The digital transformation of leasing services—reflected primarily in a rising demand for usage-based leasing and automation—has gained a new urgency today. According to Mukul Mittal, vice president of industry solutions with Q2’s cloud lending group, current events have jump-started what had been a gradual evolution toward a digital leasing model and turned it into a groundswell.
Mittal ought to know. As a veteran of technology solutions in leasing and currently serving as Q2’s cloud lending group’s thought leader on leasing technology, he has seen firsthand how the COVID-19 pandemic is driving a renewed demand for a complete digital transformation in leasing services. The movement toward usage-based leasing models and automation—the two cornerstones of leasing’s digital transformation—is no longer a long-term goal. In speaking with Q2 customers, Mittal has found the need is here and now, and, for many of those customers, a matter of survival.
A Usage-Based Model for the Real World—in Real Time
In speaking with his customers, Mittal has learned that the pandemic has forced lessees to rethink and reprioritize how they weigh the value of the usage they are getting from their leased equipment. With the pandemic disrupting almost all of the conventional metrics for weighing cost against benefits, there is a new urgency driving the transition toward a usage-based leasing model. Propelled by automation and transforming equipment finance into touchless, streamlined, more efficient operations, lessees in today’s world understand that the flexibility of equipment lease payments tied to their usage of that equipment could very well determine not only how well they weather the current pandemic’s impact on the economy but whether they are able to weather it at all.
[Callout Quote] “Business models are broken.”
“Business models are broken,” Mittal says. He feels businesses are starting to look at options to move to a pay-per-use model because cash-flow disruptions have them looking much more critically at expenses. Suddenly, a fixed monthly lease payment for a piece of equipment that has been rendered inoperable by the pandemic comes into clearer focus as a liability on their balance sheet. A usage-based lease model would better recognize the stark reality of idle equipment—and not penalize the lessee for that reality.
Mittal offers the hypothetical example of a dental practice. Dentists’ offices are typically full of sophisticated, expensive equipment, almost all of which is leased. Mandatory closure during the pandemic has cut the usage of that equipment—in many cases to near zero.
“Being required to keep cutting checks for a fixed lease payment every month has made it very difficult for these dentists to see that equipment lying idle,” Mittal says. “If they could flip their lease model into pay-per-use and have equipment shared among several other dentists, that would give them relief in times like this pandemic.”
According to Mittal, many businesses are now reevaluating their fixed expenses, including lease payments, and revisiting what equipment is central to their business model and how much they need to commit to pay to cover its use. “This evaluation is not unique to leasing, but the process of fixed payments for equipment is what everyone is reassessing,” Mittal says. “They are asking themselves, ‘How can I sustain this outlay in the long term if the pandemic has a second burst of an outbreak?’”
How Usage-Based Leases Better Serve Lessees
Continuing with analogies from the healthcare service sector, Mittal says a usage-based model would allow, say, an MRI machine to be shared with five hospitals under a usage-based service agreement. “No MRI machine is in use 100 percent of the time, so fuller utilization will enhance its value to the lessee,” he says. Mittal admits promoting this sharing of usage would be counter-intuitive for the manufacturer because it reduces the number of MRI machines sold. But he feels vendors need to rethink their business model to sell or lease under a usage-based model in order to generate revenue at a similar level.
“No one will be buying or leasing at pre-pandemic rates, so a usage-based model is the best alternative,” Mittal says. “The investment climate is going to slow down and may take another year or far longer to rebound, so the only effective way to provide equipment is to do so on a usage-based model.”
Beyond the demand for a new model for leases predicated on the usage of the equipment leased, Q2’s customers are providing Mittal with an invaluable perspective on some of the specific technologies they are seeking. The old adage that “the customer is always right” bears new meaning today, with a leasing landscape more dynamic than ever before—and the stakes higher than ever. The time for a full digital transformation of leasing services has arrived, and automation is emerging as a key component of that transformation.
Automation for Efficiency—and Cost Reduction
A new urgency is driving today’s digital transformation of lease management, and automation for efficiency is increasingly being seen as a crucial part of the transformation’s success. Beyond rethinking and reprioritizing the usage underlying the equipment they are leasing, lessees are welcoming automation as an accepted part of the changed landscape of post-pandemic lease management because of the enhanced efficiency—and attendant reduced costs—it can bring.
According to Mittal, no area for cost-cutting is sacrosanct among lessees today, so lessors and lenders must be prepared to meet ever-increasing pressure for ways to cut their costs. They must wring the maximum efficiency out of their lease management model if they are to remain competitive.
Quite simply, automation is key, and the pandemic has hastened the demand for it.
[Callout Text] Transforming equipment finance into a touchless, streamlined, more efficient operation is not just a matter of allowing the evolution of a business model but, for many lessors, a proactive matter of survival.
“I definitely see the demand for automation growing because it is demonstrating its value,” Mittal says. “We have customers who were able to migrate most if not all their systems to the cloud. For these customers, it took just a few hours for them to make the transition from operating conventionally to operating through a home-based model.”
The Two Components of Digital Transformation
Mittal sees a complete digital transformation consisting of two components: one is automation, and one is cultural. “I think the culture part is huge. It’s difficult enough to make decisions when you have a committee of 20 people sitting at a conference table trying to come to consensus; doing so when they are all working from home is impossible without technology to bridge the cultural gap,” he explains.
In his ongoing communication with Q2 customers, Mittal has gained a clear view of the technologies and capabilities they are now seeking to facilitate work in the post-pandemic world.
“At a high-level, they are asking for ways to automate their most onerous tasks,” Mittal says. This means finding ways to eliminate human interaction from any aspect of lease management that can be better handled through automation. “Every human touch increases the cost of doing business,” he explains.
Mittal sees automation being most successful when it eliminates the most labor-intensive aspects of lease management. He has seen optical character recognition (OCR), for example, eliminate the time-consuming and expensive task of manually consolidating data, transcribing it, categorizing it for interpretation by an intended user, and packaging it in an easily accessible format. “If you could make this whole data-management process ‘no-touch’ that would be fantastic,” Mittal says.
But the transformation toward automation must be extrapolated beyond just discrete tasks such as OCR if it is to have an appreciable positive impact on reducing costs and processing times, according to Mittal. Today’s changed leasing world requires a new lease management model, and Mittal offers a glimpse of what this digitally transformed model might look like.
“Ideally, in a vendor space, what I want is the vendor to put in a lease application through a self-service portal, have it automatically received by the middle office system, which conducts its credit adjudication process, and a decision is made for a yes or no—without anyone touching it,” he explains. If the lease is approved, then the lease documents are generated, and e-signatures are added. “When it comes back signed, the vendor delivers the equipment, and the lease starts,” Mittal says.
Creating Flexible Solutions during the Pandemic
Mittal says Q2 has made substantial progress on improving the portal side, and it is currently focused on providing point solutions to banks, equipment finance companies, and fintech lenders. “Everyone is looking for ways to engage their customers better and more effectively,” he says. Today that means developing solutions for the U.S. Small Business Administration’s (SBA’s) Paycheck Protection Program and other SBA loans, as well as management of loan forgiveness. “That’s where our energies are focused today: on helping our customers innovate to provide solutions that will help them now,” he explains.
Specifically, in response to a growing number of lessees requesting restructuring of their programs, Q2’s cloud lending group created an automated solution for managing distressed leases and loans. With the demand for restructured contracts growing by the hundreds—if not thousands—in the face of the pandemic, conventional resource management was overwhelming lessors.
Restructuring each lease contract manually and individually was impossible, so Q2’s automated solution enabled restructuring in bulk. Customers can now upload a spreadsheet of contracts to be restructured, and an automated restructuring solution facilitates the restructuring in three or four hours—versus the individual, manual process that would take the whole office several weeks. “Listening to our customers very closely and seeing what we could do to help was key,” Mittal says. “And an automated solution proved 100 percent effective.”
Mittal is an optimist. He has always relied upon listening to and understanding the needs of his customers as the critical first step for adapting leasing models and implementing new technologies to support them. If the digital transformation of leasing services is to succeed, it has never had a better environment in which to do so—or one in which the stakes have been higher. •
Steve McCabe is a senior writer for Susan Carol Creative, in Fredericksburg, VA. He has been continuously involved in writing and editing since 1985, focusing primarily on the equipment leasing and financial services industry. Recent feature and ghostwriting assignments for SCC have appeared in Equipment Leasing Today, The Monitor Daily, North American Industry, the World Leasing Yearbook, and the National Law Journal.
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