Hungry for Growth – Can Technology Help You to a Bigger Slice of the Pie?
If you’re hungry for growth, could a cutting-edge platform help you to a bigger slice of the economic pie? Talking with business leaders across the equipment finance industry, it’s clear that the single biggest challenge they face today is how to achieve growth. The overall economy simply isn’t expanding at a satisfactory rate — but is their technology also holding them back?
To begin with, let’s look at the broader, economic issue. Growth has to come from somewhere — if not from the market, then from a competitor. In other words, if the pie isn’t getting bigger, and you want a larger slice, then you have to eat into someone else’s share. The question is how to make that share yours.
Lowering rates is hardly an answer: competitors will soon follow suit to retain their market share — but with lower profits for all. Accepting riskier clients isn’t the answer either, given current credit risk management requirements. Taking higher levels of residual asset risk in a specific equipment market could be an option in the current climate, with many customers keeping assets beyond the initial lease terms. But greater residual realization usually means fewer new contracts.
There are, however, two far more achievable ways to increase market share in a slow economy: by diversifying into new markets and differentiating your business from its competitors. Technology can play an important role in fulfilling their potential — from end-to-end.
Platforms for Success
Whether you’re a direct, middle-market organization or a small-ticket vendor lessor, diversifying from one market to the other — or, say, from soft to hard assets — will mean acquiring new capabilities and developing sales, credit and asset expertise. This in itself is no small challenge.
But, in moving to a new market, a lessor also needs to ensure that its systems and processes are geared for the shift. For example, a technology platform that adequately manages middle-market business activity may crumble under a weighty influx of small-ticket vendor applications. So, it could be time to invest in more modern, flexible technology.
When it comes to differentiation, it’s even more important to take advantage of technological advancements. Finding a new way to market, improving the level of customer service and cutting the time it takes to get through the application process are all effective ways for lessors to stand out from the crowd — and an efficient, scalable and flexible platform can provide the tools needed to make these changes. In this sense, commercial equipment finance can follow the lead of consumer finance, and harness technology to boost its customer appeal.
To be able to handle new products and processes quickly and easily, and incorporate customer-facing capabilities like user-friendly Web portals, companies really need a modern and efficient platform — preferably a single system that can handle the entire lifecycle of a transaction. Historically, however, lessors have had the opposite at their disposal.
The technology platforms of most equipment finance companies have evolved over many years. They will usually comprise a network of different systems and interfaces, developed using different technologies or a different data focus.
Many lessors will have started out with a basic lease accounting and contract management system, which they may still be using 25 years or so later. Along the way they are likely to have added front-end origination, asset management, credit assessment and customer relationship management systems, as well as general ledger and payables systems. They may also have an attached workflow solution and, to facilitate reporting from all the above, a warehouse system.
As already mentioned, they might now be considering a customer-facing Web portal. But such a hotchpotch of technology has made even the slightest evolution to a business’s platform both difficult and costly: a major commitment in terms of time and financial investment.
Until a few years ago, there really was no alternative to this approach — making the arrival of the end-to-end platform an even more notable advancement to equipment financing technology. That said, while the long-term benefits abound, the wholesale replacement of multiple systems with one solution is far from an easy option — and not to be taken lightly.
The Transformation Challenge
Although equipment finance companies seem to accept that it will be difficult to succeed in the future without making the best use of technology, I believe many management executives remain sceptical. They are yet to see past expectations fully realized, and are cautious about investing in solutions that they see as unproven.
In my experience, however, the impact of an end-to-end system can be transformational — giving a company the flexibility and confidence it needs to achieve significant growth, enabling it to penetrate new markets or sharpen its customer proposition. With such a platform, a lessor can pull together its disparate processes to make a coherent, efficient and more competitive whole, which will expand in line with the business without significantly adding to ownership costs.
This is the end result — but one cannot overestimate the challenges involved in replacing ten or even 15 existing systems, not to mention all the interfaces between them. In short, implementing an end-to-end platform is a major undertaking of considerable complexity and scope.
Choosing a Provider and Partner
Given the extent of the implementation challenge, it’s vital for lessors considering an overhaul of their platform to seek out a technology provider they can trust: one that has tried and tested experience of big, complex, potentially time-consuming projects of this kind.
In particular they should be looking for a large, financially sound company that can afford to continue investing in their product and with which they can work on a long-term basis.
If that company has an extensive presence across the entire financial sector then so much the better. For, while the equipment finance industry has its own unique requirements, especially in terms of asset management, it also shares many needs with the wider financial services sector. A provider that serves other markets will be constantly developing cutting-edge platform solutions — giving lessors the opportunity to enjoy the benefits of industry-wide investment and innovation.
Additionally, a large and financially sound technology company will be better equipped to mitigate the risk involved with implementing a new platform. But careful consideration should be also given to the provider’s implementation approach: Will it complement and support the lessor’s own way of working?
When it comes down to it, the implementation of an end-to-end technology platform is all about pulling together — not only in terms of processes and systems, but also partnership between lessor and provider. Many lessors have greatly reduced staff numbers to successfully weather the last recession, and are reluctant to increase them again as they move out of it. An ideal technology partner will have leasing expertise and the ability to provide whatever resources are needed for implementation and beyond — including the housing of any necessary infrastructure during and after the transition phase.
As for the future, the implemented platform should be an effective way for the lessor to manage a range of challenges, not least those involving regulation and compliance. There are, for example, the potential changes to lease accounting rules to consider.
It would appear at this point that the changes to lessor accounting will require an update but not a complete replacement of their accounting system. The new rules will, though, have a larger impact on lessees — making it far more difficult to achieve off-balance sheet treatment. Without that incentive, lessors will need to find new ways to motivate customers to continue leasing.
It’s this challenge, I believe, that will drive many lessors to evaluate their platforms — and find new ways, through technology, to make leasing more convenient and worthwhile for customers. Bundled services, cost-per-use pricing, Web portals for billing and payment processing are all possible solutions that a modern, end-to-end platform will be far better equipped to deliver.
It will also prove invaluable for meeting the data and reporting requirements of increased regulatory compliance as well as the data analytics necessary for business leaders to make quick and knowledgeable decisions. With dozens of different systems around the world, a large global institution typically has to employ a vast team of people simply to normalize the data these systems produce. One centralized system will provide the consolidated view of information it needs for compliance and business insight.
All of which makes an increasingly strong case for taking a look at your technology platform. Indeed, with the right provider on board, it could soon become one of the greatest assets you have in the highly competitive years ahead — and help you get a bigger slice of the pie. m
Richard Masulli has been a principal consultant for SunGard’s Ambit Asset Finance business since 2008, having spent more than 40 years in various executive roles within the leasing industry — including ten years as an executive vice president with CIT and ten years as president of Copelco Financial Services. Masulli has been an active member of the Equipment Leasing and Finance Association having served as both an officer and board member.