What do you see as the potential disruptors that could change the course of our industry in 2019? What factors could make a difference? I see 2019 as an evolutionary year not a revolutionary year, though identifying these disruptors feels a bit like predicting the future — an area where I lacked some skill in the past. Despite the quandary, I decided to pursue this challenge with a focus on three areas that are bound to change the course of equipment finance and leasing: collaboration, artificial intelligence (AI) and fintechs.
COLLABORATION
Collaboration is simply the act of working together with other people to achieve a common goal. Worldwide, companies have trended toward adapting collaboration for the betterment of their collective organizations. Equipment finance and leasing companies should similarly look for ways to encourage increased collaboration among employees with a focus on generating greater innovation, ideas and accelerated improvements for their businesses. Collaboration could be a game-changer.
As an example of collaborative benefits, more than 43,000 Nestlé employees from 110 countries have created 2,300 new ideas using the company’s InGenius platform. According to the Nestlé, InGenius “serves as a breeding ground for innovation and a forum where employees can collaborate and grow ideas into tangible business opportunities.”
This is cool stuff, watching a 150-year-old global corporation creating an incubator within the existing organization to promote greater collaboration. This is definitely a win-win situation for both the company and its employees. As products move with greater speed to market, Nestlé and employees gain tremendous experience through the process. By galvanizing people, processes and technology, Nestlé has grasped the benefits of collaboration.
Nestlé has abundant resources to allow teams to innovate in ways the average U.S. finance company may not be able to afford. Fear not — there is a solution for you, too.
COLLABORATION.AI is a Minneapolis-based software firm that helps clients create intelligent teams to ensure the right people meet each other at the right time to collaborate on projects using a patented AItool to enhance relationships from gut-based hunches into data-driven scientific connections. By matching participants’ strategies, hobbies and experiences, the software brings together teams that share a mindset that is ripe for innovation and collaboration. For one client, the U.S. Air Force, COLLABORATION.AI has already found ways to protect troops on service bases from the latest terror threats, as well as design, build and test 3 new helmets that previously would have taken up to 10 years to develop.
Another way companies can find collaborative solutions on a smaller budget is by using mobile-centric collaboration tools, connecting people remotely to work on group projects for companywide success. A Google search will reveal that there are dozens of such tools available. Because mobile-centric solutions rely on remote virtual team members, it is extremely important that everyone has a clear role, a well-defined process and understanding of expectations and regular communication with the rest of the team.
There is strength in numbers. Collaboration among colleagues utilizes the collective brainpower of the working group. An intelligent team working on a common goal will achieve greater success than one or all the individuals working independently on the same project. Consider what collaboration tools might help you navigate the challenges you will face in 2019.
ARTIFICIAL INTELLIGENCE
Ask a dozen people what AI is and you’re likely to get a dozen different answers. To overly simplify it, AI is machines making decisions based on data and environment. It’s not new, as it was created in 1956, but recently AI has become a popular topic of discussion as it relates to making decisions or performing functions normally conducted by humans. There are concerns that AI could replace humans in the performance of everyday tasks or in their jobs.
AI is accelerating in its capabilities and will continue to grow. Using AI, we continue to find new and better ways to make our lives easier and more convenient. For example, Siri, Alexa and Google Home are personal assistants that millions have come to rely upon. You can walk into a room and ask Alexa to turn on the lights, open the garage door, play music or adjust the temperature – simple tasks performed by combining data, environment and linkage to certain devices like a lamp, a garage door opener, a thermostat or an iPhone playlist. These linkages are examples of the Internet of Things (IoT) and will continue to grow in popularity as more and more devices are equipped with sensors and the ability to communicate.
So how will AI disrupt the course of our industry in 2019? There are several ways that AI already influences financial services. Visit your brokerage firm’s web site where, more than likely, you will be asked by a chatbot if you need assistance. These bots are there to answer frequently asked questions and to provide a consistent level of service. Banks and lessors will increasingly rely on bots to assist as virtual on-line customer service representatives. In early January TD Bank integrated their AI-powered chatbot “Clari” into the bank’s mobile app. Look for others to follow suit as the productivity improvements and cost reductions justify the development expense.
We all rely on some form of credit scoring to decision credit applications. Written algorithms that use data input to calculate credit scores has evolved to the point where additional data points are being considered to help increase the transactional value for when a decision can be made and decrease the decisioning time. One fintech auto lender already uses 3,000 data points to make credit decisions on car loans.
AI is also used liberally in predictive analytics. Using sophisticated modeling, AI can help protect against fraud and predict where portfolio problems may arise among your customer base. It uses internal behavioral data as well as external influences data, like regional economic
slowdowns or competitive pressures on specific industries. If you are not already using these tools, I suspect you will be in the future.
FINTECHS
Fintechs are here to stay. According to Ben Walsh of Barron’s, “Fintech companies lack the heft of a big bank’s balance sheets, so they have to compete with established financial institutions by being smarter, leaner, and simply out-hustling their incumbent rivals.” In my 2016 TOP Picks article, I predicted that fintechs would both disrupt and enable the financial services industry. In my 2017 TOP Picks article, I suggested that banks would take notice and seek out fintechs with business models which complemented their own. This is happening and will continue in 2019 for the exact reasons cited by Walsh. Big banks are slow and stodgy, burdened by policies, regulatory oversight and compliance requirements. Fintechs are agile and free from the burdens of banking.
The rise in cloud-based apps, hosted by reliable sources such as Microsoft and Amazon Web Services, has led to an increase in the number of fintech start-ups, many being viable candidates for collaboration or partnership with banks. A January 2019 article posted on Finextra.com revealed the results of 11 interviews with fintechs conducted by the U.S. Government Accountability Office, which found a “seven-fold growth in loan volumes from such companies between 2013 and 2017 alongside increasing alliances with banks to grow their portfolios and finance their lending.” These fintechs were found to rely on both traditional and non-traditional data (such as on-time rent payments or educational degrees) for decision-making
Expect increased scrutiny from state and federal regulators over the use and protection of data utilized by fintechs. There is increased concern over data protection and personal data privacy. Democrats have threatened to intensify the scrutiny and have committed to monitor the fintech and banking industries closely now that they have gained a majority in the House of Representatives.
Nevertheless, there are some slivers of hope in this area of regulatory oversight. The Financial Technology Sandbox legislation submitted in December in the State of Wyoming aims to create a “financial technology sandbox for the testing of financial products and services in Wyoming, authorizing limited waivers of specified statutes and rules under certain conditions.” Wyoming is giving fintechs a pass, even encouraging themto break the rules under certain conditions. Look for other states to follow Wyoming’s lead of providing an attractive environment for fintech startups.
How might fintechs be most disruptive to our industry in 2019? By collaborating or partnering with fintechs, equipment finance and leasing companies can harness some of the agility delivered by the fintechs to better their own businesses. Many of the industry’s largest and oldest participants are burdened with legacy systems, home-grown add-ons and bolt-on functional accessories. Picture a legacy leasing information systems platform equipped with an internally developed front end system that ties into bureau reporting to feed a customized scoring engine. Layer on top an API to Salesforce and a home-grown asset management system, not to mention the interfaces with Vertex tax, third-party cash management software and others.
American Banker reports, “Where it used to be a straight up build-or-buy-it proposition, many banks are starting more nimble, cost-effective incubators and making highly targeted investments designed to help improve their own offerings. A recent survey involving North American banks found that 54% of executives planned to invest in fintechs as a way to solve for consumer-facing technology shortcomings. But there’s a near even split in how that’s accomplished: More than half (51%) of bank executives expressed a desire to create in-house accelerator/incubator programs, while 44% will seek to acquire existing fintechs to achieve their objectives.”
Many of us are dealing with systems that were never meant to be clustered together. By partnering with fintechs, industry participants can leverage the skills and speed of a smaller, more nimble organization to meet critical success factors for your business. Need to create a mobile app? Let a fintech build it. Want a chatbot that can improve online customer satisfaction? Hire a fintech to develop one. Find whatever technological areas of the business in which you feel you may be falling behind and partner with a fintech to find a workable solution.
Your feedback is always welcome at [email protected].
