5 Ways COVID-19 is Shaping the Equipment Finance Company of the Future
NOV 19, 2020 - 7:30 am
Studies suggest that COVID-19 has accelerated digital adoption by seven to 10 years and propelled use of business models with advanced technology by up to six years, according to a session presented at ELFA 2020 Business LIVE!, the Equipment Leasing and Finance Association’s first virtual conference, on Oct. 27.
The session, “Has COVID-19 Ushered in the Leasing Company of the Future?” was moderated by Valerie L. Gerard, senior managing director of The Alta Group, with panelists Mark Duncan, EVP and GM of commercial finance for Hitachi Capital America; Gabrielle Haddad, COO and co-founder of Sigma Ratings; Jeffrey Rogers, president and CEO of LiftForward; and Patricia Voorhees, director of The Alta Group.
The discussion of the implications of COVID-19 for the future of equipment finance companies focused on trends in the following five key areas that are facing fundamental shifts.
The adoption of long-discussed, market-driven practices and modern smart technology. The pandemic has accelerated digital adoption of modern smart technology by seven to 10 years and advanced business models built around that technology by up to six years as the demand for e-commerce solutions skyrockets. E-signatures, a pre-existing technology, has been deployed rapidly across the equipment finance industry. Customer demand for information technology equipment has increased significantly during the COVID-19 pandemic, so having the most modern, efficient technology in place to accommodate demand and customer service issues has become critical for many equipment finance companies. Going to work from home virtually overnight required rolling out new collaborative tools throughout entire organizations and updating processes to conduct business. Companies able to meet those challenges and service high-demand industries such as IT and healthcare have experienced a competitive advantage over firms that have not been able to adapt as quickly.
Changes in operational and team dynamics as a result of work-from-home. The concept of work-from-home has been around for decades but was not widely embraced by the equipment finance industry until the pandemic. Work from home means managing teams in a completely new format. For example, companies onboarding, training and managing new hires across multiple offices and functions must come up with new ways to motivate and supervise groups of employees. Engagement tools like Microsoft Teams and video collateral enable adapting to the organization. Scheduling regular daily virtual meetings for all employees previously accustomed to working together in an open office setting has increased the flow of information and knowledge about company operations. Some companies have been able to attract better talent from outside their geographical area by offering remote work opportunities.
Evolving customer demands and products in the face of the pandemic. Demand for equipment, especially information technology, has increased in a number of areas. Many companies needed to upgrade to connect workers from home. In education, school districts are acquiring computers for students learning from home and bundling connectivity services. In healthcare, hospitals and other medical providers have increased the amount of sterilization equipment they use. The utilization of equipment assets such as ventilators and surgical robots across health systems has accelerated and become accepted as a result of the pandemic. A few OEMs want to enhance their digital footprint and are asking their traditional large, long-standing funding partners to partner with usage-based managed solutions types of offerings, whether a marketplace or subscription service.
Environmental, social and governance (ESG) issues as well as diversity initiatives are becoming more important than ever. A shift in society’s values changes how people want to invest and purchase goods and services. Many mainstream investors are viewing the pandemic as a wake-up call that non-financial ESG types of risks can actually have serious economic impacts and, as a result, there is greater emphasis being placed on them. Concerns are increasing about climate change and environmental risks as people understand the broader economic impacts over time having experienced the impact of the global health crisis. COVID-19 has exposed social and income inequalities in areas such as education that may not have been as apparent before. A recent JP Morgan survey indicated that more than 50% of investors believe COVID-19 will have a positive impact on ESG acceleration over the next three years. Part of the ESG acceleration reflects the importance of these issues for Gen Z when making personal and professional purchasing decisions.
Traditional metrics for measuring success. As these trends converge, particularly with new business models and the adoption of smart technology, there may be an impact on the way the equipment finance industry measures profitability, operational efficiency and capital adequacy. However, changes in the industry may take time to work their way into financial statements. Travel is one aspect of company expense that has been severely reduced but for how long is uncertain. Business models of how long people interact in offices will change over time. Once the pandemic has passed, companies will consider a hybrid of office and remote working, which will impact companies’ physical footprints. There will be benefits and incremental costs to adopting hybrid models, such as the lower cost of smaller office space being offset by technology investment for equipping remote workers.
The pandemic has precipitated an unprecedented and urgent need for businesses to transform and innovate on a scale not seen since the beginning of the Industrial Revolution. Focusing on shifts in these areas can enable equipment finance companies to succeed and grow profitably in a post-pandemic world.
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