Creating the Conversation: CEMC Thought Leaders Map the Future of Equipment Fintech
by Rita E. Garwood January/February 2017
Technology is changing the way business is done, and equipment finance is no exception. Charles Anderson and Patricia Voorhees discuss The Commercial Equipment Marketplace Council, founded by Currency and The Alta Group to facilitate an ongoing dialogue about the impact of technological advancement on the industry.
Patricia Voorhees, Director, The Alta Group
Charles Anderson, CEO & Founder, Currency
In the spring of 2016, Charles Anderson — CEO and founder of Currency, a financial technology company focused on financing business equipment — asked a question: Where do fintech and equipment finance intersect?
Although fintech was quickly becoming a buzzword in specialty and traditional finance, he noticed the conversation was lagging in the equipment finance space.
“We were second guessing ourselves, saying, ‘Are we crazy because no one else is talking about this? What are we seeing that no one else is?’” Anderson says. “So we engaged with The Alta Group to do a deep dive research study for us to just ask some very basic questions.”
Fintech in Equipment Finance
According to Patricia Voorhees, director of The Alta Group, that initial research examined how fintech was affecting the equipment leasing market, specifically for small-to-medium businesses. It also investigated where and how those businesses made financing decisions and how technology enabled those decisions.
The first trend Alta discovered was a change in the way equipment is sold. “Equipment is increasingly being sold online,” Voorhees says, explaining that using mobile technology to acquire equipment has become ubiquitous, which has fundamentally changed the thought process of equipment sellers. “If you look at the ELFA data, you see that there’s more and more financing going through captive and vendor relationships rather than through independents, so that’s been a growing trend,” Voorhees says.
When you couple this trend with the rise in online sales, Voorhees says it leads to another conclusion: Integrating financing decisions at the point of sale online is happening more often, which is a trend that will continue.
“When you think about the implications across the board in terms of how equipment leasing companies offer their products and how they organize around it for customer acquisitions, it can have some pretty significant implications,” Voorhees says.
Although the $1 trillion equipment finance sector is a large market that is vital to small business growth, The Alta Group’s research also found that its origination processes have remained primarily offline despite the recent uptick in technological deployment.
As banks backed away from the small business market in the wake of the Great Recession, largely because of the cost of origination and other requirements, Voorhees says an opportunity arose for fintechs — not only those that focus on equipment leasing, but those that provide small business loans, like BizFi and OnDeck.
“Technology is really enhancing the ability to efficiently originate small-ticket transactions and access a piece of the market that has been underserved credit wise since the Great Recession,” Voorhees says.
Finally, Alta found that technology was introducing more funding source options to the equipment leasing market in a more fluid way and bringing automation to the marketplace.
Driving a Dialogue
Alta’s research led both Voorhees and Anderson to a conclusion. “We really needed to drive this conversation forward because technology really is going to be revolutionary in all things finance over the next 10 to 15 years — it’s going to happen,” Anderson says. “If we’re not driving the conversation, we’re not participating with other like-minded thought leaders who are thinking about how the ecosystem is evolving and shaping.”
“We thought it was an inflection point,” Voorhees says. “There were some significant changes happening, so it seemed like the absolute right time for smart market leaders in the traditional finance companies and from the technology side and those that were in the fintech space to get together and talk.”
Facilitating that dialogue is the reason Currency and The Alta Group joined forces to launch the Commercial Equipment Marketplace Council (CEMC). “Our purpose is just that, to keep the conversation going and to see where it goes,” Voorhees says. “To bring together thought leaders and talk about how technology, fintech particularly, is changing our industry and what the challenges and opportunities are.”
Voorhees says co-founding the CEMC and being part of the forefront of this dialogue helps The Alta Group better serve its clients. “We need to stay in front of the trends, and these are the questions that our traditional client base and the new entrants into our space are asking.”
“This is laser focused,” Anderson adds. “We’re not a conference organization. We’re not a watchdog. We’re not trying to promote any sort of clear agenda or advocate on behalf of the industry at large. We’re not trying to make money. We’re just trying to advance this conversation and pull together like-minded individuals who share our common vision of how technology is going to affect change in the future.”
Innovative Academic Tone
To achieve this goal, the CEMC scheduled its first event, a regional meeting at Stanford University’s Graduate School of Business, in July 2016. Anderson says using the university setting as a venue adds to the thought leadership tone that the CEMC wants to convey.
“Academia represents thinking, planning, strategizing and theorizing,” Anderson says. “I love the tone that having a really high-end academic environment sets on the conversation.”
The CEMC’s second event, an East Coast Roundtable, was held at Columbia University in December 2016. Bob Hurley, PhD, who specializes in managing transformational change and developing and implementing strategies to maximize customer value, opened the roundtable by talking about the subject of trust.
“The definition of trust and trustworthiness is changing because customers are interacting with unknown brands through the digital age, and so you need to think differently about trust,” Anderson says. “If you think of dating, it’s now normal to find your significant other over the internet, but 15 years ago that was weird. So you’re trusting an app, you’re trusting your technology more than personal references.”
Anderson recalls his time as a Stanford Business School student involved in the case study method as a prime example of the thought processes that drive conversation at CEMC events. “I remember how fascinating it was to see 86 people in one room dissecting a business case and to have the protagonist of the business case give the answer,” he says. “It’s just a fascinating way to learn because you’re incorporating qualitative and quantitative analysis to try to get to the right answer, but at the end of the day you have a practitioner who can say, ‘Well, the world doesn’t work on paper.’”
Innovative ideas and conversation are what the CEMC is all about, and Anderson says the mission of the council includes determining who should be included in the dialogue.
“The organization is open to anyone who shares our worldview or is curious about it,” Anderson says. “As long as we maintain the integrity of the culture of what we’re trying to do, or as long as someone recommends you, you’re in. There’s no application process. Title and experience don’t matter. Worldview, objectives and intentions matter.
“I’d rather have people involved in the community who are forward thinking and open to new styles of executing than someone who has had tremendous success but who is more dogmatic in their worldview.”
Once admitted, Anderson says the only expectation of members is intentional, thoughtful participation that facilitates the dialogue. “That just enriches the community at large,” he says.
Including Tech Companies
In addition to traditional and fintech equipment finance companies, tech giants Google and eBay are CEMC participants. When asked about this, Anderson points to the myriad ways these companies already touch the equipment purchase marketplace and their potential to influence the space in the future.
“I think an interesting question that everyone should ask themselves is, ‘What if Google decided to get into equipment financing?’” Anderson says. “That’s a scary question. I don’t know the answer to that question, but I can make a bet that they could if they wanted to — they already control a lot of the eyeballs on the search traffic.”
According to Anderson, eBay is already one of the largest sellers of equipment in the world. His company, Currency, is integrated on the eBay platform as a financing solution for business owners looking to buy and sell equipment.
Voorhees says this arrangement exemplifies the marketplace automation that is beginning to take place. “Companies like Currency are actually a good example of this, to bring in multiple funding sources and automate a whole loan marketplace on the back end and really match the right asset and right customer with the right funding source.”
Although the equipment finance industry already has a large market ecosystem flow, Anderson says there will always be room for improved efficiency and automation. “There’s going to be some form of an end-to-end exchange that pulls together the entire equipment purchase and financing process — from identifying the asset that you want to purchase, to figuring out how you’re going to pay for it, to actually using it, to putting it back in the ecosystem when you’re done with it.”
Anderson believes that ultimate exchange can only be achieved if multiple providers come together to create the solution. “It’s like building a railroad,” he says. “You can’t build a railroad unless you have all the pieces together. We look at ourselves as trying to put together the tracks. If we’re right, this is incredibly fun. But if we’re wrong, then it was a really cool think tank experiment.”
Have you ever been asked the question “why do I need you” by your banking colleagues? It’s an indicator of how young the equipment finance line of business is in many regional banks. It also serves as a reminder that it is part of our job as good sales people to explain our value, not just to prospects and customers, but to our own teammates on the banking side.
Relationships are the cornerstone of any business transaction, and broker/lender interactions are no different. Steve Geller outlines some of the basic due diligence and research brokers can perform to ensure their lender relationships are successful and long-lasting for both them and any potential borrowers.