Fall 2019 • Volume 7 • issue 3 | www.canadianequipmentfinance.com
Opportunities in Tech
Financing robots Servitization to supplant ownership? Executing eSignatures PM40050803
Contents Fall 2019 Volume 7 Number 3
CFLA REPORT Publisher and Editor-in-Chief Steve Lloyd steve@canadianequipmentfinance.com Editor Brendan Read brendan@canadianequipmentfinance.com Creative Direction / Production Jennifer O’Neill jennifer@canadianequipmentfinance.com
CFLA CMO: Uneven growth ahead »4
Market Report The future with CUSMA »8
Photographer Gary Tannyan Advertising Sales Mark Henry mark@canadianequipmentfinance.com
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Technology
Opportunities in Tech Robotics
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Financing robots »10
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Who owns the data? »13
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10 Servitization Servitization to supplant ownership? »14
Cloud Computing Why ascend to the cloud »17
eSignatures Executing eSignatures »18
Also Publishers of Payments Business www.paymentsbusiness.ca
Management Strategy
Contact Management www.contactmanagement.ca
Keeping the goodwill going »20
DM Magazine www.dmn.ca
Your Business Referees of the Digital Age »22
Made possible with the support of the Ontario Media Development Corporation Ontario Interactive Digital Media Tax Credit
canadianequipmentfinance.com | Fall 2019 | CANADIAN EQUIPMENT FINANCE
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CFLA Report
CFLA CMO: Uneven growth ahead By Robin Somerville
ith so many potential crisis events threatening global trade and security, most economists are even more gloomy than usual about the future. Canada’s economy has not been spared and is expected to grow slower than last year despite continued high population growth, a low unemployment rate and reasonable wage gains. Canadian real gross domestic product (GDP) growth is expected to decelerate from 1.6 per cent in 2018 to 1.4 per cent in 2019, down significantly from 3 per cent in 2017. While economic growth could surprise on the upside—it is expected to accelerate to 2 per cent in 2020—the downside risks dominate both in number and scale. Real residential and non-residential business investment spending are largely responsible for the economy’s weakness in 2019. But their recovery is largely responsible for the growth expected in 2020. The impact on the Canadian asset finance industry from these trends has been mixed, according to the 20182019 CFLA Canadian Market Overview (CMO), prepared by Quantitative Economic Decisions, Inc. on behalf of the Canadian Finance & Leasing Association (CFLA). The asset-based finance market in Canada continued to grow in 2018. Total new business volumes climbed to 1.1 per cent to $129.5 billion in 2018, but down from the 7.4 percent growth recorded in 2017. Growth in the fleet vehicle market offset weakness in the machinery and equipment (M&E) market. But the outlook for 2019 is positive, growing at 4 per cent overall. Even so, this could change depending what happens next in the Canadian economy.
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Uncertainty causes Uncertainty stemming from the CanadaUnited States-Mexico Agreement (CUSMA) negotiations to as well as 4
fears over widening tariff wars and their impact on global trade helped dampen growth in 2018. They also have curtailed the Bank of Canada’s plans for further interest rate increases. Canada is not alone; economists anticipate slower economic growth in most major markets around the world in 2019 and 2020. This will also impact the Canadian economy by affecting export markets and the cost of imported goods, including M&E and vehicles.
Asset spending dips and rises Of the Canadian asset markets, new M&E spending is expected to be sluggish in 2019 despite the federal government’s Accelerated Investment Initiatives, introduced in the 2018 Fall Economic Statement meant to stimulate investment spending. At the same time, DesRosiers Automotive Consultants anticipates further softening in motor vehicle sales in 2019 before growth resumes in 2020. The following chart shows the
Source: Public and Private Investment Survey, Statistics Canada; Bank of Canada; 2019 Summer Forecast, Quantitative Economic Decisions, Inc.; DesRosiers Automotive Consultants.
The U.S. economy, fuelled by tax cuts, grew 2.9 per cent in 2018 but will slow to 1.8 per cent by 2020, while Europe and Japan will grow about 1.7 per cent and 1 per cent respectively in 2019. China’s growth continues to slow from its torrid pace over the last decade and at 6.3 per cent in 2019 will be eclipsed by India’s, which will grow by 7.3 per cent. With dramatic geopolitical risks and the looming threat of escalating trade disputes having the potential to significantly disrupt economic growth around the world, this outlook is looking increasingly optimistic.
CANADIAN EQUIPMENT FINANCE | Fall 2019 | canadianequipmentfinance.com
determinants of asset-based finance market growth along with their outlook for 2019 and 2020. Statistics Canada’s survey of public and private investment intentions for 2019 anticipates a 1.2 per cent or $1 billion rise in public and private M&E capital spending this year, following a 4.1 per cent increase in 2018. Growth in spending on new equipment varied across the country in 2018, with strong gains in the eastern half of the country and British Columbia being offset by declines on the Prairies. Spending patterns are expected to
CFLA Report Public & Private Spending on New Machinery & Equipment
Millions of Dollars 2019 F 2018
Canada Atlantic Provinces Quebec Ontario Manitoba Saskatchewan Alberta British Columbia
87,723 5,265 15,209 33,142 3,125 4,613 14,381 11,390
86,676 5,339 14,603 32,757 2,949 4,487 14,781 10,949
% Growth 2019 F 2018 1.2% -1.4% 4.1% 1.2% 6.0% 2.8% -2.7% 4.0%
4.1% 11.9% 3.2% 8.2% -13.5% -13.6% 0.9% 7.5%
Source: Statistics Canada (34-10-0035-01)
shift significantly in 2019, with Manitoba making strong gains while Alberta and the Atlantic Provinces lose ground. There were also large differences in M&E spending across industries in 2018. Double-digit gains were reported for manufacturing, wholesale trade, information and cultural industries, arts, entertainment and recreation, other private services, educational and government services. But this strength was offset by declines in many industries, most notably, with double-digit declines, in the mining and utilities sectors. In 2019, the transportation and warehousing sector and the finance and insurance sector are anticipated to see spending on new M&E grow 16 per cent. But the retail trade, accommodation and food services, other private services and government services sectors are all expected to see their spending shrink by more than 10 per cent.
Financial market developments The long-awaited rise in interest rates that began in July 2017, saw the Central Bank Rate rise from 0.75 per cent to 2 per cent in October 2018. Deteriorating confidence in the global economic environment led the Bank of Canada to expect slower economic growth and a reduction in inflationary pressures. As a result, the Central Bank Rate remains at 2 per cent and is not expected to change for the next few years. The Bank of Canada continues to stress that its inflation targeting policy is both symmetric and flexible: meaning that interest rates could rise or fall if inflationary pressures deviate from their target range. Considerable attention is currently being paid to yields in the bond market. 6
In a normal economic environment, bond yields rise with the length of term to their maturity and are, in particular, higher than yields in the short-term money markets. This pricing behaviour reflects a premium paid for the rise in uncertainty inherent in a long-term bet on economic performance relative to the near term. This argument is reversed when short-term rates exceed longterm bond yields. This is referred to as an inverted yield curve and reflects a prevailing view by markets that nearterm economic performance is likely to be significantly worse than anything that they could expect over the longer term. The yield curve in Canada is expected to be flat in 2019 and 2020 with rates for both 3-month Treasury bills and 10-year Government of Canada bonds remaining at 1.65 per cent in both years.
averaged US$0.77 in 2018 and is forecast to depreciate to US$0.75 in 2019 and 2020. The value of the Canadian dollar, however, remains vulnerable—both on the up- and downside—to shocks in commodity prices, U.S. and domestic public policy and other global events. Notably, the federal government continues to support the securitization of equipment and vehicle lease and loan portfolios through the Funding Platform for Independent Lenders (F-PIL) programme. The programme is a publicprivate partnership between the Business Development Bank of Canada (BDC) and TAO Asset Management. It provides funding on commercial terms and on a match fund basis to independent small and medium-sized finance or leasing companies that extend financing for vehicles and/or commercial equipment.
Asset-based market changes New business activity in 2018 was led by the fleet vehicle market, which grew 5.7 per cent, followed by the market for M&E (excluding commercial vehicles) at 3.3 per cent. However, the retail vehicle market was limited by the decline in units sold to 1.4 per cent. As a result, total assets financed rose 4.6 per cent in 2018 to $416.2 billion: down from the 6.1 per cent growth of the year before.
Asset-based Finance Market in Canada Millions of Dollars 2018 2017
% Growth 2018 2017
Total Finance Assets Machinery & Equipment Market Fleet Vehicle Market Retail Vehicle Market Equipment & Commercial Vehicles Total Vehicle Market
416,180 72,580 43,133 300,466 115,714 343,600
397,752 74,466 39,827 283,460 114,292 323,286
4.6% -2.5% 8.3% 6.0% 1.2% 6.3%
6.1% -3.4% 10.0% 8.3% 0.9% 8.5%
Total New Business Machinery & Equipment Market Fleet Vehicle Market Consumer Vehicle Market Equipment & Commercial Vehicles Total Vehicle Market
129,481 19,391 13,990 96,100 33,381 110,090
128,074 20,044 13,230 94,800 33,274 108,030
1.1% -3.3% 5.7% 1.4% 0.3% 1.9%
7.4% 0.8% 5.8% 9.1% 2.7% 8.7%
Source: Canadian Finance and Leasing Association, DesRosiers Automotive Consultants Inc.
As a major producer of oil, the Canada-U.S. exchange rate often tracks the price of oil quite closely, but uncertainty over global trading relationships is fuelling volatility in currency markets. The Canadian dollar
CANADIAN EQUIPMENT FINANCE | Fall 2019 | canadianequipmentfinance.com
The rapid growth of new light vehicle sales in Canada following the 2009 financial crisis came to a halt in 2018 as rising interest rates, rising prices and the dearth of new drivers combined to slow unit sales by 3 per cent. DesRosiers
CFLA report Automotive Consultants expects sales of new light vehicles to slow again in 2019 before possibly rebounding in 2020. Conversely, the fleet vehicle market segment has performed well since 2009. The fleet share of total new vehicle sales has recovered from a financial crisis low of 12 per cent to about 17 per cent, which is similar to its share from 1997 to 2006.
Finance penetration to recover Estimates of equipment and commercial vehicle new business activity in 2019 were generated using PMG Intelligence’s 2019 survey, Paynet’s Canadian Equipment Lending Index, the CFLA’s inaugural Business Confidence Survey and from DesRosiers Automotive Consultants for the consumer and fleet vehicle markets. The finance penetration rate for equipment and commercial vehicles is derived as the share of new business in that segment divided by Statistics Canada’s public and private investment spending intentions survey. In 2018 the penetration rate slipped to 39 per cent
Canadian Asset-based Finance Market Penetration Rates
2019 F
Equipment & Commercial Vehicles New Business Spending on New Machinery & Equipment Finance Penetration Rate Consumer Market New MV Sales (units) Lease Loan Lease Penetration Rate Finance Penetration Rate
2018
2017
35,222 87,723 40%
33,381 86,676 39%
33,274 83,223 40%
1,588,954 612,000 845,000 39% 92%
1,622,748 605,000 881,000 37% 92%
1,689,205 622,000 931,000 37% 92%
Source: CFLA, Statistics Canada, DesRosiers Automotive Consultants Inc.
Note: this table excludes consumer purchases of used motor vehicles (MV).
from 40 per cent in 2017 but is expected to recover to 40 per cent in 2019. The penetration rates for the consumer new motor vehicle sales segment are based on units sold (the dollar value ratios are very similar to those for the units). New leasing business for new and used retail vehicles is forecast to reach $27 billion in 2019 from $26 billion in 2018. While the lease rate on new vehicles is still below the 2005 peak of 45 per cent it is rapidly approaching that level. The lease
penetration rate remained at 37 per cent in 2018 and expected to be 39 per cent in 2019. The overall share of new consumer vehicles financed is relatively constant at just over 90 per cent. Note: This Annual Report presents the highlights of the Canadian Market Survey 2018-2019. A more detailed version is available to CFLA members on its web site (www.cfla-acfl.ca). Robin Somerville is president, Quantitative Economic Decisions, Inc. (http://qedinc.ca).
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Dan Ciuriak, director and principal, Ciuriak Consulting Inc. and Fellow-in-Residence with the C.D. Howe Institute.
The future with CUSMA By Brendan Read
he Canada-United States-Mexico Agreement (CUSMA), also known as the USMCA will, when, (but increasingly looking like ‘if’) ratified, provide a renewed foundation for trade between all three countries. CUSMA is to replace the North American Free Trade Agreement (NAFTA). CUSMA was signed by Prime Minister Justin Trudeau, U.S. President Donald Trump and Mexican President Enrique Peña Nieto on November 30, 2018. Yet to date only Mexico has ratified it, by the Senate, on June 20, 2019. In the U.S., the new trade agreement has been buffeted by strong political divisions between a Democratic-controlled House
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of Representatives and a GOP-controlled Senate, with looming elections next year. In Canada, it also became an issue in the run up to this fall’s federal election. To understand the impacts CUSMA will have on Canada’s asset finance industry, and what lies in store for the agreement, Canadian Equipment Finance interviewed Dan Ciuriak, director and principal, Ciuriak Consulting Inc. and Fellow-inResidence with the C.D. Howe Institute (www.cdhowe.org). Dan specializes in international trade, finance and development. He has written several papers recently on CUSMA for the C.D. Howe Institute.
CANADIAN EQUIPMENT FINANCE | Fall 2019 | canadianequipmentfinance.com
Canadian Equipment Finance (CEF): What will be the effects of CUSMA, as signed, on the industry? Dan Ciuriak (DC): There is a modest degree of improvement in financial services market access in terms of new time limits for assessments of applications for letters patent in starting up a new financial institution. There is also greater certainty concerning the future regime for data transfers across borders. Although the scope for “legitimate” regulation of data remains highly unclear, in particular as regards what restrictions and regulations will be deemed necessary for national security in the “backbone” economic infrastructure areas: transportation, communications,
Courtesy C.D. Howe Institute
Market Report
Market Report energy and finance. Also, in addressing issues related to privacy and safeguarding election integrity. CEF: Will CUSMA be a superior or an inferior agreement as compared with NAFTA for this sector and why? DC: From a regulatory and a market access perspective, the asset finance sector should feel no palpable difference. But from the perspective of the dynamism of the economy that the sector serves, the agreement is inferior in our estimation. This reflects the design of the CUSMA’s rules of origin for the automotive and heavy industry sectors, which is intended to drive increased trade diversion towards the North American market. This, in turn, implies less efficiency in the North American economy as a whole and thus lower real economic activity. Although the rules of origin primarily affect the industrial sectors, much of the reduction in real growth will flow through to the services industries based on our analysis, which shows the financial services sector in Canada absorbing about US$2.5 billion in reduced revenue. Slower domestic economic activity far more than offsets some increase in export earnings. CEF: Drilling into the specifics, what impacts would CUSMA have on the market, cost and features of personal, fleet and commercial vehicles? For marine, rail and transit? For construction equipment? For industrial equipment (e.g. agricultural, fishing, forestry, manufacturing, mining, oil/gas extraction)? DC: The primary sectors are minimally affected and the heavy industry sectors (chemicals and metals) are favoured by the agreement. Industrial equipment supply for these sectors is thus unlikely to be impacted to any significant degree, positively or negatively. Manufacturing is only modestly impacted due to the lowered overall demand. Where the income reduction implied by the CUSMA does bite, however, is in the transportation and construction sectors, which will see weaker demand and thus reduced revenues. Transportation might also be
affected by the commitments for stricter enforcement of rules of origin (which are partly motivated by the U.S. desire to ensure that Chinese products or inputs do not enter the U.S. market indirectly); stricter enforcement implies thicker borders and higher border transit costs. CEF: What effect will the new agreement have on residual values? DC: The new trade arrangements for North America feature greater uncertainty about future market access, which might factor into financial risk calculations and thus into structured finance arrangements. This heightened uncertainty reflects the new “sunset clause”, which puts longer-term planning at increased risk of future change. Also, that the new agreement does not eliminate the application of unilateral protection tools that the Trump Administration has dusted off and applied vigorously: e.g. the Section 232 “national security” tariffs. How much weight the market will actually put on this remains to be seen. Particularly as the heightened risk in the North American market context has to be evaluated in light of the still greater increase in uncertainty surrounding global market access due to the escalating disruption of the trade regime instigated by the Trump Administration.
Hold ups, possible changes CEF: We understand that the U.S. Congress is holding up CUSMA. What changes is it seeking to make? What impacts would they have? DC: The main issues that have been raised by U.S. Congressional leaders concern the labour market measures and enforcement mechanisms for the labour and environmental commitments. These concerns are unlikely to have any implications for asset finance. CEF: In the event that Congress insists on these changes, would you expect, in turn, any changes to CUSMA in Canada? And if so, what might they be if the Liberals are returned to power? If the Conservatives form the next government? DC: Any changes that arise because of
Congressional concerns are likely to affect Mexico rather than Canada. It is hard to see this being a source of partisan divide in Canada. That being said, should ratification die on the order paper in Canada before the election, it should be borne in mind that, as Conservative opposition leader, Andrew Scheer criticized the agreement as failing to defend Canada’s interests. Whether a Conservative government would seek to re-open the agreement given the chance is thus also a potentially open question. CEF: What happens if CUSMA is not ratified? DC: In the first instance, nothing happens. President Trump has threatened to withdraw from NAFTA in order to put pressure on Congress to ratify the deal, but he has (to date), not done so. So, NAFTA remains in force as a backstop. In the second, the best of all outcomes for Canada is that CUSMA fails and Congress blocks NAFTA withdrawal, leaving the status quo in place. It is difficult to see any implications for the asset finance industry, however, apart from how markets will evaluate risk associated with future market access.
Advice to industry CEF: What you be your advice to lenders, lessors, owners and lessees facing such uncertainty and potential outcomes? DC: The main issue that emerges from our evaluation of this new agreement is the rise in uncertainty about future access to the U.S. market. For companies making long-term commitments based on such access, from whichever side of the deal—lessor versus lessee or lender versus borrower—this means paying greater attention to asset risk management. Stepping back and looking at the broader global context, Canada’s trade diversification push is likely to continue, meaning greater focus on the Pacific Rim and the European Union in particular. Companies will be looking to hedge their own risk by diversifying their client base; the asset finance sector should be prepared to support this.
canadianequipmentfinance.com | Fall 2019 | CANADIAN EQUIPMENT FINANCE
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Technology
Robotics
Financing robots By Brendan Read
obots are taking over the world. Just ask Alexa, or any other virtual assistant. Or when you get into your car: a fair amount of it has been built by their assembly-line “cousins”. According to the Robotic Industries Association (RIA) (www.robotics.org), part of the Association for Advancing Automation (A3), there are over 250,000 robots in use in the United States, the third highest in the world, behind Japan and China. The RIA reported that a record number of robots—35,880 units—were shipped to North American companies in 2018, a 7 per cent increase over that in 2017. The growth of robotics has continued even in the face of mounting concerns about the resiliency of the economy. In the second quarter 2019 alone, North American companies ordered 8,572 robots, valued at $446 million. This represents a growth of 19.2 per cent in number of robots ordered, and a 0.6 per cent boost in dollars compared to the same time period in 2018. “Robot use continues to grow, which
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is helping make U.S. companies more competitive and leading to new job growth,” said A3 president Jeff Burnstein. “We are currently experiencing the greatest period of robot expansion in history—over 180,000 robots have been shipped to American companies since 2010—and more than 1.2 million new manufacturing jobs have been created during this time.” Robots have also been marching beyond the realms of automotive companies and large global businesses, which have been their first and heaviest adopters. The RIA reported a 41 per cent growth in shipments to non-automotive companies, notably food and consumer goods, plastics and electronics. “We are quite pleased to see other industries continuing to realize the benefits of automation,” said Burnstein. “Small and medium-sized companies are [also] using robots to solve real-world challenges, which is helping them be more competitive on a global scale.”
Industry impacts But what are the implications for
CANADIAN EQUIPMENT FINANCE | Fall 2019 | canadianequipmentfinance.com
the equipment finance industry? The Equipment Leasing & Finance Foundation (The Foundation) (www. leasefoundation. org) commissioned The Alta Group to find out. Its findings were published in a study, Robots, Cobots and Finance, released in February 2019. The Foundation study, citing IDC analysis, revealed that robotics is moving towards intelligence and autonomy, enabled by advances in artificial intelligence (AI), machine learning, in hardware like sensors and central processing units (CPUs) and in software and services. As a result, robots are beginning to learn and adapt to new information and report and self-diagnose problems. Robots also are now being expressly designed to work with people i.e. cobots, such as for feeding items into other processes, lifting and pick-and-pack operations. Together these developments
Technology
are broadening the robot market. “The convergence of robotics, artificial intelligence and machine learning are driving the development of the next generation of intelligent robots for industrial, commercial and consumer applications,” the study quoted Jing Bing Zhang, research director of robotics at IDC Manufacturing Insights. “Robots with innovative capabilities… [are] driving wider adoption of robotics in the manufacturing and resource industries and enabling new uses in healthcare, insurance, education and retail.” These factors are driving the demand for robots, providing more profitable use cases for user businesses, but also for financing companies. The high capital costs will require all but the largest companies to seek outside resources to make these purchases. But it isn’t just hardware companies are buying. Increasing sophistication is accelerating the growth of markets of software and services, both of which can be sourced in the cloud on a subscription basis. Moreover, rather than as a capital
expense, albeit one that increases productivity and reduces overall costs, robots can now provide a potential supplemental revenue stream, said the Foundation study. This is derived from the data the equipment obtains through their sensors. This is opening the door for more managed solutions transactions (MSTs) that combine robotic hardware, software and collected data. “At the end of the day, the real question is whether robotics will increase financing volume, or will these gains be offset elsewhere as robots replace standard equipment operated by human workers?” asked the study. “The jury is still out on this issue, but Alta’s research indicates that, while changing job demographics, increased robotics utilization will not be dilutive, as the new jobs and businesses being generated through adopting robots will generate more, rather than fewer, financing opportunities.”
Moderate/low risk factors As with other advanced equipment, like industrial automation, increasingly sophisticated robots raise the asset risks.
These stem for technology, including autonomy, programming and data ownership, which vary depending on the application and market. Even so, the risks with robots are moderate to low, said the Foundation study. Here are, in summary, the key risks: ◉◉ Credit. Robotics does not by itself change transaction risks. But like other advanced equipment factors, such as MST use, technology changes that impact residual values and size of the buying business will change credit risks. “An entity that seeks to finance robotics…should not need to adjust its credit policies and processes because it is financing robotic equipment”; ◉◉ Legal. The key issue is vicarious liability as a result of human interaction with robots. But this is no different, fundamentally, from other equipment. Having national standards may be the only answer to avoid injuries and large damage awards. “If there are adequate regulatory safeguards in place, lessors are likely to protect themselves in the same manner as before, even with the possibility of increased claims”;
canadianequipmentfinance.com | Fall 2019 | CANADIAN EQUIPMENT FINANCE
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Technology ◉◉ Regulations. There are regulatory efforts underway in the U.S. that are primarily focused on human worker interaction safety. These include, potentially, safety and licencing standards and insurance requirements. But they may also include job protection. Licencing restrictions may eventually be extended from operators to repair and maintenance providers “due to the sophistication and complexity of the equipment”; and ◉◉ Residuals. The key considerations are increasingly the cutting-edge technology and high reliance on the software. Changing and disruptive technologies also can change the value. And finding expertise to make those valuations can be challenging. At the same time the rise of integrating robotics into MSTs “makes it hard to strip out the asset and limits residual plays.” “There will be increased regulation of robotic equipment, and these regulations may impact the growth of robot utilization,” noted the study. “Any impediments to equipment growth always affect financing opportunities but, for the various reasons discussed, the increased regulatory risk of financing robotics has been deemed moderate.”
Industry Segment Opportunities Financing Volume High
M A F
O Asset Risk Low
High Legend: A - Agricultural M- Medical
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F - Materials handling O - Other
I - Industrial T - Transportation
Source: Equipment Leasing & Finance Foundation
Industry Impacts Risk
Comments
Agriculture
• Significant technology raises residual issues • Robot swarms may replace higher cost equipment • Data is an important element, creating ownership issues • Follow the leader models may increase volumes
Healthcare
• Significant vicarious liability issues • Large market for assistance robots • High capital cost, leading to financing opportunities • Incorporation into managed solution transactions
Industrial
• Significant programming costs raise residual issues • Slowing growth, although spending is expected to continue to rise • Opportunities parallel the machine tool industry
Material handling
• High capital cost, leading to financing opportunities • Continued new investment expected, especially in upgrades • Technology raises residual issues
Transportation
• Opportunities created by labour shortages • Platooning and caravanning create new business models • Full autonomous adoption (maximum opportunities) is decades away • Declining rates of ownership, creating shift to larger customers
Opportunity segments The Foundation study examined five target industries—agriculture, healthcare, industrial, material handling, and transportation—plus an other category that included exoskeletons, nanobots, military applications and robotic process automation. The types of robotic assets, their characteristics and level of autonomy and their impact on the leasing and finance industry were examined. “The primary conclusion drawn from this examination is that there are substantial financing opportunities in each of the primary industry segments analyzed,” said the study. The study also evaluated growth potential of each industry segment, relative to the asset risk involved. No matter the segment there will be opportunities for equipment financing firms that will move into them quickly
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Source: Equipment Leasing & Finance Foundation
become industry leaders. Those businesses with asset management skills with the rise of MSTs into robotics will be well placed to take a dominant position. “Robotics are going to be a part of the change in how business is conducted in
CANADIAN EQUIPMENT FINANCE | Fall 2019 | canadianequipmentfinance.com
the future,” concluded the Foundation study. “Manufacturers and end-users certainly are being forced to recognize this truth. Consequently, so will the equipment leasing and finance industry if we are to continue to creatively meet the needs of our customers.”
Technology
Robotics
Who owns the data? By Brendan Read
ata is money. It can be used to sell, cross-sell and upsell, like for equipment, add-ons, repairs, service plans and lease renewals. Data also can be sold to third parties. The growing popularity of the Internet of Things (IoT), which collects vast quantities of valuable data from equipment, including robotics, has raised the question of data ownership, including: ◉◉ Which entity owns the data, under either loans/borrowing, including against the assets, and leasing?; and ◉◉ How is that data valued and figured into the pricing of technologies like robotics and in the residuals? Or is this data-as-a-service?
D
These questions were posed to the Equipment Leasing & Finance Foundation (The Foundation) (www.leasefoundation.org), which published a study, Robots, Cobots and Finance (see related article). They were answered by Paul Bent, senior managing director, The Alta Group, (http://thealtagroup.com), which researched and wrote the study, on behalf of the author team. “The issue may be addressed by distinguishing between performance data and usage data. “Performance Paul Bent, senior managing director, The Alta Group. data are generally the details and information concerned with the performance or operation of the device itself. That is, the indicators of underlying processes, statistics regarding wear and erosion or dissipation of physical components, measurements of efficacy and reliability and similar performance indications. “Usage data, on the other hand, are generally measurements of the extrinsic activities carried out by the device in
conducting its intended purpose. Like measuring: ◉◉ How many widgets an assembly line robot rivets per unit time; ◉◉ Tracking where an autonomous vehicle goes in reaching its intended destination; and ◉◉ Measuring how effective an agricultural robot is by counting the number of tomatoes it picks in an hour and how well preserved the harvested crops are when they arrive at a warehouse or silo. “Although we did not emphasize this distinction in our study, I think it was inherent in some sections of the text,” said Bent. “For example, on page 7 we note that a ‘potential offset to [concerns over costs] is the monetization of the data collected by advanced robots.’ In the same section we go on to say that a ‘primary feature of new generation robots is the increasing use of sensors that capture data that can be used to create supplemental revenue sources,’ meaning supplemental to the specific intended use of the device. Bent added, “In another context, on page 28 of our study we note that ‘investment capital is being applied to efforts to monetize the plethora of data created by the sensors so critical to most robotic applications.’”
Distinction examples “Although clearly not a ‘robot’ by nature, a modern aircraft jet engine offers a good example of this distinction,” said Bent. “Some engines now include several dozen sensors that provide continuous readings of engine activity: rather like a prototype for the IoT that is becoming more and more widespread. “The manufacturer of the engine, and for that matter the lessor if it is leased, may find such data very useful in analyzing rates of wear of component parts, likely useful lives of rotating elements, and many other such details.
We would characterize such items as performance data: providing information regarding how well the engine is doing its job and is likely to do it in the future. Examples of usage data in this context would be how many cycles and hours the engine has logged, what aircraft type it is powering, what load factors and other flight details are related to it, what is its fuel efficiency or how much time is required to take it off wing. “Perhaps a more ‘robotic’ example would be an autonomous vehicle. Performance data are essential to understanding and tracking how well it stays in lane, how accurately it parks or makes left turns and what its accident record is over time. Usage data may include how positively (or negatively) passengers respond to it, how many trips it may make to a certain destination in a certain amount of time, how long it can sit at idle before it must be taken out of service for a recharge and how big a load it can carry at various charging levels.”
Allocating ownership “As for allocating ownership of all these data, although we did not study or address that particular question our view is that ownership pretty much follows the type of data involved,” said Bent. “As noted above, performance data would seem inherently to be the ‘property’ of the owner of the device, whether that is an original user or a third-party owner/ lessor (or even a manufacturer under a form of data sharing agreement for purposes of assessing the operation and/or maintenance of the device). “Usage data, on the other hand, would seem to be in the province of the party who is paying for the actual use of the device. In our case that would be the lessee or operator, that has arguably acquired the right to such data by virtue of its ‘quiet enjoyment’ and revenuegenerating rights under a lease or loan agreement.”
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Technology
Servitization
Servitization to supplant ownership? By Brendan Read
raditional ownership of assets and financing for notably automotive, office equipment, healthcare and agricultural products may soon become obsolete, tossed into the recycling bin. In its place will be product-as-aservice, or pay-per-use assets, also known as servitization. Servitization is an alloy of changing customer preferences to an on-demand model, like for software and consumer products with new technologies, such as telematics and the Internet of Things (IoT) and practices. It expands on leasing by being open-ended, removing the fixed terms and the requirement to turn in the equipment at the end of the period. Asset finance technology company White Clarke Group (www.whiteclarkegroup.com) released a report, Focusing On Customer Outcomes Through Servitization 2019, in partnership with the Aston Business School’s Advanced Services Group, that examined the depth, expansion and implications of the model. One that is outcomes-based (like processing raw materials, moving earth, reaping crops, fulfilling orders, transporting people and goods and diagnosing patients) rather than product-based (owning or leasing). Servitization has disruptive implications across the asset finance markets, but also the manufacturing and distribution industries, including dealerships. It presents new opportunities for all players, including independent finance companies and FinTechs. It also promotes and supports “going green” by minimizing having to create new products and reducing the waste stream by extending the life of and reusing products that also appeals to customers.
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“There can be little doubt that customers are increasingly attracted by the prospect of paying to use, rather than paying to own, certain assets Brendan Gleeson, Group [with servitization]. CEO of White Clarke Group. Correctly formulated service-based models of finance are much more likely to meet their needs,” said Brendan Gleeson, Group CEO of White Clarke Group, in the introduction to the report. “On the other hand, the transition to services also brings significant complexity for pioneers, who will need to acquire new skills and learn to manage new types of risk. [But] the return for those who acquire those skills quickly promises to be great.” “Companies in the asset finance sector have traditionally competed on product, price or total solution,” added Tim Baines, Aston Business Tim Baines, Aston Business School’s professor School’s professor of of operations operations strategy and strategy and executive director of the Advanced Services Group. executive director of the Advanced Services Group. “With servitization, there is a growing focus on customer intimacy and on providing the customer with the capability to achieve an outcome.”
Elements of servitization White Clarke Group defines servitization “as a conscious strategy to merge manufacturing and integrated services, offering to provide value-
CANADIAN EQUIPMENT FINANCE | Fall 2019 | canadianequipmentfinance.com
driven outcomes that are both scalable and resilient. This can include auto subscription services offered on a pay-per-mile basis, medical equipment where assets such as scanning machines are leased on a pay-per-scan basis and robots on production lines offered as pay-per-pick.” The report said the move to servitization will require manufacturers to shift away from only offering traditional services, such as overhaul, parts and repair, to advanced services that focus on ensuring outcomes. But to do that companies have to explore new business models that incorporate the following three elements. 1. Changing customer expectations. Business customers are seeking value for money, greater flexibility, simplicity, a seamless one-stop offline and online omni-channel shop, transparency, security and compliance as well as peace of mind. They are focusing on their core business activities. Additionally, driven by growing consumer concerns about environmental sustainability, they are looking for societal and brand benefits. 2. Drivers for manufacturers. Many manufacturers now recognize that focusing only on product-led strategies risks missing out on the opportunity for much greater growth. Servitization could provide them with new additional greater and more consistent sources of revenue and profits. There are opportunities for these businesses to increase service revenue penetration, tap second and third life resell/re-lease markets and to improve customer retention, including better understanding of and predicting their needs.
Courtesy White Clarke Group, with kind permission of the Advanced Services Group.
Technology
3. Increased focus on environmental issues. Customers are increasingly seeing and want to see the economy move from a linear economy (make/use/ dispose) to a circular economy, where products are reused or redeployed. Servitization enables this change by altering the dynamics of the trade cycle, potentially removing the triggers for replacing older assets.
and re-use and end-of-life asset harvesting. Finally, manufacturers need self service customer and partner interfaces. “Collaboration is key to [servitization] success, not competition,” said the report. “A partnership approach with different entities working in an ecosystem will be the most likely model to succeed in many sectors.”
Manufacturers that are accordingly focused on servitization can make their products easier to repair and upgrade by using modular designs. It will also require them to invest in new technologies, including sensors and telemetry i.e. IoT-enabled smart assets and to connect with high-bandwidth e.g. 5G networks. These companies must also have the ability to consolidate and integrate asset-related disparate data sources and to disintermediate solution offerings and re-bundle them efficiently and cost effectively. They must incorporate micropayment capabilities, along with more flexible billing solutions. At the same time, manufacturers must focus on and offer product lifecycle management services to ensure that the assets remain in optimum condition. This will enable product redeployment
Risk factors For the added benefits, servitization does pose additional risks to manufacturer (or reseller) lessors. These include: ◉◉ Added financial risk, from having to generate significant working capital as a result of not being paid in total and upfront for the products; ◉◉ Legal and regulatory risks, such as from bundling heavily regulated services like insurance: which manufacturers may not want to take on. The report said that as a result customer contracts may have to be rewritten; ◉◉ Operational risk, from likely, level of and nature of asset usage; and ◉◉ Partner risk, from with integrating the partners within the manufacturers’ systems. Manufacturers would be taking on the partners’ performance and step in should a partner go out of
businesses “or face reputational risk”. Manufacturers also may run the risk of competing with their captives and with their distribution channels for customer ownership and loyalty. Servitization’s outcomes-based approach goes beyond leasing because there is no defined period of equipment use. But for that reason, the report pointed out, accounting rules may not see it as a lease and instead they may treat it more like a daily rental. Servitization is ahead of the regulators; it does not neatly fit into the current definitions, which will have to catch up to it.
Industry impacts The White Clarke Group report identified servitization’s market impacts on key industry players. Manufacturers. Companies in competitively intense markets and facing product commoditization could use it to increase margin. Meanwhile those that are in mature markets are seeing it as new ways to grow the business. Manufacturers and service providers are providing solutions that mix both new and used equipment, which, the report said, “provides an outlet for second life
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Technology equipment, extending effective asset lives and lowering overall carbon footprint of production as well as reducing natural resource requirements.” Captives. Manufacturer captive finance providers may shift their focus from finance towards sales, customer loyalty and new models of asset usage and the provision of services. “Captive finance providers are well placed to exploit the opportunities presented by servitization,” said the report. “They have many strengths which they can leverage to deliver these new services including, long term customer relationships, detailed knowledge of the industry and the assets and with the OEM [original equipment manufacturer], access to customer and asset data.” Banks. Banks may be unwilling to compete for servitized equipment financing. Servitization now requires them to also understand usage and performance risks. Complicating the matter further is the unresolved question of who will own these new types of risk. “It will be difficult for banks to manage and quantify such risks in their current processes and risk management committees,” noted the report. Instead, banks may concentrate on providing funding and managing credit risk. They “may also have better
credit ratings and access to lower costs of funds that can be leveraged by the manufacturer. Additionally, banks may have spare systems capacity that the OEMs can also take advantage of at a competitive cost.” Independents. Servitization offers an opportunity for independent financiers to serve smaller businesses that lack the access to finance this new model, supported by the democratization of data. But they will need to develop knowledge of the asset and the industries. FinTechs. The opportunities for FinTechs lies in traditional financial institutions being constrained by legacy systems, regulatory worries and resistance to change that prevent them from developing internal servitization solutions. “The traditional full service software solution market designed for funders offering a range of finance services to meet all the needs of specific customer with exclusive use by one financier is ripe for disruption,” said the report. FinTechs can nimbly develop attractive unique offerings that focus on the customer journey that cannot be commoditized. But it will require “access to strong and flexible systems that can access the relevant equipment data and measurements and to be able to combine this with flexible asset level billing.”
Next steps The White Clarke Group report, while comprehensive, noted that there is still more research that needs to be undertaken into servitization. These include understanding the financial impact (working capital requirements revenue recognition), on the legal impacts (understanding taxation and establishing contracts for partners and customers) and on pricing. There also needs to be an examination of the effect on dealers. Servitization may entail business process re-engineering: identifying the opportunities to use new technologies, such as artificial intelligence (AI)-based machine learning. Finally, further research is needed into organizational culture from sales to service. The report pointed out that organizational cultures are hindering the needed technology changes to enable the shift to servitization based models. “As with many changes affecting the industry at present, we recognize that technology lies at the heart of servitization,” said Gleeson. “We are at the start of the servitization journey and have identified a number of pathways for additional related research to deepen our understanding of the impact, issues and opportunities afforded to us all by servitization.”
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CANADIAN EQUIPMENT FINANCE | Fall 2019 | canadianequipmentfinance.com
Technology
Cloud Computing
Why ascend to the cloud By Travis Melchior
cautious approach to technology is understandable. You don’t want to risksensitive customer information falling into the wrong hands simply because you jumped onto a new trend too soon. Security is a major concern for both small and large lessors alike. Before embracing new technology, it’s understandable you want to make sure it’s been tested and proven in the marketplace. Just make sure you are not waiting too long. While new technology brings new challenges, taking the “sit and wait” approach can leave you too far behind your competitors. One of the biggest technology trends in our industry is cloud-based computing and software services. Instead of purchasing expensive licencing packages to host a software platform on your own servers, cloud computing gives you access to world-class technology with a simple Internet connection. There are no installation costs, while maintenance and security are handled off-site by your vendor. Citing a recent survey done by LogicMonitor called Cloud Vision 2020: The Future of the Cloud, Forbes.com notes that 83 per cent of workloads by enterprise companies are predicted to be cloud-based by 20201. You are certainly aware of cloud-based services for things like online shopping, watching TV shows and movies and even sharing documents. Standard software platforms like Microsoft Word, Excel and PowerPoint are also now being hosted in the cloud. More and more, this technology is growing well beyond consumer use and is actively sold to many business-to-business (B2B) companies. That’s because cloudhosting allows B2B service providers to gain significant operational efficiencies with a lower upfront cost, while giving them the agility to scale quickly without
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further infrastructure costs. Utilizing a subscription-based pricing model, businesses only pay for what they need in terms of server space and functionality. Cloud technology is growing rapidly here in Canada. IT World Canada reported recently the opening of a second Amazon CloudFront location in Toronto, Ont. This expands CloudFront’s presence to 187 locations worldwide2. Microsoft launched its cloud service, Azure, to the Canadian market in 2016, the publication also reported. When asked about how many existing customers were moving to their new data centres, the (now former) president of Microsoft Canada, Janet Kennedy, didn’t give specifics, but said, “The demand here in Canada is very high.”3
Cloud benefits Cloud technology allows you to meet these rapidly changing expectations better than ever. It allows you to access your system from anywhere you have access to the Internet. You no longer have to wait until you get back to the office. You can update contracts, review customer information and finalize new deals. Between mobile access and eSignature technology, you can do business with your customers wherever they are. Cloud hosting also lightens your company’s operational load. Instead of purchasing a full software package you essentially just plug-in and go. Server space and maintenance is handled by your software vendor, which means your software is being hosted and monitored by the people with the most expertise on that platform. Implementation is faster because you don’t have to spend your resources building new infrastructure. Your IT department is freed up to innovate better customer solutions and internal growth strategies. Additionally, having a hosted software platform gives you improved disaster recovery should a disaster strike. Your
business and your customers don’t have to suffer. Their data is stored offsite, and your operations can be back up and running in just the time it takes to find a new Internet access point. It’s literally like having your business in a cloud. Your business follows you wherever, and whenever, you need to be available to support your clients.
Industry adoption Cloud technology is gradually being adopted in the equipment finance industry. One of the reasons we are seeing more cloud-based services integrate into it is because consumers are becoming increasingly better at the technology. As LTi co-founder Randy Haug stated recently, “It’s really kind of what’s outside the industry that affects the industry.” Randy pointed out how FedEx changed delivery expectations when they started promising next-day delivery. Meanwhile companies like Amazon continue to promise Christmas-day deliveries with shorter and shorter ordering windows. “That sort of drives thoughts within the industry,” Randy continued, “which is: how do we do things faster, more productively and get the customers what they want in a shorter period of time? That has an effect on equipment finance.” For many executives, security remains one of the biggest hurdles to overcome in trusting cloud technology. Even though LTi has been hosting cloud-based services for over 12 years now, it’s still a fairly new technology in our industry. So, it’s natural to question whether your company is ready to invest in making the move. Yet security is one of cloud technology’s strongest selling points. That’s because software vendors like LTi, which offer cloud-based hosting solutions, typically have more resources available for ongoing security and up-to-date compliance requirements. You don’t have Continued on page 19
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Technology
eSignatures
Executing eSignatures By Aaron Seaton
he execution of legal and administrative documents within lending and asset-based finance is a common task, which can be especially voluminous in equipment finance transactions. These documents are important, but they often lead to massive back-and-forth activities between lenders, obligors and guarantors. One of the big reasons for this has been the necessity of obtaining traditional wet signatures. And whether a lease agreement, loan terms, personal guarantees or even pre-authorized bank debit agreements, the process for signing these documents with them can be frustrating and seem archaic in our fastpaced digital economy. In the asset finance industry these boil down to: ◉◉ Inefficiency. Any lender who has ever booked a loan or a borrower who has taken a loan knows how frustrating and time-consuming the process of signing transactional documents can be. First, a document needs to be printed in multiple hard copies. These documents are then sent by courier or mail to the borrower, who then signs, copies and sends them back to the lender for countersignature. This process can take days in some cases and is wasteful in terms of time and paper. This simple act is full of friction points, is frustrating for both sides and slows down the deployment of capital or equipment; ◉◉ Storage, recall and sharing. Wet signed documents require costly physical space to store originals, which often will lead to the necessity of off-site storage. This then makes the process of recalling the documents for review time-consuming and tedious. As well, to share copies of the documents with clients, legal counsel or other parties, they have to be scanned and
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then e-mailed and/or re-printed and mailed. All of this leads to more waste, additional manual effort and most notability, exposes sensitive information in an unsecure and unaudited way; and ◉◉ Competitiveness. Lenders and borrowers are trying to remain competitive in today’s fast moving, modern economy. To lenders, this means being able to gain an edge by providing the swiftest and most customer pleasing origination process as possible. While at the same time, borrowers will seek out and utilize financing options that are easy to use, and perhaps most importantly, get them the capital or equipment they need for their businesses into their hands rapidly. To accelerate the origination process and increase client satisfaction, many within the equipment finance industry are beginning to adopt electronic signature (“eSignature”) technologies, a methodology that has been embedded into other forms of lending long ago. But eSignature usage has been slow to scale as many people question how the technology works, the enforceability of digital contracts and how the technology can integrate into current systems and processes.
What are eSignatures? Before diving into eSignatures, it is important to ask what exactly is a signature? Quite simply, it is a stylistic visual representation of a person’s name, usually written using cursive handwriting. However, as anyone who has ever signed a bank cheque also knows, a signature means something much more. From a legal viewpoint, a signature (either handwritten or electronic) is a method to convey intent or knowing consent to a transaction. But the conveyance of intent could just as easily
CANADIAN EQUIPMENT FINANCE | Fall 2019 | canadianequipmentfinance.com
be implied with electronic code as it could be with paper and ink. With that being said, the form a signature takes is merely a matter of technology and is equally valid. What differentiates eSignatures from paperand-ink or scanned signatures is that a properly implemented eSignature solution incorporates evidentiary proof of authenticity into the final document. It provides all parties with an immutable record of: ◉◉ Identities of the signatories. The signatories have been confirmed to be who they say they are; ◉◉ Intent of the signers. The signatories explicitly indented to sign the document; and ◉◉ Integrity of the document. The document is authentic and valid. The technology behind eSignatures is a well-established ISO standard (ISO 32000-1:2008) and uses sophisticated electronic encryption to secure the integrity of the document using a “digital signature”. It is important to point out though that digital signatures are not the same thing as an eSignature, even though the terms maybe used interchangeably sometimes. Whereas an eSignature signifies the signer and the intent, the digital signature is the underlying encryption technology embedded within an eSignature document that ensures it is tamperproof after execution. This guarantees the immutability of the signed document and ensures it can be trusted and enforced. The eSignature process is simple to understand and begins with a requestor sending an electronic version of a document, package of documents to a signatory or group of signatories, for execution. The parties to the agreement then login to the eSignature platform and are authenticated, usually using an e-mail address and/or another mechanism of unique identity, such as
Technology an SMS text message with a code, where they are presented with the document(s) to be signed. Upon satisfaction of review, the parties can “click” to sign, and although it is not necessary to do so, usually affixing a digital representation of their cursive handwritten signature to the document. Once all the parties have signed, they are each provided a copy for their records. eSignature solutions also offer a methodology to securely store the document, thereby electronically vaulting them for future reference and to ensure that any applicable statutory retention requirements are easily met.
The Canadian legal landscape Both the federal and provincial governments have passed laws that recognize the legal effect of most types of eSignatures, subject to certain requirements in respect of authenticity and integrity. The laws at both levels of government in Canada have general characteristics that can be summarized as follows: ◉◉ eSignatures are functionally equivalent to handwritten ones and cannot be denied legal effect or enforceability solely due to their electronic form; ◉◉ The usage of eSignatures in Canada applies broadly to most contracts. However, not all documents may qualify for the use of eSignatures. Some exceptions include wills, trusts created by wills, certain powers of attorney (generally related to natural persons/individuals), negotiable instruments, conveyances of real property and certain court-related documents; ◉◉ The laws are generally not prescriptive about technical methodology in respect of the use of eSignatures and allow their implementation in a technologically agnostic way; and ◉◉ The same laws that govern eSignatures also generally provide that where a legal requirement provides for the provision or delivery of an original (or one or more copies) of a signed document, then the provision or delivery of an electronic equivalent would satisfy the legal requirement. It should be noted that the validity of
a contract is generally determined by the proper law of contract, which is a matter of provincial law. If an electronic agreement states that it is governed by the laws of a particular province, then that province’s eCommerce laws would apply. Generally, Canadian federal law has limited application in determining whether a contract is enforceable. While eSignatures are widely used and generally accepted under Canadian law, prior to implementation, equipment finance industry participants should consult with their legal representatives concerning their specific collateral types and the province in which they intend to use the technology.
How to implement The move towards eSignatures has already begun, and in many cases pioneering lenders have been using this technology for some time or are actively in the process of adopting it. If your lending business is beginning to take a look at this important initiative, some key factors for successful implementation are as follows: ◉◉ Seek legal counsel. It is vitally important to consult with legal counsel prior to deciding to implement eSignatures. Key considerations include collateral types, the provinces in which lending occurs and the adaptability of existing legal documents to this new process; ◉◉ Select a leading provider. There are many providers in the marketplace for eSignature technology, but only a few have a long track record and proven success within financial services. One can either work with these providers directly or with a lending system provider that has implemented out-ofthe-box integrations; and ◉◉ Embed within core systems. If the end goal of eSignature implementation is to obtain greater efficiency in the origination process, then integration into existing or new systems is vital. Embedded eSignature technology will allow for documents to be automatically populated, correctly identify signatories, initiate the signing ceremony and archive and store
fully executed documents for future electronic recall, without ever leaving the core lending system. eSignatures are becoming a critical component of the digital transformation of the asset-based financing industry. Lenders using traditional wet signature processes will gradually be less favoured as the technology becomes more widespread. By taking the right steps in adopting it your business will help your customers become your customers swiftly, efficiently and securely. Aaron Seaton is co-founder and CEO, TAO Solutions (www.taosolutions.ca).
Why ascend to the cloud Continued From page 17
to worry about whether your IT resources are keeping up with the latest security patches and software updates. The software vendor takes care of those things as part of their subscription service, so your IT team can focus on internal innovations. When you have the capital, resources and bandwidth to stay customer-focused, you are free to respond to their evolving needs. Being agile enough to observe and predict new financing options and best practices keeps your company relevant and ahead of the curve. When you lighten your operational load, you can focus on the kinds of innovations that increase your profits. Cloud computing allows you to do all these things and more. It may be a newer technology for equipment finance, but it’s a technology that is taking over business in almost every industry. Now is one of the best times to look at how cloud technology can help your business, and your customers, thrive in the new decade. The longer you wait, the more you risk. Travis Melchior is sales executive, Canada for LTi Technology Solutions (www.LTiSolutions.com). 1 Louis Columbus, “83% Of Enterprise Workloads Will Be In The Cloud By 2020”, Forbes, January 7, 2018. 2 Buckley Smith, “AWS opens second CloudFront edge location in Toronto”, IT World Canada, July 2, 2019. 3 Brian Jackson, “Microsoft begins rollout of Azure cloud services hosted in Canada”, IT World Canada, March 14, 2016.
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Management Strategy
Keeping the goodwill going
Source: JDR Solutions, Inc.
By Steve Leer
appy customers make for happy equipment leasing executives. Often that business bliss begins with the frontline customer service representatives who answer lessee phone calls and e-mail messages. Reps just like the seven Toronto, Ont. area women who work for JDR Solutions, Inc. The seven—Lesley Evans, Debbie Forbes, Andrea Medeiros, Sharon Miedema, Mary Mancini, Tina Ventura and Dale Barillari—juggle more than 350 inbound and outbound calls and e-mails each day for JDR, which provides back office services to the finance and
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leasing industry. The calls and e-mails come from JDR equipment lessor clients throughout Canada and the United States and run the gamut from questions about monthly payments to delinquency notices and to general lease finance information. It’s a challenging but important job in the high-paced world of lease finance. “Customer service means going above and beyond what it takes to make the customer happy,” said Mancini, “whether it is answering questions or listening to a customer’s concerns. We try to be as efficient and timely as we can and maintain a positive attitude.” The same is true of all who are the first points of contact with lessor customers.
CANADIAN EQUIPMENT FINANCE | Fall 2019 | canadianequipmentfinance.com
Critical role of technology Continuous improvement is an everyday goal for customer service reps. In a business climate where problem-solving often is measured in minutes, not hours, successful reps look for ways to work more efficiently. Even minor improvements in service practices can save time and, ultimately, money. Technology has played a big role in moving the efficiency needle forward. Customer service reps today must be equally adept at computer applications and old school postal mail, to meet the specific needs of every lessee who calls, writes or receives a payment notice. The JDR customer service/collections staff has seen its share of technology changes in careers that average 25 years
Management Strategy per team member. Work that traditionally was done in one central office is now done remotely at home. Which means no traffic or weather to worry about in getting to work on time, so that customers are not left on-hold. Digital records have replaced—for the most part— paper records. What once was kept in large file cabinets now fits neatly in a folder on a computer desktop. “The office has become primarily virtual,” said Forbes. “It allows for faster resolutions of customer issues.” One popular go-to software package of the JDR team is the Microsoft Office Suite, particularly its Excel spreadsheet programme. Excel is used to track customer inquiries and when and how those inquiries were met. The Internet and social media also have proven invaluable. Miedema utilizes the online platforms to skip trace companies and individuals whose addresses have changed yet have not notified JDR. “Nine times out of 10 we’re able to locate them and adjust their accounts accordingly,” said Miedema. “We’ve also used the Internet to locate personal guarantors who may have moved and didn’t advise us.” On the hardware side, more documents are scanned and transmitted by e-mail today than are sent to clients via fax machine. “Faxing has become almost obsolete,” said Medeiros.
Moving to portals Some processes haven’t advanced as quickly as others. One example is invoicing.
Many lessors still prefer mailing paper invoices to lessees despite the trend toward electronic invoicing. That leads to more manual labour.
and sales staff-centric portals as a value-added service. “Customers are constantly asking about the ability to pay online, which is where a portal comes in,” said
In the end, it’s all about keeping customers happy. “We spend an awful lot of time doing manual interventions to give the customer what they are looking for,” explained Evans. “That is the biggest part of my job right now. It’s probably 90 per cent of what I do.” Customers who ask that their invoices be structured differently than ordinary invoices sent to a company’s other lessees also can pose problems. “They may ask for information that we can’t add to our system to make it display on their invoice, or they want it broken down in a certain way by group or assets, and we’re not able to do that in the system without manual intervention,” she said. “The system cannot automatically produce everything some customers are looking for.” Medeiros pointed out that many invoice issues will be resolved as more lessors add payment portals to their web sites. A portal is a separate password-protected web page within a web site for authorized users. Most customer-dedicated portals allow users to check invoice histories, view their lease contracts, submit online credit applications and a host of other things, in addition to submitting payments. JDR builds both customer-
Medeiros. “Portals minimize the number of e-mails coming in asking for invoices, which often must be mailed to them. Customers complain that the mail is very slow and that they don’t have time to make the payment on time before they are assessed late charges. We offer to e-mail invoices to them to make the process quicker. We’ll do
what we can to help them.” Added Forbes, “With the addition of reseller and customer self-serve portal technology, it is much easier working with clients and customers, regardless of location, time zone or when they wish to do business.” In the end, it’s all about keeping customers happy. When it’s working right—as it usually is at JDR—both the customer and the customer service rep are pleased. “We rely on good communication and listening skills, and are patient as we assist each customer,” said Mancini. “It contributes to customer satisfaction, and that is our top priority.” Steve Leer is director of marketing and business development at JDR Solutions Inc. (www.jdrsolutions.com).
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Your Business
Referees of the Digital Age By Angela Armstrong
airness isn’t easy. It posits that fairness requires, in some form, a “referee”. So, I started wondering about fairness, and referees, in the digital age. Humans are fallible. But data (at least until it gets interpreted by someone) is arguably neutral. You’ve probably heard of Cambridge Analytica. That’s the consulting firm held responsible for the data mining work that allegedly influenced the 2016 U.S. presidential election. Its detractors accuse it of “unfairly” mining reams of personal data in order to target customized messaging and sway voter behaviours. But is that really “unfair”? Every voter may conduct independent research and should know that Facebook political posts, like the posts of friends who are always happy and on vacation, might be slanted toward hyperbole. Is it unfair of Cambridge Analytica to assess human nature and use it against us? Do we actually have our own free will? Facebook, gathering all the freely given personal data, in return for free use of their service, might have unfairly peddled that data for profit. (You can always opt out of Facebook). How independent we are as human actors is an inevitable component of the conversation around fairness. Technology has a bright shiny side and a dark murky side. Like the kissing cousins (or Siamese twins) of the Internet and the Dark Web. And fairness seems to altruistically favour the light.
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Fairness implies trust For a few weeks after Cambridge Analytica hit the newswires and evening shows, there was a flurry of Facebook account closings. I think it would be unironically “fair” to say Facebook boycotters felt their trust had been breached. And I think there was a lukewarm attempt by the government to act as a referee. 22
Fair treatment about our personal data is a fine balancing act between protecting our private information and the desire for wonderful, seamless customer experiences that we all crave. Fairness in this world, then, might boil down to transparency of motives, intentions and actions. Coming from the standpoint of a lender fairness might be that a borrower does what they say they are going to do. Fairness to that borrower might be that they are not unduly taken advantage of, as vulnerable or unsophisticated actors in the contract.
“AirBnB” the finance industry? Shared use platforms rely on a mutual, transparent rating system. Through a public “review” system, finance could keep risks down and predictability high, thereby giving borrowers low costs and lenders high reliability. Perfect! Sesame Credit, an Ant Financial entity collaborating with the Chinese government, is doing just this. Having the competitive advantage of a kind of data monopoly, they are using that to create a “citizen score”, thus conveying an individual’s personal “trustworthiness”, and access to products and services. (And I suspect there are no referees). It’s the Big Brother Orwellian, albeit served up on a smartphone, a future that we used to fear. Just who will get to dictate what constitutes “good citizenship”: and access to goods, services and capital? Even with AirBnB, occasionally you need to contact customer service: the referee for disputes. Referees are often considered intrusive by the private sector and necessary by the public: public regulations, policies and oversight are put in place to protect those who are vulnerable or lacking power. Like sports players and coaches who complain about unfair calls and slowing play, and fans who want the game played right, we love to yell at them, but we also, in our
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hearts, know the game could be messy without them. In a world where data is the new currency, we aren’t even close to sorting out the intricacies and risks of trading our data for frictionless experiences. But thieves lurk in the shadows like the Dark Web where fairness is nothing more than a commodity for sale. Transparency may better enable fairness compared with opacity. One of the biggest drivers of cost in the finance world is fraud. A transparent mutual data sharing platform might help both actors in the transaction sift out the duds from the indubitables. Maybe to effect a real evolution of lending, opacity (aka privacy) between the lender and the borrower HAS to go away. As a borrower, we’d have to be ok with the lender in that world might see where we go on holidays and what we spend our money on, instead of making our loan payment. Transparency could protect lenders and borrowers from unethical actors, reducing the increasing costs of fraud. The referee (say a consumer privacy legislator) might be working for more opacity on the consumer side of the transaction, not less, which works ironically at crosspurposes to what consumers say they want: i.e. faster, frictionless services. It’s all kind of messy. And even with tons of neutral data I don’t think we will get rid of the need for referees. Without a referee, in the world of data, the new frontier of trust is in the hands of the developers, the algorithm builders and the filter creators. How will we know if they got it right, and if the result is fair? In a data driven, FinTech future, who is going to be the referee, and if they do get a pair of eyes, what should they be watching? It’s a conversation that we’d better start having more of, because data ain’t going anywhere. Angela Armstrong is president, Prime Capital Group (www.pcclease.com).
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