Building Blocks: How BlocLedger Plans to Bring Blockchain to Equipment Financing
by Amanda Koprowski August 2019
Blockchain is a hot topic in the financial world, but most companies are still trying to decipher how it will help their businesses. BlocLedger’s Al Brandt explains the current state of blockchain and explores the ways his company plans to bring the equipment financing industry on board.
Al Brandt, Co-Founder & CEO, BlocLedger
Trying to figure out the right time to adopt new technology is not unusual, especially if you aren’t certain if the technology in question will last. There are still a couple of Betamax tape players floating around out there. Even after VHS eventually won that particular war, it, in turn, was rapidly replaced by DVDs and soon after, streaming services knocked them both out of the ring.
In the case of blockchain, the finance industry has expressed plenty of interest in its adaptation but has tended to shy away from investment.
“Blockchain is young, but it is also complex, which I think is a hurdle for companies figuring out how to get started,” says Al Brandt, co-founder and CEO of BlocLedger. “You’ve got to figure out: ‘How do I grow this expertise? There are not a lot of [skilled workers] out there to hire, and if I engage, that’s kind of costly. How do I have a level of continuity associated with whatever initiative and engagement I pursue?’ All of those questions can get you just spinning a little bit in circles.”
Brandt is as an outsider to equipment finance. After graduating with a degree in electrical engineering from Michigan State University, he spent 15 years working with IBM on enterprise networking (the method by which different physical and virtual systems work with each other to communicate and transmit data). After his time at IBM, he worked on similar projects with Bus-Tech, eventually taking over as president of the company. After Bus-Tech was sold to EMC, he spent another few years running the latter’s engineering group before founding BlocLedger with CTO Eric Vaughn.
“It’s interesting because at the time I didn’t think I was early,” he says. “Back in 2014 and 2015, you started seeing a lot of activity around Bitcoin and blockchain, and it was really intriguing to start reading about the opportunity for blockchain in the enterprise space, as that was my background. I was interested at that point in my career to try something different, and I had never done a startup, so it seemed like a wonderful challenge and opportunity to see what I could do in the enterprise blockchain space.”
Launching a new business in blockchain often means making a decisive choice at the get-go: develop everything from scratch or integrate into a pre-existing foundation. Both offer advantages and disadvantages, and by exploring what was out there, Brandt ended up looking back to his old employer, IBM, and its open source blockchain, Hyperledger.
“The large data centers in the Fortune 500 space, they basically evolve off of incumbents,” Brandt explains. “So, that was a primary reason to select IBM and the Hyperledger fabric technology. And then, as we dug deeper into it, we were really excited about the work that they were doing and the commitment that they had made as a corporation to the technology. They are investing a tremendous amount of resources, not only in the development of the technology but in the development of the industry and market itself. So, to us, there wasn’t a better coattail to ride than IBM into blockchain.”
Hyperledger is also the system currently used in most of the financial services sector, which made BlocLedger’s decision to target the equipment finance and leasing market that much easier, though Brandt and Vaughn took some time to explore their options.
“If you look at the various verticals associated with loans, you have mortgage, you have auto, and you have commercial finance or equipment finance and lease. Two are more of a B2C market versus a B2B market, and we wanted to be more in the B2B space,” Brandt says. “In mortgage, for instance, there are incumbents that are very tight in relationships and control, there’s a tremendous amount of regulation, and it’s highly fragmented. So, there just tend to be a lot more opportunities from a digital transformation perspective within equipment lease and finance.”
Settling on an industry focus also helped bring into view the exact capabilities Brandt wanted to build into BlocLedger’s offerings. By focusing on such a paper-heavy business, one that already had a lot of companies working with e-documents and contracts, BlocLeger could then create a blockchain tailored to those components.
“We focused on [electronically signed documents] with respect to our API technology,” Brandt explains. “So, the document then can be accompanied by product specifications, by a sales agreement relative to terms and conditions, things of that nature, and all of these we define as an artifact within our package, but at the heart of it is an electronically signed document that’s secured some physical asset, be it equipment or property.”
“So, you start then from origination where a set of compliance documents are then customized to an electronically signed agreement, then to the real-time management of that financial instrument to the point of potentially securitizing that instrument and selling that out to a secondary market. Blockchain provides a real nice mechanism by which to do that.”
Brandt added that a lot of these transactions are already conducted electronically, but blockchain’s biggest advantage is speed; settlements that once could take days can now happen almost instantaneously.
Which all sounds like a serious advantage for a bank or independent trying to close a deal, but as the tech roundtable participants discussed in this issue, while most industry companies have been interested in blockchain’s capabilities, few have actually taken steps to start implementing it. Brandt believes there are a few factors at play that have delayed blockchain’s mainstream breakthrough.
“I would say blockchain is evolving slower from a market development perspective than one would’ve viewed two years ago,” he says. “So, there’s not as much progress with respect to blockchain as the IT industry in general anticipated.”
The other problem? Sometimes being first can be a little scary, especially if you’re on your own.
“In many cases, when you’re looking at an industry, there’s a lot of interest in establishing and building a consortium and then having multiple companies cooperate to decide what avenues to pursue relative to the technology opportunities that are available,” Brandt says.
He also points out that this sort of slow-motion rollout isn’t all that unusual, especially for new technology services. “Take a look at how long it took for cloud to establish itself. When I was back at EMC, seven, eight years ago it was like, ‘Cloud is it. There is no other alternative but cloud.’ Then you go to a Fidelity seminar, and they say, ‘Well, we’ve been preparing for cloud, but we’re not doing anything on cloud yet.’ So, it takes a while to shift these major data center infrastructures.”
But even with a more tortoise-over-hare approach to blockchain, early adaptors can still benefit from getting in on the ground floor, allowing them to figure out the shape of what the industry will ultimately look like.
“We did custom work for Innovation Finance,” Brandt mentions as an example. “It’s a loan platform where once the loan is closed, we grab the metadata associated with that loan and the loan agreement and store that on the blockchain. Then users can authenticate that their agreement on the blockchain is the latest and greatest.” And just setting up that one aspect of Innovation’s business means the blockchain foundation can then be expanded upon. “You could do real-time payment tracking; you could do all kinds of things. Innovation is using their overall app to begin to drive [their] business.”
As for companies just starting to look at blockchain adoption, Brandt suggests, “Identify where your business is experiencing pain points and where a blockchain solution provides an advantage. Now, that can be simply by providing transparency [or] it can be a trust factor, making sure that information has not been tampered with or changed. It’s the immutable nature of blockchain that provides the full historical representation of that information without deleting as a capability. So, just pick one [point]. Get started, learn and then adapt.”
And for all the time that journey may take, Brandt has no doubt about the destination as more companies adopt blockchain.
“Just by the technology advancing and by startups providing unique value add to that foundation technology, you’re getting a natural advancement and capability that will make it a lot easier for companies [to adapt],” he says. “It’s a lot easier now than it was two years ago, and two years from now it’ll be even easier. So, all this stuff continues to move in the right direction.” •
Vice President of Financial Services,
Corcentric Capital Equipment Solutions
The first step in developing a long-term equipment financing strategy is to identify all of the fixed and variable costs associated with operating your current fleet. Patrick Gaskins of Corcentric recommends developing a spend analysis to identify current and future potential purchases.
Kenneth P. Weinberg,
Baker, Donelson, Bearman, Caldwell & Berkowitz
Usury laws vary from state to state, which can make a lease or loan more complicated when the lessor is in one state and the lessee in another. Kenneth Weinberg discusses how this has played out so far in the courts, with favorable rulings for a lessor often depending not only on who files first, but where they file from.