In our 25th Anniversary Monitor 100 issue, Key Equipment Finance President Adam Warner said, “The role of technology has had a substantial impact on equipment finance and will continue to do so. Technology impacts every facet of our businesses, and it impacts every industry, from agriculture to energy to healthcare. I anticipate that we will continue to see more focus on innovation and technology across all markets well into the future.”
Based on feedback from our readers, Warner is correct. Many in the industry are increasing investment in technology to improve customer experience and internal processes while adapting to changes in lease accounting, compliance, regulation and security.
Staying on top of rapidly evolving technology is no easy task. Monitor checked in with the leaders of five technology software companies that serve the equipment finance industry to examine the best ways to plan for and implement software upgrades.
Staying in the Lead
Today’s equipment finance companies face more competition than ever before. How can investing in technology give a company an edge against competitors?
“Technology is a crucial enabler in almost every aspect of business,” says Richard Raistrick, director of operations, North America of CHP Consulting. “Put simply, businesses that invest wisely are building a long-term future, while those that fail to make the right decisions will become uncompetitive. The changes in technology over the past 15 years can be likened to the impact of mechanization on the industrial revolution in the 1800s. The impact of the change is that large, and it will continue for decades.”
“The world has gone through a shift from the industrial age to the information age,” says Farooq Ghauri, COO of NetSol Technologies. “The information / technology age is more about survival now and, if done correctly, it can take a company to the forefront of its industry. Equipment finance companies can create differentiators that will give advantages in costs, reduced processing time, increased business differentiator (product) and accurate data processing among many others.”
“In today’s world of immediacy, streamlining and automating business processes is more important than ever in providing a good customer experience,” says Jeff Van Slyke, president of LeaseTeam. “Businesses are using technology to automate workflows and define the data that is required at each stage of a process. Automated workflows add efficiencies, reduce errors, facilitate communication and provide important tracking and analytics. Using technology to automate workflows is the foundation for providing top-tier service to your clients.”
“In today’s fast-paced, mobile-enabled world, technology is now more important than ever,” says Michael Campbell, CEO of International Decision Systems. “It helps companies attract and retain customers through seamless and consistent levels of service. Built-in analytics allow companies to anticipate customer needs and be more proactive with offers. By the same token, technology is the best way to improve margins.”
“Until a few years ago, the technology advantage was not material, but it is today,” says Madhu Natarajan, CEO of Odessa Technologies. “Having a customer portal, a mobile app and being able to provide real time decisions to vendors are all competitive differentiators in a market where it is no longer about just margins.”
“The right technology investment will not only give a competitive edge, it also changes the rules and nature of the business,” says Ghauri. “Uber, Tesla and AirBnB are great examples of technology disruption. By changing the rules, equipment finance companies will see the same kind of disruption within their own space, creating the kind of competitive edge that increases business volume or reduces cost while saving time.”
Charting a Course
When an equipment finance company recognizes its need to improve technology, how does it begin the process? To be sure our readers don’t miss any important phases of the plan, we asked the experts. What are the first steps it should take before interviewing potential vendors?
“Any company investing in technology should strive to first establish a clear vision of its technology strategy. Understanding its desired relationship to technology will inform how its investment decisions are made,” says Natarajan. “For example, is technology a business driver or is it simply a component of its overall infrastructure that enables its operations? An introspective understanding of what the company wants out of technology is really the first step. Once this is established, picking the right vendor becomes a lot easier.”
“Improving technology is not a valid goal without a business context,” says Raistrick. “Businesses need 2016to understand how technology can be harnessed to drive innovation and improve the overall performance of the operation. This could be in enhancing efficiency, creating new channels to market, launching a revolutionary financial product, being more responsive to market needs or all of these things. The first step is to create a goal and vision that can be shared among senior leadership — a common understanding of why and how a technology innovation can improve the business.”
“A common mistake companies make when developing a technology strategy is expecting their IT managers to fully understand the strategic vision for the business,” says Van Slyke. “The technology group has to interpret the requirements that emerge as a result of the corporate and business level’s strategic vision, so it is critical for these groups to work closely together.”
“A company needs to ensure that the system covers all the basic processes, yet is extensible so they can automate their ‘secret sauce,’” says Campbell. “They need to anticipate their needs so their system meets their requirements not only now but in the future.”
“Understand the difference between their current state business process and desired future state business process,” says Ghauri. “Vendors are usually selected for 10 to 15 years and technologies assets need to last as long. Vendors should be tested against the current state business processes and future state business processes. Vendors’ product roadmap should also be reviewed. Then they will clearly see where the capability gaps are within vendors and if the gaps lie on the current or future state.
“Too often companies jump from one system or application to another without fully realizing the benefits of their technology,” says Van Slyke. “Without a defined strategy, companies make poor buying decisions, adopt ineffective tools and often experience a high level of frustration. The businesses that excel typically establish a technology strategy that helps them gain a competitive advantage through cost savings, process improvements, faster time to market and improved quality and service levels.”
“Once the core objectives are understood, a business case can be developed that sets out the vision in more detail, mapping the journey from the current position to the desired future state,” says Raistrick. “At this point, discussions with potential vendors and implementation partners can start to turn the vision into a roadmap for delivery.”
Choosing the Perfect Partner
When a company has mapped out its short- and long-term vision and a well-defined strategy, and its team understands the primary objectives, all that’s missing is a software vendor. How can an equipment finance company ensure that it chooses the right technology partner?
“It’s helpful if your top performers — from both business and technology functions — are involved in the selection process,” says Raistrick. “They should build out the high-level vision into a more detailed set of requirements, defining products and business processes in detail, then conducting research on potential vendors. Each firm to be considered should be an authentic, legitimate outfit and, importantly, have a strong delivery record in the asset finance arena.”
“Companies should look at the types of deals that the vendor has closed in the last three to five years,” says Natarajan. “The profile of companies that have selected the vendor should provide them with a good sense of the vendor’s trajectory. Companies should also look at the size of the vendor. Software vendors in our business have to be able to do three things simultaneously: keep existing customers happy, win new customers so that they can continue to grow their user community and keep their product vibrant and invest in their technology to continuously improve it. Not a lot of companies can manage to accomplish all three of these things. Red flags should go up for any vendor that lacks any one of these three key fundamental attributes. Basic due diligence is all it takes to establish where a vendor stands.”
“Evaluate the company history,” says Ghauri. “Evaluate why they have lost their last three customers. Have a detailed look at the vendor’s financials. Use existing live contracts to run through a proof of concept of the product and functionality. Trouble areas will be visible if these areas are probed in detail.”
“Does the solution meet your company’s needs today and in the future?” asks Campbell. “What level of comfort do you have around the implementation and the supplier’s ability to enable your success? Once live, how are you being supported? Essentially, how is your investment being protected? Once you are comfortable with the answers to these questions, you must decide how comfortable you are with your technology company’s financial viability. Is the technology partner a safe choice or do they introduce risk to your business?”
“A technology provider must be more than just great products and services,” says Van Slyke. “They must understand your business, your growth objectives and your operational challenges in order to truly be a partner. This is achieved by partnering with an organization that employs great people with industry knowledge, technology knowledge and a commitment to finding innovative solutions to difficult problems ensuring your future success. In the end, you are partnering with an organization of people, so one of the most important things you can do is understand the culture of the organization.”
“Once you have a shortlist, those on it should be comfortable dealing with a Request for Information (RFI),” says Raistrick. “This exercise is about weeding out the weaker parties that aren’t worth your time. Four or five vendors can then be taken forward to the Request for Proposal (RFP) stage. An effective RFP usually incorporates more rigorous questioning on functional and technical fit, ease of integration and vendor suitability. Two or three vendors can then be brought through to the workshops stage. Workshops allow you to verify the product’s capability, test the vendor’s knowledge and equip you to make your final decision. Only the most important processes and products, the key pain points and biggest aspirations should be covered. Subsequently, one or two vendors can be taken through due diligence and a final selection can be made.”
Evaluating Specific Needs
Equipment finance companies come in many sizes and types. How would the technology needs of a large bank, a small independent company, a large independent or a captive differ?
“Independent lessors often have numerous external partners they need to support, as they are either working with investment capital or they’re relying on multiple bank funders,” says Van Slyke. “Captives often work with large dealer networks and need to support a remote sales staff. Bank-owned lessors often times are supporting customers with major accounts, large lines of credit and multiple financial relationships.”
“The origination, funding and servicing needs of any leasing company are what fundamentally drive its business requirements,” says Natarajan. “Being bank-owned, an independent or a captive certainly impacts these requirements. Regardless of ownership structure, the type of assets leased, their ticket sizes, the lines of business catered to (captives often diversify exposure by going outside their parent), the relationship they may have with their customer (whether this is the end lessee or vendor) each company’s business needs are unique. Any technology that purports to cater to this entire spectrum inevitably needs to be flexible without compromising on functional comprehensiveness.”
“Regardless of size, some of the core requirements are standard,” says Raistrick. “These include security, stability, a strong future, good core functionality, low cost of ownership (relative to scale), strong vendor support and a successful delivery record. These factors are equally as important to the manager of a smaller operation as they are to the CEO of a large multinational.
“There are some additional considerations that arise with scale,” continues Raistrick. “For very large portfolios, performance and stability are hugely important but harder to achieve. Large-scale operations often rely on a higher degree of automation in customer service to drive efficiency gains, whereas small independents may prefer a bespoke, personal connection with their customers. Due to their broader scale and product offerings of larger banks and captives, there will often be a higher degree of integration (connections to many existing systems) required. Captives will frequently require integrations with their parent company, and typically have differing contract originations needs.”
“Different sizes and types of companies follow different business and compliances rules,” says Ghauri. “Processes are also usually different and affect most, if not all, business areas. Vendors may specialize in different asset types or market profiles. Needs may 2016differ, but the flexibility required is the same by the different type of companies. The need is for a highly configurable and stable base product.”
“In addition to being able to support the different types of companies, equipment finance technology needs to also support the different ticket sizes,” says Van Slyke. “For example, micro and small-ticket size companies are usually looking for low-touch and high automation from their system. These lessors require streamlined processes like automated credit scoring, lease documentation creation and delivery, and eSignature capabilities. They also require automated payment processing such as ACH and PAP.
“For larger-ticket lessors, their technology needs are more centered on supporting complex deals with varying degrees of asset management requirements,” says Van Slyke. “These lessors need additional functionality, such as managing the vendor invoices, tracking progress payments, calculating and collecting interim billings and managing inventories.”
“Ideally, having a system that can handle all of your ticket sizes and constructs is important because what you offer today may change tomorrow,” says Campbell. “Ensuring your system is flexible to support changing business models is important. You don’t want to change or invest heavily when your business model changes — it’s better to have the inherent flexibility from the beginning. It’s important your system partner understands the industry and the nuances of the industry. Smaller customers may need hosting or servicing partners or rely more heavily on the vendor. Extensibility, security and compliance needs must be met regardless.”
Keeping Asset Classes Top of Mind
Many equipment finance companies deal with certain types of asset classes. How do technology needs differ for aircraft, rail, materials handling, truck, construction, manufacturing, agricultural or marine assets? Should companies consider their primary asset classes when making decisions about software?
“Yes, absolutely,” says Raistrick. “Companies should ask potential software vendors to process realistic scenarios using realistic business data, and especially asset information, to prove that the system can meet the brief. This is not just about being able to capture asset details, although that is important, but it’s also about the business processes that vary hugely by asset class. A system that is able to process a single vehicle per contract may run into difficulties when confronted with a fleet of 500 trucks or several thousand IT assets.”
“As the asset servicing and handling is different, so is the functionality that manages it,” says Ghauri. “Aircraft financing may require syndication, and equipment finance companies that work in high risk credit will require weekly billing and invoicing. Off-lease handling also varies from company to company and asset type to asset type. The agriculture equipment finance companies will want seasonal billing and invoicing.”
“The software should be flexible to handle a variety of asset classes today and in the future. The system shouldn’t be the deterrent for expanding your portfolio; it should enable your ability to grow,” says Campbell, adding that a system should accommodate pricing models, residual calculations and depreciation defaults/calculations.
“Understanding how leasing systems are architected hits at the heart of asset management,” says Natarajan. “Most legacy systems are contract-based. This poses fundamental challenges when it comes to anything asset-based. They limit a leasing company’s ability to be creative and entrepreneurial in how it caters to market demands. Charging for the number of hours an asset has been used for, instead of just a flat monthly fee for its usage, is an important way to look at asset utility. But these are the very paradigm shifts that are happening today. Managing the lifecycle of the asset and being able to account for its profitability throughout its life as it moves from contract to contract and is ultimately refurbished and sold is key.”
“The important thing is that the technology solution is able to manage the entire lifecycle of an asset, from the P.O. process all the way through to the disposal of the asset,” says Van Slyke. “This includes tracking the asset’s specific attributes, the full history while in inventory, the locations and associated taxes and the depreciation.”
Planning Ahead
Technology has been developing at a rapid pace. If an equipment finance company were to implement new software today, how soon would it need to plan for an upgrade?
“Equipment finance companies should be looking for an upgrade after 10 to 15 years,” says Ghauri. “The vendor and system must be flexible enough to handle short-term business changes and impacts. Product road maps should be reviewed and mutually modified to be in line with the functional need of the equipment finance company. Transparency of vendor’s product and operation will ensure the technology assets last for the required duration.”
Campbell says the need to upgrade is a function of changes in the industry, changes in middle ware, technology advances and surrounds. “Your business should have a plan and foresight around this, aiming at every 18 to 24 months.”
Van Slyke says the timing of upgrade will be different depending on the company and the software. However, what is consistent for all companies looking to implement new software is the process that a company should go through. He says that whether a company is planning an upgrade or just implementing new software, it should initially focus on creating a project scope before entering the planning phase and assigning a project manager.
“Focusing on these three key areas before you implement new software will dramatically increase the success of your endeavors and ensure a stable and seamless transition,” he says.
Natarajan says his company’s software is designed to keep the technology and the business separated. “The technology merely exists to drive or enable functionality,” he says. “This philosophy has allowed us to look at technology as being independent of the business. Users can continuously upgrade their technology without disrupting their business (or functionality). Our system is able to stay current and on top of all the latest that technology has to offer without undergoing painful upgrades. Contrast this with legacy systems where the technology and functionality are closely knit. This explains why most of our industry is sitting on technology that is more than 25 years old! It is painful to upgrade. This is downright shameful in 2016, when, outside of work, we use our smart phones and tablets to navigate our lives.”
“A technology investment should persist in the long term,” says Raistrick. “A good software vendor will deliver regular releases that bring the best of new technology without a complete reinstall. Regular updates can then become somewhat routine, while ensuring that software continues to evolve and enable business innovation. Long-term viability and commitment from a vendor to continual investment in the software product are important selection criteria when deciding which vendor should become your technology partner.”
