits nicely into what we do, actually -- conceivably they could be a major competitor of ours," said Michael Sharkey, president of LaSalle Business Credit, the asset-based lending subsidiary of Chicago-based LaSalle Bank, a unit of ABN Amro. …