Bill Verhelle ,
Founder and CEO,
Innovation Finance USA

As I reflect on my career in equipment finance, three business strategies have influenced me the most: consolidation, centralized distribution and digital borrower self-service.

Consolidation

When I entered the industry nearly 30 years ago, the trend toward consolidation was well underway. In the mid-1990s, I worked for Tokai Financial Services, which the Tokai Bank of Japan owned. At the time, Tokai Bank was about $300 billion in total assets — nearly double the total assets of the largest U.S. bank. During the next three decades, U.S. banks grew dramatically. The largest U.S. banks today report total assets in multiple trillions of dollars. This banking expansion — driven by consolidation and an economies of scale strategy — has also been the predominant equipment finance business strategy throughout my career. And it continues today.

Centralized Distribution & CRM

When we launched First American Equipment Finance in the late 1990s, we needed to find a way to compete with large banks. At the time, most equipment finance sales were facilitated through regional sales professionals in national or regional branch networks. Could equipment financing be sold nationally from a central location leveraging emerging sales technologies? My business partners and I launched First American to find out.

Before the widespread adoption of customer relationship management (CRM) systems like Salesforce, a few companies experimented with networked CRM applications like ACT and Goldmine to enable centralized sales teams to serve customers nationally over the telephone. We were an early adopter of such systems at First American. We also invested in emerging internet technologies, including nascent virtual meeting technologies like WebEx and Abobe Connect.

Aided by these new tools, we hired talented college graduates without equipment leasing or finance experience and created a centralized, national sales business. Years later, when Salesforce was invented, we were an early adopter, transferring large amounts of our CRM data to the cloud. The efficiency and capabilities of First American’s centralized sales model provided meaningful market differentiation, allowing us to compete effectively against the traditional sales model.

CRM usage in equipment finance expanded rapidly in the years following the release of Salesforce. Still, it wasn’t until the onset of the COVID-19 pandemic that the virtual meeting technology First American began employing in the late-2000s became mainstream. This was the latest example of companies using centralized sales tools, further advancing this second major industry trend.

Many commercial equipment finance businesses are still implementing and expanding centralized sales and CRM strategies today. There is an ever-expanding set of internet and cloud-based CRM add-in capabilities that reduce labor costs and enhance efficiency. Because these projects are often small and incremental, they are often favored by firms seeking “digitization” with minimal risk.

There is some concern that expenditures on sales digitization projects consume funds that might be expended to evaluate more significant, longer-term non-sales strategies. This brings us to our third and newest strategy: borrower self-service.

Borrower Self Service

In 2018, after the emergence of facial recognition, blockchain and artificial intelligence, we wondered if another entirely new business model might soon emerge. Mark Tomaselli, currently the president of Innovation Finance USA, asked a group of colleagues who worked together at First American: “Why can’t transactions that previously took days or weeks to complete be completed in minutes on a secure, digital, borrower self-service mobile application?” To test the idea, we built QuickFi.

Today, borrower self-service is in its early days, having first gained prominence in adjacent consumer financial markets, including insurance and wealth management. Mobile borrower self-service technologies are becoming widely adopted in consumer banking. It is not yet widely adopted in the United States’ $1 trillion per year commercial equipment financing market.

Building a new borrower self-serve business model is complex. Unlike incremental initiatives designed to add efficiency to the existing sales model, digital borrower self-service requires the sponsor to blow up the prior business model and start from scratch. This type of project is much bigger than even large-scale CRM implementations or lease accounting conversion projects, both occurring within the existing business model.

By contrast, a borrower self-service model involves rebuilding an entirely new business from the ground up.

It requires an entirely new set of processes and workflows. It often creates cultural challenges when operated within a traditional sales environment, as there is a natural friction between sales professionals and self-service models designed to bypass salespeople. Workflows involving marketing, program management, onboarding, authentication, credit, operations, servicing, customer service, compliance and security must be completely redesigned for borrowers to process transactions directly. On the bright side, recent advancements in AI and other exponentially advancing technologies are expected to significantly increase the benefits of adopting direct-to-customer, 100% digital, self-service capability.

The benefits for early adopters of borrower self-service models may be substantial. A big benefit is cost savings. Self-service offerings are available at less than one-third of the per-transaction cost of traditional small-ticket transaction costs, and the fee per transaction may collapse to one-tenth the current cost when digital self-service platforms gain scale. This type of cost reduction has occurred in adjacent industries, such as travel and digital advertising, when these improved business models based on new technologies became widely adopted.

Conclusions

The industry changes we’ve seen over the past 50 years will likely be significantly exceeded by the changes our industry experiences during the next 10 years alone. This prospect is both unsettling and exciting.

The big picture is positive. Emerging new technologies enable society’s increasing prosperity. This means that the next few years may be unlike anything before as we discover, develop and implement new ways to do business and better ways to serve customers.

But technological advances also produce pain. We feel the pain of change as individuals as we try to live in a rapidly changing world. The pain of change is also deeply felt in large organizations that lack agility or adaptability, creating vulnerability.

The spirit of leadership innovation that propelled our industry through more modest changes during the past 50 years must accelerate. That may be our leadership challenge today. Instead of waiting for change to impact our businesses and then reacting, we must embrace new strategies to lead our organizations into an uncertain, exciting future.