Critical Technology: Accelerating Digital Transformation After COVID-19
by Grace A. Garwood May/Jun 2020
COVID-19 has forced the equipment finance industry to accelerate digital transformation strategies. Monitor checked in with the leaders of six technology companies to discuss how lenders are pivoting to streamline payment modification requests, enable self-service and increase agility in the wake of the pandemic.
Grace A. Garwood, Freelance Writer & Editor,
The equipment finance industry has been notably slow to embrace newer technologies. For many companies, COVID-19 has exposed crucial technological gaps in business tools, systems and processes. But lenders can utilize their real-time struggles to accelerate digital transformation and enhance the overall agility across the industry.
Running Out of Luck
As Max Blumenthal, founder and CEO of Fincura, observes, technological disruption has affected multiple industries over the past 15 years. The ability of commercial lenders to avoid the same fate was a matter of luck, and the pandemic appears to be ending that streak.
“[COVID-19] has shaped how everyone sees technology in their lives,” Blumenthal says. “Equipment financiers not accustomed to remote work have been forced to improvise, most without the technological infrastructure to do so. Perhaps this crisis will inspire an overdue shift in mindset.”
“This catapult into virtual working has laid bare for businesses just how effective their technology landscape is — or isn’t,” Jay Mehra, co-founder and chief technology officer at Odessa, says. “Instead of systems planning being one of many business needs leaders are weighing, the need to upgrade technology is now more clearly an existential imperative.”
To streamline technological progress in the long term, lenders would be wise to address pain points in business continuity by resolving the root causes — most notably, outdated tools and processes.
As Eldon Richards, chief technology officer at IDS, notes, the pandemic theory is part of a typical business continuity plan (BCP), but shifting from the theoretical into reality has revealed gaps in preparedness assumptions. This makes it a good time for companies to expand BCP evaluation, both internally and with trusted vendors.
Ryan Pereira, president and head of business development at TAO Solutions, breaks the evaluation process down to three steps. “Identification of all manual processes that are cumbersome and troublesome with present operations, working with internal and external legal parties to gain additional comfort on digital adoption, and solutions that allow for unlimited external partnership integrations.”
“Evaluating tools, suppliers and processes for their ability to react and sustain through extreme events should be a key part of evaluation processes,” Andrew Flegg, chief technology officer at Alfa Systems, says. “It would not be unexpected to see an increased adoption of cloud technologies, which provide an easier ability to maintain capacity, support remote working, increase capacity to meet demand or reduce costs when not in use.”
Replacing Antiquated Systems
Reliance on outdated technology and manual entry systems has severely hindered day-to-day operations for many companies, creating burdensome backlogs, unreliable risk metrics and customer dissatisfaction.
Mukul Mittal, VP of Industry Solutions at Q2 Cloud Lending, observes that the crisis has caused a growing number of lessees to seek a postponement of their lease obligations. “Lessors on older technology that still requires manual input and controls cannot keep up with the unusually high demand for contract modifications,” Mittal says. “This situation is definitely illuminating serious gaps in legacy systems and disappointing customers at a time when they most need a responsive financing provider.”
“Right now, everyone is knee-deep in triage trying to balance keeping their own business afloat while keeping their customers happy,” Blumenthal says. “Small-ticket lenders that have built their business on scorecards without the financial metrics that come from traditional underwriting are going to find that their understanding of each borrower’s risk is limited. This will have unpredictable effects on their performance.”
Streamlining Remote Access
The abrupt removal of physically accessible working environments has amplified the consequences of outdated tools and processes. As Richards notes, it is crucial to include digital or cloud-based options when revising business continuity plans in order to smoothly move data and workloads to alternate locations.
“Remote access to data has been a challenge for some,” Richards says. “Many have experienced the strains on public IT services such as video conferencing. Internal IT support has been challenging in a time where physical access is impeded. This extends beyond basic communication tools. Remote workers also need secure access to systems and applications.”
“Startups are often more set up for remote working, and therefore may be able to [be] more nimble to respond to the long-term market impacts of the pandemic,” Flegg says.
Following close evaluation, lenders can begin adopting the best technological tools, systems and processes to resolve their pain points and thrive in the future. The experts outlined key concepts that will have considerable impact on the industry for the foreseeable future.
Expanding Digital Solutions
“Solutions that encompass e-signature technology with bulk document packaging and automatic submission are absolute table stakes at this juncture,” Pereira says. “Solutions that holistically tie in CRM and third-party origination channels with an end-to-end comprehensive feature set from origination to servicing will be heavily relied upon over the coming years.”
Richards also references e-signatures as an important digital adoption and encourages lenders to form strategies to understand and conform to related legal issues. “This should all be coupled with solutions that are built upon a core API framework; instant access to critical data and essential service providers is even more important during this challenging time.”
“With all the restructuring of deals that is happening, there is a golden opportunity to hit the reset button with financial reporting requirements,” Blumenthal says. He notes that utilizing automated technology to collect and analyze a client’s financial documents with close to real-time visibility is critical for understanding their financial health in this volatile market.
Strengthening Vendor Relationships
“Speaking from a software vendor perspective, it really comes down to how a vendor can immediately and significantly benefit a lender on a holistic and synergistic basis, not just what the overall software application feature-set consists of,” Pereira says. “Advantages have to go past the obvious table stakes that should exist today, such as data analytics and workflow processing; lenders require vendor subject matter experts who can recognize their true pain points and install and implement with as minimal disruption as possible.”
“At the foundation, trust, not just technology, is the key to moving in this direction,” Richards says. “Without the ability to tap into a vendor who has deep experience in equipment finance, technology implementations can take an incredible amount of time to accomplish and typically are very expensive.”
For Blumenthal, one upshot from the crisis is that it is creating a lot of empathy for end customers’ digital experiences, which is largely lacking.
“Lessors need to closely evaluate their requirements and embrace digital applications to provide customers with the convenience of self-service,” Mittal says. “With the right solutions in place, much of the work being done now by equipment leasing and finance company staff can be accomplished by their customers, giving them what they need exactly when they want it.”
Throughout the crisis, Flegg has observed first-hand that companies that have invested in digital solutions, like online account portals and one-click extension processing, have kept customers satisfied by letting them take personal matters, such as filing extensions, into their own hands. “Such flexibility to urgent requirements will hopefully increase the recognition of digital solutions across the equipment finance industry,” Flegg says.
“The current crisis has underlined the need for businesses, and their supporting technologies, to be agile,” Richards says. “With the rapid fluctuations in the financial markets and uneven impact on industries, lessors are seeing the need to adapt on a near-daily basis. Lessors can benefit from applying agile processes to adapt to these changes and to adopt technologies that can assist.”
“If they are not already making plans to migrate from older platforms, lessors are going to want to look at how much faster they could be responding with flexible technology and process automation when situations change quickly,” Mittal says. “Those who are more agile and able to address their customers’ urgent needs at a time like this will be remembered and preferred in the future.”
To enhance business agility, Mahra recommends investing in a core technology platform that allows for disparate system consolidation. “You can bring efficiency to your operations and reduce cost by implementing a more modern solution, and you can also be better positioned to adapt to the changing landscape of business — newer models like pay-per-use.”
“The cure for today also lays the groundwork for tomorrow’s success.” Blumenthal says. “Equipment finance companies that have consistent, deep financial data will be able to test new opportunities, new markets and new products more quickly. Instant feedback will allow them to be more responsive as the market regains its footing, and they’ll have more business agility for when the good times return.
Looking Forward: Glimmers Beyond the Gray
In the light of COVID-19, the industry’s need for technological advancement has never been so glaring. However, companies that learn from the challenges and adopt agile solutions could potentially jumpstart a much-needed wave of digital transformation across the industry.
To Flegg, the real-time experience of working through the pandemic has highlighted that “amazing technology to deliver business benefit doesn’t require artificial intelligence, machine learning or blockchain but an understanding of the capabilities of technology, a deep focus on your business value chains and how to combine the two.”
Blumenthal’s final forecast skips the silver lining and goes straight to the sunshine. He expects that bouncing back from this crisis will “reignite the creative spark in the industry’s DNA, to question the way they work and see new possibilities with refreshed eyes.” •
Grace A. Garwood is a freelance writer and editor based in Brooklyn, NY.
Proposed New York State Senate Bill S5470 has been passed by both houses of the New York State Legislature and is pending presentation to Governor Andrew Cuomo for signature. Robert Cohen and Brian Boland of Moritt Hock & Hamroff discuss the effect of the bill, assuming it is signed into law in its current form.