Technology Ecosystems Will Change Equipment Finance
by Scott Nelson, PHD October 2020
Technology does not exist in a vacuum. Like living things, each technology trend exists in an ecosystem. Scott Nelson explores five technology ecosystems the equipment finance industry must consider to stay relevant and successful for many years to come.
Scott Nelson, Chief Digital Officer, Tamarack
Technology trends are an annual business media topic. Most of these discussions tend to have a product-centric view of how technology will affect our daily lives and business economics. The reality is technology, like biology, propagates in ecosystems. An ecosystem is “a community or group of living organisms that live in and interact with each other in a specific environment.” A technology ecosystem is an interconnected network of products, services, infrastructure, suppliers and consumers with which your company economically interacts.
Technology ecosystems transform industries. Perhaps the best example of this industry disrupting force is the effect semiconductor manufacturing has and continues to bring to bear. This effect is summarized in Moore’s Law, which states that the number of transistors on a microchip doubles about every two years, though the cost of computers is halved during the same time period. When we consider if technology will impact a business, we must understand the technology and the ecosystem of partners, suppliers, producers and developers using the technology to create competitive advantage.
The five technologies discussed in this article are already part of our lives. Some have functioning ecosystems, but some are emerging and “hunting” for their place in the broader economic sphere. Equipment finance companies have much to consider as these technology ecosystems grow, and they must prepare for the disruption that ecosystem forces like Moore’s Law can create.
Mobile banking is both an ecosystem and an experience. Consumers have come to expect immediate satisfaction and complete security with their financial assets. Banks have done an excellent job creating this expectation and delivering it so that it is the norm today. Bushel, a grain elevator transaction platform, is a great example of how an emerging technology can disrupt. One of its founders was paying bills with his mobile phone while waiting in line to drop off his father’s grain. He was struck by the fact that the transaction he was waiting to complete, selling grain in a real-time pricing market, was no different than what he was doing on his phone. So he brought mobile banking to grain elevator transactions and in five short years, Bushel is helping to manage the sales of 15% of the grain produced in the U.S.
Equipment finance has a similar risk. Online lending vendors like Rocket Mortgage have shown consumers that they do not need to fill out forms and wait a week for approval to borrow money. Innovation Finance has responded to this need for speed and convenience with QuickFi, which reduces days of paperwork to a few minutes and enables lessees to originate their own leases. QuickFi is a great example of engaging an ecosystem to innovate with more than a single technology — leveraging the ecosystem of mobile banking with technologies like multi-factor security, facial recognition, digital signatures and even distributed ledgers from blockchain.
Cloud Microservice Architectures
Any mobile ecosystem is inoperable without the cloud providing interconnectivity and scale. The finance world has been slower to pick up cloud technology and architecture for two reasons: security and resistance to changing a system that works. Most realize security is no longer an excuse. Cloud is more secure than on-premises or owned computing because it is easier to use and much faster to adapt to new threats.
But the “what I have works” attitude is an error of omission, which opens you to innovative competitors. The “omission” is not knowing what a technology ecosystem can do until it’s too late. Slow adopters of cloud technology and its virtual construct have missed how applications and platforms are built from networks of micro-services. Micro-service architectures enable almost immediate functional flexibility with scalable control. Flexibility is an investment that businesses cannot afford to forgo. The difference is clear. Some companies responded almost immediately to the economic changes of COVID-19 with online services, while others were caught needing to invest when traditional revenue streams were vanishing. Target recently posted record Q2/20 revenue and earnings during the COVID-19 period by adapting and integrating online applications with in-person services.
Microservice architectures exploit the best of the cloud — near infinite scalability with granular customization. In the same way a well-designed mobile app can run on an Android or iOS device, an equipment finance accounting system should integrate with any origination system. Customers view origination as tightly tied to their CRM system. A microservices architecture builds in the flexibility to make the enterprise agnostic to other system selections. More importantly, when a new capability relevant to a customer or new business need becomes available, a microservice architecture can integrate that new offering without major rewrite. COVID-19 has taught us that flexibility, particularly in software, creates durability.
Usage-Based Business Models
At its core, equipment finance is an experience business; it makes riding a bulldozer or taking an MRI available to those who might otherwise not have access to the equipment. Usage-based leasing/lending (UBL) takes the experience opportunity of the business to its most granular level: pay only when used. The market expansion of UBL will be exponential, but anyone who considers UBL will ask, “How can I know when the equipment is used if I cannot ‘see’ the operation of the equipment?” As is often the case with ecosystems, IoT overlaps, or maybe includes, usage-based business models.
An often missed aspect of usage-based economics is that it fosters the sharing economy. When a company extends the use of a given piece of equipment to multiple users, sharing emerges and brings another exponential growth opportunity. The economic relationship between usage-based and sharing economies reminds me of a roller coaster. Very few people can afford to own a roller coaster. But when usage-based and sharing economics are engaged, almost everyone can experience the exhilaration of the rollercoaster ride.
Digital transformation is often about granularity — transforming the macro to the micro. Usage-based and sharing have already revolutionized transportation at the consumer level via applications for cars and scooters. Like mobile banking, expect the consumer experience with the usage-based ecosystem to do the same at the enterprise level.
Don’t look to the future, look at the future. This is how we should consider the AI ecosystem. AI was first defined at a Dartmouth College summer workshop in 1956 and has since become a central part of science fiction — always part of our future. But today, the AI ecosystem — big data from every transaction and connected object, highly scalable cloud computing, data analytics, digital twins, prediction machines and data scientists — not only exists, some would say it thrives.
The challenge for equipment finance is to become a part of this ecosystem. We have engaged members of the AI ecosystem through other activities — cloud computing, IoT, connected equipment, data-centric operational controls — but we have not begun asking the kinds of questions that only AI can answer.
• How do I identify faulty vendor invoices in a stream of 10,000 per month?
• Which lessees will struggle in the new COVID-19 economy?
• How can I predict the need to maintain or recover equipment?
Like any data analytics initiative, the key is asking “the data” the right questions. This usually involves hiring domain experts who know the right questions, but AI is about assuming the right attitude — look to the future by finding your “prediction problem.”
Automation of Empathy
Empathy is well known to design thinkers, but underappreciated by most business leaders. Many think empathy connotes weakness. Weakness? Really? Steve Jobs channeled Henry Ford in an interview regarding his view of customer empathy:
Some people say give the customers what they want, but that’s not my approach. Our job is to figure out what they’re going to want before they do. I think Henry Ford once said, ‘If I’d ask customers what they wanted, they would have told me a faster horse.’ People don’t know what they want until you show it to them.
Ford and Job’s genius was founded in their ability to empathize with their customers. They didn’t ask the customer what they wanted — that puts the responsibility of building a better product on the customer. Design thinkers like Jobs use empathy to understand their customers and be responsible for helping them find a better experience.
At this point you may be thinking, “I’m not Steve Jobs and empathy is hard to scale.” Fortunately, the technologies from innovators like Jobs are making empathy more accessible and scalable. Connected equipment, mobile technology and AI enable the automation and continuity of empathy so that developers and service providers can intensify and sustain value to users. Users of automated empathy will build and sustain competitive advantage the same way as leading adopters like Apple and Tesla.
Technology, changing faster than ever, is still driven by Moore’s Law but now accelerated by software. The agility and scale of software interconnects technologies in ways often hard to comprehend because we cannot examine them like a new camera or smartphone. The real disruptive forces of technology now come from the ecosystems that surround them. An ecosystem gives us more to examine but also will give us a foundation from which to build. Equipment finance is not the most technologically advanced industry, but we have footholds and are well positioned to take advantage of the emerging technology ecosystems. If we do, our industry will not only survive but thrive. •
Scott Nelson is the chief digital officer of Tamarack Consulting. He has more than 30 years of strategic technology development, deployment and design thinking experience working with both entrepreneurs and Fortune 500 companies.
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