The Fintech Solutions Driving the Digital Transformation of Lease Management
by Mukul Mittal Nov/Dec 2020
For equipment leasing companies to survive and thrive through the rest of the COVID-19 pandemic and beyond, they must fully embrace digital transformation. Mukul Mittal outlines the most important trends in financial technology and how equipment lessors can use them to improve all aspects of lease management.
Mukul Mittal, VP of Leasing, Q2
The event that shaped the equipment finance industry in 2020 certainly needs no introduction.
COVID-19, the cause of one of the most disrupted years in memory, is continuing to impact the leasing industry. We close the year out with the advantage, at least, of some perspective and hindsight that could indicate where this industry is headed over the short and longer term.
Although the COVID-19 pandemic’s disruption of both the equipment finance marketplace and its workplace is clear, it is only the most recent — and certainly the most urgent — factor contributing to the growing demand for a digital transformation in leasing.
The $1 trillion equipment leasing industry has never been more competitive, and the growth of its companies depends on finding new ways to drive revenue through greater transaction volume and faster time-to-market for new products. Even before the pandemic, rising expectations from a new breed of digitally savvy customers were pushing many leasing companies to a decision point. They knew they had to address the entrenched legacy technologies permeating their information technology systems, which typically complicate maintenance and impede innovation. A global pandemic merely set off the alarm bell.
Fintech to the Rescue
More than ever before, financial technology has demonstrated how it can mean the difference between lessors not just remaining competitive but remaining viable. Wringing every ounce of efficiency out of lease management is no longer just an item on the IT team’s to-do list. Embracing fintech today is necessary to ensure a leasing company will be profitable for years to come.
Over the past six months, the pandemic has shut down companies that were lagging in their digital transformations. In these instances, two major problems were revealed. The first was the largely unavoidable effect on the customer base, including lessors leasing equipment to the restaurant, entertainment and/or tourism industry. The second problem was these companies lacked truly comprehensive digital processes, which can be a largely avoidable and fixable issue.
Even if these companies had been leasing to industries with strong demand, they still would have been unable to execute their business because they did not have a true digital solution. A lot of these companies had a patchwork of workarounds and jury-rigged “solutions” that served little purpose besides keeping things running. But when the pandemic suddenly added stress to these flimsy, inefficient systems, their flaws became obvious.
These companies had a website — or whatever they called their “digital presence” — but it was not connected to their credit and underwriting systems, and it certainly was not fintech. For example, all information that came in would have to be manually retyped and inputted into a back-office system. When the pandemic lockdowns occurred, these companies suddenly did not have people in the office to perform these manual operations, and because most of these companies had on-site servers and applications, the effect was devastating.
A true fintech solution would have handled the transition out of the office and into the home without issue — or human input, for that matter. Some of Q2 Lending’s digitally transformed clients actually experienced a substantial uptick in their volumes because they were completely cloud-based and therefore able to continue operations at home immediately and with little disruption.
Even before the pandemic struck, smart lessors recognized the urgent need to modernize their business processes and bring customers into the fintech age. Now, mid-pandemic, lessors realize that embracing fintech represents the difference not just between retaining their lessees and losing them to a competitor, but to staying viable as a company.
How can fintech solutions contribute to digitally transforming the way leases are marketed and originated and the way assets are managed? Let’s look at four key ways.
An Agile Approach
Modern lease solutions need an open architecture that supports user-interface tool kits so they do not require custom programming to meet each lessor’s unique business needs. Users should be able to easily create new fields, custom business rules, complex workflows, multi-step approvals, unique application programming interfaces (APIs) and user-interface portals. In sum, fintech should make it easy to instantly configure new lease products.
No solution will be perfect, but an agile approach will allow you to create an initial solution, test it in the market and then modify it as you get feedback. Being able to modify processes in the face of changing circumstances is the primary reason to remain agile and a key component of any successful fintech solution. In 2020, we have all seen how quickly circumstances can change; an agile approach is invaluable.
Enhanced Customer Intelligence
Fintech can help lessors better understand their lessees’ needs. Electronic registers of commercial activities provide greater levels of insight into customer behavior and buying preferences. Analytical software predicts customer behavior, driving sales outreach activities before customers even begin their search for new equipment. Consolidated data about the equipment itself will automatically suggest maintenance, repair and replacement timing. In 2020, we all have had plenty on our collective plate and automating data management has relieved some of the intelligence-gathering load.
Maintaining Financial Data in the Cloud
A 2014 CIT Equipment Finance survey found that many middle market companies were investigating the potential of cloud technology. In fact, 82% of respondents said their company utilized a public or private cloud in some way. With the cost-saving benefits that cloud-based solutions offer, it is easy to see why adoption has been so widespread among mid-sized companies that might not have robust IT budgets or departments.
Maintaining financial data in the cloud has now become an acceptable norm in both the personal and business realms. For example, when online checking was first rolled out, many people would reconcile their online balance with their paper ledger for all their transactions. People have stopped doing that because they trust online banking far more than when it was first introduced, and that trust is warranted because some of the cloud platforms have better security than conventional bank accounts. In 2020, the cloud’s benefits have become self-evident.
New, Innovative Ways to Evaluate Credit
Auto-decisioning systems enabled by fintech can collect more than 700 data points in areas such as cash flow, payments, personal records, banking records and automated spreads. Having this information consolidated and available removes impediments to rendering a credit decision. This is one of the most significant ways fintech can drive cost reduction and increase speed of processing, both of which are important elements of a full digital transformation. In 2020, with creditworthiness fluctuating wildly, it’s a welcome relief to bring automation to the credit-decisioning process.
The Bigger Picture
Once viewed as disruptive by equipment finance companies, fintech solutions today are increasingly viewed as saviors for their ability to jump-start the automation process and move leasing companies closer to a complete digital transformation. As the leasing landscape has radically transformed over the past six months, adaptability in the face of change is emerging as a key capability that companies need to remain competitive.
In hindsight, we can now see that the pandemic forced leasing companies to employ fintech to take four crucial steps toward digital transformation.
The first step is perhaps the most obvious: the ability to work from locations other than the office. The second step is modifying processes and programs to cater to the changing reality. For example, a true fintech solution allows companies to adjust credit algorithms to weed out unsuitable risks and it does so automatically, with minimal or no manual intervention. This is a more systemic solution that allows lessors to automatically bring lessees back as their creditworthiness improves.
The third step, which I consider the “holy grail” of fintech solutions, is to speed up the time and lower the cost of lease processing. The old mantra of “better, cheaper, faster” still resonates today. And the fourth point, which is well underway, is providing self-service capabilities so that customers can operate on their own and not be dependent on a customer service agent. These are all parts of an effective digital strategy.
All the ways that fintech can bring leasing companies closer to a unified, seamless, digital process are continuing to gain recognition today. As a global pandemic makes everything more difficult, leasing does not have to be hard, and fintech can make it easy. The ability to access automated origination, underwriting and servicing information — all within a single system of record — can empower lessors to serve their customers better. Quickly creating new lease products to immediately meet market and regulatory needs, offering configurable leasing solutions, approving and funding leases immediately without sacrificing compliance or creating credit risk are all within the emerging realm of possibility created by fintech. Today, saddled with the pandemic’s additional stresses on resources, the demand for such solutions has never been greater and the fintech strategy has come front and center for every leasing company. Other initiatives are being forced to the wayside, and the investment in digital transformation through fintech is becoming critical for leasing companies to survive.
Mukul Mittal is the vice president of leasing for Q2 and leads the leasing vertical for the company. He also is closely involved in all phases of product in design and delivery. Mittal has more than 20 years of experience in software product development, project management and systems implementation, and has a deep understanding of the financial services industry, especially equipment leasing.
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