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Winter 2018 • volume 6 • issue 4 | www.canadianequipmentfinance.com

Technology trends that shape and grow the industry

Market-altering innovations Why custom web portals Opportunities for SME lending PM40050803


contents Winter 2018 Volume 6 Number 4 Publisher and Editor-in-Chief Steve Lloyd steve@canadianequipmentfinance.com Editor Brendan Read brendan@canadianequipmentfinance.com

NEWS »4 Market Report

Creative Direction / Production Jennifer O’Neill jennifer@canadianequipmentfinance.com Photographer Gary Tannyan Advertising Sales Mark Henry mark@canadianequipmentfinance.com For subscription, circulation and change of address information, contact

subscriptions@canadianequipmentfinance.com

Publications Mail Agreement No. 40050803 Return undeliverable Canadian addresses to:

Circulation Department 302-137 Main Street North Markham ON L3P 1Y2 t: 905.201.6600 • f: 905.201.6601 info@canadianequipmentfinance.com www.canadianequipmentfinance.com Subscriptions available for $40.00 year or $60.00 two years. ©2018 Lloydmedia Inc. All rights reserved. The contents of this publication may not be reproduced by any means, in whole or in part, without the prior written consent of the publisher. Printed in Canada. Reprint permission requests to use materials published in Canadian Equipment Finance should be directed to the publisher.

Also Publishers of Payments Business www.paymentsbusiness.ca

14 The value of AI »16

Top 10 2019 U.S. equipment acquisition trends »8

Why custom web portals »17

Driving IoT-enabled GPS »9

Canadian Treasurer www.canadiantreasurer.com

Market-altering innovations »10

Contact Management www.contactmanagement.ca

Embracing digitalization »14

DM Magazine www.dmn.ca Financial operations www.financialoperations.ca

Understanding digital transformation »19

Management Strategy Opportunities for SME lending »21

Made possible with the support of the Ontario Media Development Corporation Ontario Interactive Digital Media Tax Credit

canadianequipmentfinance.com | Winter 2018 | CANADIAN EQUIPMENT FINANCE

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News

AR Canada 2019: focus on training By Bill Zadeits Auto Remarketing Canada (AR Canada) 2019, Canada’s used car conference, is taking place March 19-20, 2019 in Toronto, Ont. at the Westin Harbour Castle hotel. One of this year’s focus is training: including, but not limited to, dealer and sales training. Auto dealers will be privy to a full day of general sessions designed specifically to provide actionable takeaways for the many sales professionals that take the time to attend AR Canada. The event will kick off with AR Canada’s very first Dealer Training Tuesday. Dealer training can be key to sales success. But it often doesn’t come cheap, and it can be challenging to find the time get out of the dealership and/or run the risk of slowing business by inviting consultants and trainers to the premises. AR Canada is bringing some of the most well-known trainers in the industry together, so dealers can benefit from leading marketing insight from a variety

of experts: all in one place. Here is the lineup for Dealer Training Tuesday: ◉◉ Michael Cirillo, The Dealer Playbook. Michael Cirillo is the voice behind The Dealer Playbook podcast, which is listened to by retail automotive sales professionals in over 65 countries. Cirillo brings practical information from today’s top subject-matter leaders that is designed to assist in all aspects of the dealers’ life, from culture and leadership to sales and personal development; ◉◉ Alan Dickie. Alan Dickie, sales training expert and keynote speaker, is known for his ACE method (Attitude, Conviction and Energy). Dickie uses this philosophy to discuss topics like lead generation, social media, Internet lead management solutions, sales tips and video marketing; ◉◉ Jonathan Dawson, Sellchology. Automotive consultant Jonathan

Dawson, founder and president of sales training company Sellchology, follows the “Selling through Psychology” philosophy. This philosophy asserts a manager or salesperson who understands why something works is more motivated to do it and can adapt a technique to their selling style; ◉◉ Phil Sura, UnityWorks. Phil Sura is vice president of sales at UnityWorks which takes big data, adds customer intelligence and delivers relevant content to its clients through datadriven video experiences. Phil has brought his insight into the future of video for retail automotive dealers, including spearheading the creation of a VIN video walkaround product; and ◉◉ Samantha Cunningham Zawilinski, Potratz. The senior vice president of accounts at Potratz she will bring insight on big data and how to use it to your advantage in the dealership.

She will also provide information on other key developments including, but not limited to, social media trends and advertising compliance. AR Canada also features three full content tracks, offering workshops and general sessions in auto finance, retail and remarketing/fleet. The workshop lineup includes names like CARFAX Canada, TRADER Corp., Kijiji, Canadian Black Book, CarGurus and more. AR Canada brings together 500-600 attendees every year, around a quarter of which are comprised of franchised and independent dealers. It also hosts professionals from across the used car industry, including auction general managers, remarketers, consignors, auto finance professionals and digital marketers. For more information and to register visit https://arcanada. autoremarketing.com. Bill Zadeits is president, Cherokee Media Group.

ELFA announces 2019 business and professional development lineup The Equipment Leasing and Finance Association (ELFA, www.elfaonline.org) has released its 2019 calendar of events, which includes face-to-face conferences and workshops and web-based programmes. Continuing education credits are available for many of the offerings. Details about the 2019 lineup are included in the Schedule of Conferences, Workshops and e-Learning Opportunities, available at www.elfaonline.org/events/ edusupp. In addition, the ELFA 4

Online Events Calendar at www.elfaonline.org/Events provides the latest programming information and will include new web seminars or conferences that are added to the schedule throughout the year. ELFA’s 2019 lineup includes: ◉◉ Equipment Management Conference, Feb. 24-26, Carlsbad, Calif.; ◉◉ Executive Roundtable, March 10 -12, Naples, Fla.; ◉◉ IMN/ELFA Investors Conference, March 20, New

CANADIAN EQUIPMENT FINANCE | Winter 2018 | canadianequipmentfinance.com

York, N.Y.; ◉◉ Women’s Leadership Forum, April 1-2, Washington, D.C.; ◉◉ National Funding Conference, April 9-11, Chicago, Ill.; ◉◉ Bank Best Practices Roundtable, April 9, Chicago, Ill.; ◉◉ Captive & Vendor Finance Best Practices Roundtable, April 9, Chicago, Ill.; ◉◉ Independent Best Practices Roundtable, April 9, Chicago, Ill.; ◉◉ Emerging Talent

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Networking Event, April 9, Chicago, Ill.; Principles of Leasing and Finance Workshop, April 2426, Milwaukee, Wisc.; Legal Forum, April 28-30, San Diego, Calif.; Capitol Connections, May 15, Washington, D.C.; Credit and Collections Management Conference, June 3-5, St. Petersburg, Fla.; Tax Best Practices Roundtable, June 11-12, Denver, Colo.;


NEWS ◉◉ Principles of Leasing and Finance Workshop, June 1719, Washington, D.C.; ◉◉ Emerging Talent Networking Event, July 17, Washington, D.C.; ◉◉ EMERGENCE2019, July 17-18, Washington, D.C.; ◉◉ Principles of Leasing and Finance Workshop, Sept. 10-12, Plano, Texas; ◉◉ Emerging Talent Networking Event, Sept. 16, Chicago, Ill.; ◉◉ Operations & Technology Conference, Sept. 16-18, Chicago, Ill.; ◉◉ Lease and Finance Accountants Conference, Sept. 16-18, Chicago, Ill.; and ◉◉ 58TH ELFA Annual Convention, Oct. 27-29, Washington, D.C. ELFA also offers self-paced, online courses on the essentials of

equipment finance, including the recently redesigned Fundamentals of Equipment Leasing and Finance interactive course. This new programme engages users through an interactive, online interface that provides “virtual” handson experience and training in the fundamentals of equipment finance. The course—the only one reportedly of its kind for the equipment finance industry—is designed for those who are new to equipment finance or those looking for a refresher on the industry fundamentals. More information is available at www.elfaonline.org/events/ eLearning. Details on continuing education credits available at ELFA events are available at www.elfaonline.org/events/ continuing-education-credits.

Foundation: U.S. equipment and software investment to grow 4.1 per cent Investment in equipment and software is projected to expand 4.1 per cent in 2019, according to the 2019 Equipment Leasing & Finance U.S. Economic Outlook, released by the Equipment Leasing & Finance Foundation (the Foundation). Equipment and software investment increased at a robust rate in the first half of 2018, driven by more preferable tax treatments and a general upswing in the U.S. economy, reported the Outlook. However, growth slowed in the third quarter 2018

and recent data point to a continuation of this trend, providing a weak jumpingoff point for 2019. The U.S. economy remains generally healthy, yet the strong growth achieved in the second and third quarters 2018 is unlikely to be repeated in 2019 as headwinds build. Highlights from the study include: ◉◉ Capital spending experienced moderate growth in 2018, though equipment and software investment has waned

Canada’s Used Car Conference

March 19 & 20, 2019 Westin Harbour Castle | Toronto, ON New!

educational sessions

leadership development

powerful

connections

dealer training

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NEws

over the course of the year. While sustained economic momentum should carry capital investment into 2019, investment growth may continue to fade next year as the business cycle matures further. Credit market conditions remain healthy, with an increase in the supply of credit in the third quarter and subdued financial stress levels, though demand for credit declined; ◉◉ The U.S. economy accelerated in 2018, spurred by stronger growth in business investment, a historically healthy labour market, lower tax rates and increased government spending. Consumers have been the main driver of growth over the past year,

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and near-record consumer confidence should keep spending levels elevated through at least the first half of 2019. However, residential investment is likely to remain weak, mounting trade frictions will constrain U.S. exports and the global economy appears to be losing steam. Overall, while the U.S. economy remains healthy, growth is likely to soften in 2019 compared to the previous 12 months; and ◉◉ Looking ahead, the equipment leasing and finance industry appears poised to continue expanding into 2019. However, growth is likely to moderate as the effect of tax cuts wanes and the business cycle matures

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further, while rising interest rates will continue to put upward pressure on financial stress. The Foundation-Keybridge U.S. Equipment & Software Investment Momentum Monitor, which is included in the report, tracks 12 equipment and software investment verticals. In addition, the “Momentum Monitor Sector Matrix” provides a customized data visualization of current values of each of the 12 verticals based on recent momentum and historical strength. Several equipment verticals should expect their growth outlook to remain steady in the first half of 2019. Over the next three to six months: ◉◉ Agriculture machinery investment growth is likely to slow; ◉◉ Construction machinery investment growth should hold steady; ◉◉ Materials handling equipment investment is likely to expand at a moderate rate; ◉◉ All other industrial equipment investment growth will likely remain weak and may contract; ◉◉ Medical equipment investment growth is expected to slow; ◉◉ Mining and oilfield machinery investment growth will likely continue to decline; ◉◉ Aircraft investment growth should improve; ◉◉ Ships and boats investment growth

should accelerate; ◉◉ Railroad equipment investment growth may increase; ◉◉ Truck investment growth is expected to slow; ◉◉ Computer investment growth will likely remain stable; and ◉◉ Software investment growth should remain solid. The Foundation produces the Equipment Leasing & Finance U.S. Economic Outlook report in partnership with economic and public policy consulting firm Keybridge Research. The annual economic forecast provides a threeto-six month outlook for industry investment with data, including a summary of investment trends in key equipment markets, credit market conditions, the U.S. macroeconomic outlook and key economic indicators. The report will be updated quarterly throughout 2019. “Business conditions in the equipment finance industry remain favourable for the most part, and the majority of equipment verticals should post moderate investment growth for at least the first half of the year,” said Jeffry D. Elliott, Foundation chairman and senior managing director of Huntington Equipment Finance. Download the full report at www.leasefoundation. org/industry-resources/us-economic-outlook/. All Foundation studies are available for free download from the Foundation’s online library at www.store.leasefoundation.org/.


News

DBRS: Canadian market impacts from China - U.S. dispute The China - U.S. trade dispute could shrink machinery manufacturer profitability from rising product costs and slowing demand, warned DBRS. It classified the potential effects as direct or indirect impacts. Direct impacts 1. More tariffs on all steel and aluminum imported to the U.S. 2. Tariffs on parts exported from China to the U.S. 3. Tariffs on intercompany transfer of parts and machines made in China to U.S. affiliates. 4. Tariffs on parts and machines exported from the U.S. to China. “The imposition of tariffs on imported materials or parts from China to the U.S. will most likely lead to lower operating profit at the manufacturers, but the magnitude of the decline in profit varies depending on the option selected,” said Kam Hon, DBRS managing director, Global Corporates. “Additionally, most exports from the U.S. to China tend to be more sophisticated parts and/or higher value machines that are sole sourced from the States. Thus, the manufacturers will have fewer options to circumvent Chinese tariffs on U.S. imports. Indirect impacts 1. Tariffs on U.S. farm products causing a slowdown in that sector and a decline in farm equipment demand. 2. Declining economic activities in both countries dampening notably construction equipment demand. 3. A softening Chinese construction sector precipitating a chain reaction, resulting in a decline in the global demand

for mining equipment. Fewer construction activities lead to lower commodity demand and prices. Major mining companies then delay or cancel projects. 4. Lower consumption in the world’s two largest economies leads to weaker demand for output in other economies, resulting in slowdowns in other countries. The delay or cancellation of mining projects will further weigh on global growth. Slowing global growth will dampen the demand for equipment. 5. Administrative actions, such as slowing down inspection and approvals by Chinese authorities hurt the economic interest of U.S.based companies in China.

operations. “The eventual slowdown in both economies caused by the trade tariffs will bring both sides back to the negotiating table and will lead them to hash out an acceptable solution to end the tit-fortat trade actions,” said Hon. “That outcome will provide more certainty and lay the groundwork for a stronger machinery market.” Effects on Canada Canada will be tangentially positively and negatively affected by the trade dispute. No construction or mining machine manufacturing operations and only some farm equipment manufacturing now occur in Canada. “Canada may benefit if the

U.S. manufacturers replace Chinese parts with Canadian parts in reorganizing their supply chain to circumvent trade tariffs,” said Hon. “However, equipment from the U.S. will cost more in Canada because of higher steel costs and parts imported from China.” Indirectly, Canadian agricultural products, such as wheat, will benefit as a substitute for U.S. supply. However, Canada does not grow soya beans, which China buys a lot from the U.S. “A stronger farm economy will lead to stronger demand for equipment,” said Hon. “Nevertheless, slowing economic growth in China and the U.S. as a result of the trade war will impact the demand for other Canadian exports.”

“While the indirect impact from trade actions may take longer to materialize, the damage to the profitability of machinery manufacturers is just as meaningful,” said Hon. Financial performance impacts Despite the trade actions, machinery manufacturers rated by DBRS are expected to report modest operating performance improvements. These companies’ DBRS ratings are expected to remain stable because their financial profiles have modest cushions to absorb any unexpected deterioration as a result of current and potential trade actions that are anticipated to last until the end of 2019. However, with the advent of an escalating China - U.S. trade war DBRS-rated machinery manufacturers will face headwinds in maintaining their improving operating results despite their size and diversified

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MARket Report

Top 10 2019 U.S. equipment acquisition trends he Equipment Leasing and Finance Association (ELFA) (www.elfaonline.org) has published its Top 10 Equipment Acquisition Trends for 2019, seen in this infographic. Given that U.S. businesses, nonprofits

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and government agencies will spend over $1.8 trillion in capital goods or fixed business investment (including software) this year, financing a majority of those assets, these trends impact a significant portion of the U.S. economy, according to the ELFA.

“Equipment leasing and financing provide the source of funding for approximately 60 percent of U.S. businesses to acquire the productive assets they need to operate and grow,“ said ELFA president and CEO Ralph Petta.

Top 10 Equipment Acquisition Trends for 2019, also available in text and on video at www.EquipmentFinanceAdvantage.org/rsrcs/articles/10trends.cfm. 8

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Market Report

Driving IoT-enabled GPS By Bryce Wassersleben

nternet of Things or IoT: you’ve probably heard the term a lot lately. It is in articles, advertisements, TV commercials and maybe your LinkedIn feed. But IoT is a broad and sometimes confusing term because it can be used to describe many different things. Simply put, IoT refers to machines “talking” to other machines. It could be your Amazon device talking to your Nest thermostat. It could be a pill bottle sensor monitoring whether or not a senior has taken daily medication. And, in the equipment finance industry, IoT could be GPS devices in vehicles talking to servers about location information or sending payment reminder signals to the devices.

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Understanding the networks One of the factors that unites all aspects of IoT is that it requires a network to send and receive these communications between machines. Many companies rely on wireless carrier networks for this function. For those companies, bringing IoT-enabled products to market and maintaining them requires the use of cellular technology. Here we enter the world of the “G’s”: 2G, 3G, 4G LTE and the rumbling of 5G. The “G” stands for “generation”, as in the generation of cellular technology. So, 2G is the 2nd Generation of wireless network technology utilized and 3G is the third: you get the idea. But because wireless carriers have deployed various types of cellular technology, one carrier’s 4G or fourth generation doesn’t necessarily mean it is exactly the same as the other carriers’ fourth generation. If it sounds like a confusing way to do things, that’s because it is. Regulatory bodies have attempted to stipulate what can be technologies can be considered 4G for example, but the carriers have largely ignored them. By and large, the term 4G has become more of a marketing term without a solid definition behind it.

Several years ago, another popular acronym popped up as perhaps a better way to identify this technology and narrow the focus of 4G. LTE, or LongTerm-Evolution is what many in the communications industry considered to be “true 4G”. In order to help combat some of the confusion, many carriers began referring to the network as 4G LTE as a way to differentiate them from the broader overall term 4G.

seeking financing options to purchase them. The inclusion of these IoT devices can help consumers qualify for loans, lower down payment requirements and interest rates and quality for highervalues vehicles than would be possible without the devices. The solutions can provide valuable information to the dealers and finance companies about their portfolios, reduce delinquencies and improve cash flow.

The needs of IoT devices are much different than those of consumer smartphones.

Longevity: the key benefit of LTE

And, inevitably, there are rumbling of the next generation of cellular technology: 5G. Carriers are building out networks and you may have heard recently that AT&T in the U.S. recently “updated” many of its 4G LTE phones to display the term 5G, even though the 5G network is not complete and is the same as before.

IoT device requirements So, while IoT companies must navigate the waters of cellular technology, the needs of IoT devices are much different than those of consumer smartphones. Take for example, PassTime, a company which manufactures and sells GPS solutions and automated collection technology to the subprime automotive finance industry. These IoT devices do not need blazing fast speeds to stream music or watch live TV. That is because they send small packets of data between machines in order to provide customers with business intelligence and tools to connect vehicle and protect automotive assets. The IoT-enabled GPS devices can be installed in vehicles and used to help mitigate risk of subprime borrowers

For PassTime the most critical factor of cellular networks, after reliability and speed, is longevity: in order to protect our investments and those of our customers. That is the biggest benefit of the LTE network. Currently, it is expected that the LTE networks will be around for the next decade or more. PassTime has launched the Elite product line on LTE in the U.S. and will be moving to an LTE launch in Canada in 2019. The move will give customers even greater choice in network longevity. While our 3G devices will continue to work for years to come, adding an LTE device will provide our customers access to the newest and most advanced wireless network currently available. For customers, this translates directly into minimizing transition impact to their business and ROI of the devices. IoT devices, like PassTime’s GPS Solutions, are innovative technologies that typically utilize cellular technology to communicate. In order to succeed, IoT companies must have expertise in cellular technology and the evolution of network technology generations. While many applications in IoT don’t require the speeds available in the LTE networks, tapping into network longevity is necessary. Discuss network technology with your IoT providers to ensure they are keeping your best interests in mind: and get the most value out of your chosen solution as possible. Bryce Wassersleben is vice president, business development, PassTime GPS Canada (www.passtimegps.com).

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Market Report

Market-altering innovations By Brendan Gleeson

nnovation and technology are changing traditional leasing and finance business models and are eliminating inefficiencies within the current system, while a wave of new technologies is introducing rapid change across the sector. Finance companies are now in a technological arms race to develop new products and improve customer service in order to maintain customer loyalty and generate new business. The key focus is data; how to use newly available data to transform products and develop seamless omnichannel experiences and services. That means taking the opportunities offered by the availability of growing volumes of customer data, along with new streams of information about how assets are used, in order to create new and highly-personalized services. This disruption covers every sector, including, notably, connected vehicles, farm, medical and mining equipment, plant machinery and computers, also known as the Internet of Things (IoT). The assets can communicate valuable data about usage, condition and performance to enable more interactive relationships between leasing companies and customers. However, these developments bring additional challenges, not the least of which is keeping data secure and then developing successful ways to monetize it. Leading finance technology firm White Clarke Group has identified the following main areas of focus for technology innovation. Mobile and pay-as-you-go finance. FinTech start-ups are leveraging innovation to revolutionize the way in which both assets and asset finance are delivered. The challenge is to find ways of using technology to create compelling digital propositions which appeal to an increasingly sophisticated user base. Customers are demanding more 10

Courtesy White Clarke Group.

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immediate and personalized services from asset sellers and finance providers, using streamlined processes that deliver what they want quickly and securely. Faced with exponential changes in demand, finance companies are looking to new start-ups and established technology partners to help shape their future offerings. Andy Hinrichs, co-founder of AutoGravity, explained: “The true value of a transaction lies in the treasure trove of data that becomes available when the whole transaction is digital.� This data can be used to launch highly-tailored marketing campaigns, refine financing options and build new customer services. For example, digital services can be used to slash approval times through automated analysis of client accounts to speed up loan agreements or by using e-signatures to avoid scanning or faxing documents. Technology disruptors are also launching new business models which mark a step change. Examples range from flexible terms on auto lending and ondemand subscription services to online marketplaces that connect consumers with leading auto finance providers and allow for the shared use of assets, ranging from cars to farm equipment. Artificial intelligence (AI)-driven customer service. Digital customer engagement is fast becoming the norm, and lenders

CANADIAN EQUIPMENT FINANCE | Winter 2018 | canadianequipmentfinance.com

are already experimenting with using AI and machine learning to revolutionize customer service. Contact centre voice and chat are expensive to provide and present challenges in ensuring information is delivered and recorded so it is compliant with financial regulations. Now, lenders are using textbased chatbots and interactive virtual assistants that can hold conversations to provide personalized customer experiences via web sites or phone apps. By combining machine learning, intelligent automation and predictive modelling, AI allows digital conversations to unfold more naturally in the way a human conversation would, with responsive, specific messaging at an individual level. This is all done with a high degree of accuracy while matching brand marketing statements and compliance requirements. As a result, the use of chatbots is rapidly increasing. Gartner predicted a year ago that 25 per cent of customer service and support operations will implement virtual customer assistant (VCA) or chatbot technology by 2020, up from less than two percent in 20171. Benji Stone, customer service lead at U.K. start-up DigitalGenius, explained: “Chatbots and virtual assistants offer your customers simple, frictionless access to your brand. The vision is to use AI as a


Market Report layer of technology in the contact centre, to help agents, to complement their work and raise the game in terms of quality. AI can tackle low value functionality such as routing, tagging and information collection, which is often a distraction and prevents agents from spending their time where it counts.” The latest developments in machinehuman engagement can even offer finance customers an “almost human” experience that could transform service levels. Soul Machines is generating increasing interest in the finance market with its incredibly life-like, emotionally responsive artificial humans with personality and character that allow machines to hold face-to-face discussions with customers. The race to develop a customer-centric but cost-effective approach in the finance market means this area of technology is set to experience rapid growth in the future. Cryptocurrency, blockchain and mobility. With the trend towards asset usage rather than outright ownership accelerating, manufacturers and others in the finance supply chain are looking to create platforms which allow users to pick and choose from a range of offerings to match their needs at different times. In transportation, a broad suite of mobility products and services are currently being developed globally for personal vehicle owners, fleet owners and cities. They leverage the data that comes from connected and autonomous cars as well as from mobile apps to refine services. Broader mobility services allow users to pay-per-ride or opt for monthly subscriptions to a wide range of transportation options, from cars to buses, trains and bikes. All while having their journeys planned and optimized for them, using a combination of options from different providers linked to a single mobile platform. Technological innovations are also changing the payments ecosystem and landscape of consumer rewards programmes that incentivize certain behaviours. One example of this is DOVU, which is combining a mobility services platform with blockchain: the technology behind Bitcoin, Ethereum and other cryptocurrencies.

Drivers sign up to a “smart contract” to earn tokens to spend on different services based on their behaviour (such as minimizing car usage or keeping a vehicle in good condition). These tokens can then be spent on other services or rewards. Tokens can also be earned by agreeing to share vehicle data, including usage. Recent research revealed that most finance organizations are preparing to implement blockchain initiatives to exploit the potential benefits. The in-depth study of more than 1,000 finance professionals by Onguard revealed that 23 per cent of the organizations polled were already using blockchain, with 27 per cent in the process of working out their first ideas. An additional 15 per cent said that it is on their short-term agenda, but they were yet to begin developing an initiative related to blockchain2.

Lenders need to ensure that their systems are sufficiently flexible and agile. In asset finance, benefits will include transaction efficiency throughout the supply chain, as all interested parties have a shared view of an asset, creating substantial savings in middle and backoffice processes and services. Blockchain is reshaping the finance and leasing industry, offering a way to manage supply chain interactions and to share data without requiring substantial additional investment in infrastructure. Lenders need to ensure that their systems are sufficiently flexible and agile to allow them to enter this new world.

Cybercrime As increasing volumes of highly sensitive and critical data move online, so do the criminals. Royce Curtin, managing director of global intelligence at

Barclays, warned of the rise of “Crimeas-a-Service”. This is where encrypted communications via the dark web are used to find insider information and hackers who are prepared to launch an assault on some of the world’s biggest banks and retailers. “We are seeing more attacks than ever that steal or manipulate data, compromise trading platforms, destroy data and services, or that spread misinformation to hurt a brand’s reputation or by using social engineering to conduct massive fraud,” said Curtin. “Companies suffer an average 1.5 per cent share price decline after cyberattacks are made public, with some drops of up to 15 per cent. Financial services experience the biggest declines and the highest regulatory fines.” But the biggest loss from a cyberattack? TRUST: in an organization’s ability to deliver world-class service through industry leading innovation at the speed of the market and to keep all data and financial information secure. This growth of cybercrime highlights the importance of adequate training at all levels of business to prevent simple security lapses that can often have substantial, and even crippling consequences to consumer trust.

Where next? Technological innovation is accelerating change in the leasing landscape and creating new challenges for the finance industry. White Clarke Group believes that, with the right technology and partners, traditional business models are able to close the gap. More aggressive outlooks suggest that traditional players could even become the disrupters themselves, if, and only if, they accept that evolution requires them to look critically at all aspects of how they operate. The winners will be those that are able to build on their existing strengths, think bigger and adapt to the current pace of innovation. Brendan Gleeson is Group CEO, White Clarke Group (www.whiteclarkegroup.com). 1 Gartner, Inc., “Gartner Says 25 Percent of Customer Service Operations Will Use Virtual Customer Assistants by 2020”, press release, February 19, 2018. 2 Onguard, “Almost two thirds of finance organisations are preparing for a blockchain revolution”, press release, April 4, 2018.

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Market Report

Embracing digitalization By Steve Taplin

hose in the industry who have been paying attention over the last year or two will know that leasing and asset finance systems are changing. After years of caution, finance providers are embracing change in the form of digitalization. Our industry has always been riskaverse, particularly when it comes to technology. As technology providers, we at Alfa have always pushed our clients to innovate, but the cautious nature of large-scale lenders obliges them to wait for other markets to mature before moving forward themselves. Therefore, the use of the latest technologies like artificial intelligence (AI), augmented reality and voice recognition is not widespread in our world. However, competitive pressures and changing customer expectations are compelling companies in the sector to take on this digitalization challenge. For some it’s still early days, and the focus is on simple automation of existing processes. Others, meanwhile, are taking a holistic view: building entire digital ecosystems that embraces internal and external partners, creating a proposition that is genuinely greater than the sum of its parts. The move to digitalization is challenging and presents critical issues, particularly the constraints of legacy systems and the need to develop new skills. But the rewards can be significant.

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The past Traditionally, asset finance businesses have looked to achieve various goals in their operations. Minimizing the cost per transaction, for example, is generally one of the first objectives. This is particularly relevant in volume contexts, where there is usually a focus on the automation of as many processes as possible, often using system workflow and business rules together. 14

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Real-time processing, integration and access to data are all key areas. They affect originations (for example, credit checking and valuation lookup) and account servicing, the driver being maximizing efficiency. The other main objective is compliance, where the system is responsible for making decisions, ensuring they are always consistent and accurate according to the configured rules, thereby removing human interaction and potential error. Compliance is very important to all operators but particularly consumer finance providers, where regulatory obligations are in place to protect consumers in a lending context and which can vary wildly from country to country, province to province and state to state. These objectives all have positive outcomes, and each has a clear effect on how a company is run and therefore, how it operates in the market. However, they are all inward-looking in nature; they all concentrate on what the provider is doing, how they’re doing it and how it can be made more streamlined: for them. This traditional, insular approach is—while not wrong—reactive at best.

The present There is an emerging trend among finance providers to be more customercentric. This is driven by a desire to promote loyalty and therefore repeat business and is only made possible by understanding what the customer needs and wants, not just by looking under the hood. But, as can be seen in the accompanying graphic from our Digital Directions 2 (DD2) report, 34 per cent of companies are definitively not using customer data to achieve this. To understand how business is progressing, providers need a consolidated and consistent view across all channels. Using dashboards and similar to assess the service being provided to customers is essential to the ability to respond. As illustrated in the DD2 graphic, 71 per cent of companies


Market Report

indicated their leadership was able to deliver this sort of change. Consumers have busy lives and are accustomed to convenience; they want unified omnichannel experiences. The proliferation of smartphones has made it a reality to have access to data while on the move. Consumers want to be able to call the providers, use their web sites and apps and receive push notifications to keep applications or contracts on the right track. It’s no use having web site administrators in one room and a contact centre in another; modern customers require completeness. Finance companies need to respect customers’ preferences to ensure loyalty and stay ahead of the competition. And while customer self-service is important, it’s equally important for other parties to interact or use the system remotely; for example, salespeople working off-site or asset inspections with iPads. Customers also need flexibility and control. The services provided to them

must allow them to be in charge of how their applications are made and how the ensuing contracts behaves. Being restricted to a limited number of payment profiles or additional services will drive customers away. Aware of the power of convenience, many are providing additional services in the form of optional bundles. Furthermore, customers look for innovation in products and services. If providers are able to capture the attention of prospective customers in new and interesting ways, then they will be rewarded. But, as seen in the DD2 image, only 36 per cent of companies appear to be moving forward decisively by using data insights while 55 per cent aren’t using non-traditional data at all.

The future Traditionally considered only as an outside influence, the customer is rightfully becoming the centre of digital transformation, and digitalization. The

speed of this change will be different across sectors and geographies, so there will be a continued need to support traditional loans and leasing. However, as disruption of the traditional finance business model continues, additional opportunities will be available increasingly for finance companies to take advantage of more flexible usage solutions, such as car sharing, fractional ownership and subscription. Other examples of impending innovation include widespread inclusion of AI chatbots for customer service, with machine learning also coming in as a key factor in underwriting and fraud prevention. In order to remain relevant, customers will have to evolve their business and service models within the next five to 10 years. Steve Taplin is global sales director at Alfa Systems (www.alfasystems.com).

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Market Report

The value of AI By Daniil Saiko

achine learning and more broadly, artificial intelligence (AI) are starting to change the financial services industry, with the potential to alter the way businesses and consumers experience transactions and services by saving time, reducing costs and adding value. For instance, “robo-advisors” can track transactional account activities of their clients to help analyze and understand how they invest and spend their money. By so doing so, financial services companies can determine the best courses of action for advising their clients. When it comes to implementing an AI solution there are two important elements that a company should consider: 1. What are the use cases that make sense beyond headlines? 2. Is the data ready for these applications?

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Companies within the equipment finance and underlying manufacturing spaces can immediately start taking the following steps to prepare their businesses by understanding how these elements can be incorporated.

Augmenting the user experience Data can be enormously powerful in supporting client engagement through the entire asset financing lifecycle. Data from multiple sources and mediums can be interpreted by AI tools to glean new customer insights and enhance the customer experience. Although the end goal for many businesses is complete automation, B2B solutions augmented by an improved customer experience is much more realistic. Chatbots provide an interesting application of this. By communicating with end-users through auditory or textual methods, AI-supported chatbots can provide companies with the ability to efficiently connect and engage with clients, thus freeing up time for human beings to address higher-priority issues. 16

Chatbots are particularly popular in the service sector as they allow potential customers to have meaningful engagements and improved support with companies. Rather than completely replacing service representatives or support lines these tools can provide contextual information, such as relevant data about the callers or potential reasons for the calls. Augmentation can also be provided through suggested help articles and problem resolution strategies based on the live conversations or outlining expected milestones ahead.

Mining data for business growth Pricing strategies developed using machine learning and data science techniques applied to contextual data can deliver substantial improvements. And as devices and equipment get more connected through sensors, data can drive decision-making at the renewal and servicing phases. Finding patterns across a wide variety of previously-disconnected information sources can help to uncover hidden risks or provide insights into potential opportunities. A great example of data collection and reuse is Facebook. Users sign up and create accounts with the site, providing key demographic information including their interests, likes and lifestyle choices. Users engage in conversations, express opinions and join groups that align with their personal interests. Facebook is free, but as the saying goes: if you’re not paying for the product, you are the product. This information becomes the intellectual property of the site. The data is then stored, re-packaged and sold to marketing and advertising companies to help promote ads and content that will entice users to make purchases. Facebook, then, takes the transactional data that is being collected and uses it to make a profit. This platform has changed the way personal information can be packaged and used for revenue generation purposes. Often benefits may not be

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obvious today, but with better solutions, more use cases will appear and categorized good quality data will be at a premium.

Moving further into automation Data is the new oil. It is a vastly useful resource that is disrupting and revolutionizing the way business is conducted. But data refinement and data science involve more than just providing awareness of how best to utilize, store and package information. Finding good data and refining it is an enormous challenge: often bigger than devising the processing and analyzing algorithms. Just as a driver of an electric vehicle cannot operate it without access to a charger, AI and machine learning won’t be useful as long as information is manually captured; these tools require a lot of well-formatted digital data. Companies looking to take advantage of machine learning and data science need to properly filter, clean and refine their data. After all, it doesn’t matter how sophisticated your algorithms and models are. The world still follows the GIGO rule: garbage in garbage out. So, what does that mean for the future? There is still much to be developed and shared when it comes to incorporating AI and machine learning into the software tools. Businesses in the equipment finance space need to figure out how they can make a return on their investment (ROI) in order to take advantage of what data science can offer. Harnessing the power of data with the AI and machine learning can reduce costs and provide valuable insights into the customer base. With many companies seeing their profit margins shrink, those in the equipment finance space can benefit from taking advantage of the cost efficiencies created by new technology, resulting in improved customer relationships at a lower cost point. Organizations who do this will have an advantage over their competitors. Daniil Saiko is director, technical sales and product, Cambridge Global Payments (www.cambridgefx.com)


Market Report

Why custom web portals By Steve Leer

n farm fields and construction sites all over the globe you’ll find bright yellow equipment with the Vermeer Corporation logo. The Pella, Iowa-based agricultural and industrial equipment manufacturer moves thousands of products each year, from hay balers to heavy duty drills.

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Vermeer Corporation’s logo is a common sight on construction and farm equipment, thanks in part to its custom web portal that has enabled it to support its global dealer network.

It also moves a lot of information. To make data more readily available to its finance division staff and 400-plus forage dealers in the U.S., Canada and around the world, Vermeer turned to the Internet, adding a custom-built web portal to its existing online presence. “With a custom web portal, we have been able to better serve our robust network of independent Vermeer dealerships,” said Lisa Van Gorp, retail finance manager for Vermeer Corporation. “It allows our dealers to work with us when it works for them, including evening hours, weekends or holidays. They have access to the information they need when they need it, and it has provided more timely communication.”

Purposing web sites for transactions Vermeer is not alone. Equipment lessors large and small are transacting more business via the web. Where in the past company sites were about providing general information and news, today they are places where business is transacted. Companies like Vermeer are adding portals devoted to sales staff and dealers, providing them with fast and paperless ways to assist customers and generate sales leads. Some companies also have set up customer-centric portals to their

home pages, where lessees can check their accounts, make payments and even apply for credit. Interest in portals is growing, said Doug Williams, vice president and chief information officer of JDR Solutions, Inc., an equipment lease industry service provider based Doug Williams, vice president in Indianapolis, and chief information officer of Indiana. JDR JDR Solutions, Inc. designs, builds and can even host portals for banks, manufacturer captives and independent lessors. JDR built Vermeer’s portal. Until a few years ago portals were barely a blip on JDR’s radar screen. “We’ve seen a noticeable increase in web portals among equipment lessors,” said Williams. “They see portals as an extension of the services they provide to their customers and tools they provide to their staffs.” Statistics bear that out. A 2018-19 survey of the equipment leasing industry found a web portal strategy ranks among the top 10 operational issues lessors say are “keeping them up at night.” The Business Technology Performance Index (BTPI) survey, conducted annually by Capgemini in collaboration with the Equipment Leasing and Finance Association1, also found: ◉◉ 44 per cent of survey respondents identified partner or customer portals among their company’s top three missing or most highly deficient features in their front- or back-end platforms; ◉◉ 23 per cent named partner portals as a key IT-related initiative they expected to undertake in the next 18 months, up from 13 per cent in 2017-18; and ◉◉ 38 per cent of lessors with partner portals ranked their portal capabilities as “managed,” meaning a web presence currently extends to partners and customers and covers a wide range of front- and back-end capabilities: a

seven per cent increase from the 2017-18 survey. “We are clearly seeing an upward trend across the industry among equipment finance organizations in considering and implementing partner portals in order to gain a competitive advantage,” said Michael Baez, director of banking and diversified financials at Capgemini, and co-author of the BTPI report. When lessors decide they need a portal they usually start with an in-house site for sales staff and dealers, said Williams of JDR. An internal site allows a company to gain experience using a portal—even tweaking its appearance and functions, if necessary—before it adds a secondary site for customers. Because of the specialized nature of equipment finance, run-of-the-mill portals don’t suffice. “Everything we do is customized to the client: branding, color, fonts, style sheets, languages, business models, types of equipment they finance, marketing and currency conversion,” said Williams. “We work with them to come up with specifications and then design a portal that meets those specifications. We don’t use any off-the-shelf portal templates because there are too many unique features clients request that don’t fit within a standard template’s limited functionality.”

How customized portals work, and ROI Customer experiences vary portal to portal, but a common sequence goes something like this. A visitor begins on a welcome page where they enter their username and password. That opens a dashboard with links to account summaries, invoices, making payments and other options. Each of those choices opens a new page where the user views that information, or they take action, often with e-signature authorization. For sales staff and dealers, a customized portal represents a fast and easy way to conduct business in

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Market Report the field. Staffers can submit credit applications on behalf of customers, peruse lease contract terms and payment histories, get buyout quotes, extend leases, obtain ACH authorizations and schedule equipment replacement, among other functions. Customer service representatives in the office can log on to post payments and handle regular customer service tasks. With so much information moving back and forth in cyberspace data security is a must. Portals should meet Open Web Application Security Project (OWASP) standards. OWASP is a worldwide not-for-profit charitable organization focused on improving software security. “Every portal we build meets OWASP standards,” said Williams. “It takes us more time to make sure the coding is secure, but it gives our clients greater peace of mind.” So, what does it cost to build a custom portal? It depends on the client’s needs

and specifications. A simple one-page HTML site with name/address fields and company contact links could run a couple thousand dollars. A more robust

portal with multiple user experience pages and online forms could cost into the tens of thousands of dollars. But the portals provide a powerful return on investment (ROI). “They aren’t inexpensive to build,” said Williams. “But the ultimate longterm savings for a lessor is much greater over time. Staff are able to do things quicker and assist more customers. I’ve seen cases where staff were able to be redeployed to other areas of the company where their skill sets helped with account reconciliations and other customer service needs.” For a global player like Vermeer, the portal has been a game-changer. “The efficiencies gained from using a custom web portal have allowed Vermeer team members to pursue additional ways to support our dealers,” said Van Gorp. Steve Leer is director of marketing and business development at JDR Solutions Inc. (www.jdrsol.com). 1 Capgemini, “Business Technology Performance Index 2018/2019”, report, October 14, 2018.

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Market Report

Understanding digital transformation By Aaron Seaton

he world around us is changing at an accelerated pace. Our expectations as consumers, whether personally or in a business context, have evolved with every new advance in technology made over the past decade, but especially since the advent of smartphones and the spread of mobile computing. The conveniences, efficiencies and immediacy we now enjoy in banking, ordering goods, consuming media and ordering transportation are now the high-water marks for delivering experiences to stakeholders, both customers and employees, in virtually every business across all industries. These changes are proliferating rapidly and the coming effects on the way asset-based finance companies operate and interact with customers will be significant. It’s not just a matter of if this wave of technology will disrupt operators in this space, but when, and it is incumbent upon lenders to make the necessary investments into digital transformation or face the risk of getting left behind. To understand the impact of digital transformation in equipment finance, it is first necessary to define exactly what it is. As well, and perhaps most importantly, it is essential to grasp not only how it can lead to future success for lenders, but also how it can lessen the challenges and threats currently faced or are on the horizon.

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What is digital transformation? Simply put, digital transformation is the utilization of digital technologies to modify existing or create new processes within your business to augment culture, drive efficiencies and above all else, enhance the customer experience. In the context of asset-based finance,

this means examining every aspect of the business lifecycle, from direct sales, broker relationships, pricing, credit decisioning, document management, funding, collections and servicing through to remarketing and realization. Then finding ways to digitize processes, information and client interactions. While there may be differences from one segment of the market to another, whether big or small, independent direct lessor or captive finance company, the necessity of digital transformation can be best understood by looking at the benefits it offers and challenges it solves. Productivity, efficiency and consistency. How can operators do more with less, or similarly how can they handle existing demands with less costs? Automation of core back office tasks has been largely implemented over the past decade, but what more can be done to better digitally enable peripheral tasks? In an ever-uncertain economic climate, it will be increasingly necessary to find optimized ways of operating. Digital transformation can enable a paperless environment that ensures the concentration of information in a single recallable place, virtually eliminating the need to search for hard-copy documentation and shortening the duration of all tasks. A good example of this is the digitization of the corporate records searches and PPSA (Personal Property Security Act) registration/deregistration processes, allowing these tasks to be completed from within the core software applications and foregoing external processes and record keeping. Or, imagine improving back office efficiency by having a software assisted workflow that guides users through all required tasks on a product-specific basis? A critical factor in achieving cost savings and allowing a company to remain flexible as it changes over

time is the implementation of digital transformation in the cloud using a Software-as-a-Service (SaaS) solution. With SaaS platforms a company can forgo the traditional costs and restraints associated with the installation, maintenance and business continuity tasks of traditional on-premise software. This means working with a trusted solution partner to outsource these tasks and focusing all energies on core competencies. As well, since SaaS is primarily browser-based, it also translates into higher productivity and information sharing for remote sales or operational team members. Enable enhanced capabilities. Growing the profitability of an assetbased finance company comes from more than just increased origination volumes. Revenues can be increased, or costs reduced if a company can maintain many of the economics of the lending transaction within their operation. Implementing a comprehensive digital transformation strategy could include the usage of affordable and easy to maintain software solutions that provide functionality for loan administration and collections processing. By maintaining the servicing of some or all of an asset portfolio, the originator can earn additional revenues. Many digital platforms offer significant automated functionality to ease the transition to this capability with minimal operational overhead. Additional capabilities also include collateral inventory management with realization and remarketing, as well as third-party investor reporting and settlement management. All of this translates into enhanced control of touchpoints back to the client, thereby ensuring ownership of a profitable and long-term relationship. Data analytics and reporting. Do you know exactly how your finance business

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Market Report is performing in real-time? Are you able to ascertain key measurements of your internal processes and external sales force? The holy grail of managing any business is data. Without being able to measure something, it simply cannot be managed toward improvement. By digitizing every aspect, including customer relationship tasks, tracking credit decisioning outcomes, assigning booking and funding tasks and auditing and approvals, a multitude of data becomes available to understand what is working in your company and which squeaky wheels need the oil. The trick is to ensure the selection of software platforms that either have robust internal capabilities to measure and report these metrics or provide an easy and standardized way for a third-party tool to utilize the data. Customer experience and engagement. While many finance companies have made significant IT investments, these have mostly focused on back office functions that only indirectly enhance the customer experience. At its core, digital transformation is about making the customer king or queen and providing them with selfservice digital tools that sets a finance company apart from its peers and drives loyalty. Examples include the provision of online and mobile tools to drive an interactive application process, display transaction status, allow for document submission, query and report on existing loans and collateral and calculate early payout quotes. While proprietary inhouse solutions are one way to go if you have the financial resources, smaller entities can still provide this sticky customer experience through off-theshelf solutions that are tightly coupled to existing systems. Along with the benefits and loyalty gained by providing clients with enhanced online and mobile experiences, comes the responsibility of ensuring client data and privacy is secured. It is not only a best-practice but increasingly a legal obligation. Additionally, with the coming promises of Internet of Things (IoT) to track and control assets remotely, concerns over device hacking 20

could have real-world consequences and liabilities above and beyond lawsuits related to information disclosure. Therefore, any digitization strategy must have a strong security focus.

Why not the old-fashioned way? Some may question why all of this is necessary. After all, the industry continues to march forward and still close deals and service clients the oldfashioned way. If the previously mentioned advantages aren’t enough of a reason, then consider the concept of disruption by financial technology (FinTech) companies. FinTechs are simply lending entities that have centred their entire customer value proposition around their proprietary web and mobile technologies that accelerate the origination process and provide positive, frictionless and engaging customer experiences. FinTechs have already had an outsized effect on the unsecured commercial, consumer and student lending sectors. While a recent Equipment Leasing & Finance Foundation study concludes the equipment finance market is safe for now, many of their strategies and tactics should be replicated to ensure it stays that way1.

Digital transformation implementation best practices How digital transformation is implemented within your enterprise is dependent upon the size of the operation, current systems and priorities facing the company. Large companies with highly modularized systems can afford to break this work up and attack each process in isolation. Other smaller entities may find it easier to just bite the bullet and implement a comprehensive end-toend solution that provides for digital transformation across the lease and loan lifecycle. Regardless of the approach, when selecting solutions, one must ensure they seek credible and competent providers. Evaluation of vendors should include such elements as: ◉◉ The delivery of the solution (onpremise versus cloud/SaaS); ◉◉ Location of the data if cloud-based and

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which legal jurisdiction would it fall under; ◉◉ Process maturity of the vendor (ideally an accredited and audited service organization) with a proven implementation and support trackrecord for the chosen solution; ◉◉ Subject matter expertise of the vendor and their familiarity with the local market; ◉◉ Capabilities to integrate with thirdparty services (e.g. credit bureaus, e-Signature platforms, collateral data providers, PPSA registries, valuations); ◉◉ Ensuring the control and ownership of the data remains with the users of the solution and the data is easily exported should there be the future desire to transition to another platform; ◉◉ Evidence that the solution is based on a standard, neutral set of modern technologies that are not built upon other SaaS platforms, requiring additional costs and third-party liabilities; and, ◉◉ A well-defined product roadmap that will deliver key updates and enhancements to your business on an on-going basis, thus ensuring a longterm return on investment (ROI) that keeps apace of current trends within the industry. Cost is a key decision for smaller entities, with the best-in-class vendors offering affordable turnkey solutions that allow even the smallest operators to offer digitally enhanced experiences on par with their bigger competitors. Whichever strategy is selected, even with the potential for economic moderation on the horizon, the time to act is now. Planning, implementing and realizing on the benefits of digital transformation in an asset-base finance company will not only consume time and resources in the short-term, but should be viewed as a long-term perpetual activity to drive a company forward and remain competitive. The sooner these investments start, the better. Aaron Seaton is CEO and co-founder of TAO Solutions (www.taosolutions.ca). 1 Levon Goukasian and Bill Ullman, “Headwinds, Undercurrents, and Tailwinds: How Equipment Finance Companies Can Learn and Benefit from the Fintech Phenomenon”, Equipment Leasing & Finance Foundation, report, May 2018.


Management Strategy

Opportunities for SME lending By Kevin Clark

he Canadian smallmedium sized enterprise (SME) marketplace has been a difficult segment to lend into for a number of reasons. 1. The traditional risk review process has not been that different for analyzing the worthiness of small companies and large companies. This means that the cost-benefit analysis suggests smaller loan requests will earn marginally much less above the fixed cost of reviewing the credit, thereby swaying lenders to larger credit opportunities. 2. The required information gathered for review of SME applications is often less reliable or outdated, making the credit positions of the applying companies seem less “bankable”. 3. The risk / return dynamic is challenged in the potential disclosure of the right credit margin being applied to the risk. As a result, if the risk warrants a significantly high interest rate, the institution might rather say no than be publicly recognized as a base rate plus 20 per cent lender; such a “headline risk” being not wanted by the public lenders. This is an interesting dynamic as these lenders benefit from maintaining operating account

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relationships that drive fee income and benefit from balances in these accounts, which provide Tier I capital. Yet such lenders provide much less credit to SME customers. As a result of these points the SME marketplace has become an opportunity for new entrants e.g. FinTechs and for existing lenders bringing a new way of lending to this “credit-starved” segment. With the advancement of technology, specifically the ability to interpret data at speed, new forms of credit analysis have emerged, leveraging data for credit decision-making. Combining this with technology-driven customer experience processes is creating a new value proposition for lending in the SME space.

Rise of alternative lending Adoption of borrowing from alternative lenders is growing in the Canadian SME lending segment. Demand is gaining strength from SME borrowers as awareness strengthens and credibility takes hold for these “online” or “alternative” or “innovative” FinTech lenders providing this capital. Notwithstanding the credit complexity in this segment, new entrants now have a significant foothold in this unregulated commercial lending business marketplace. Certainly, from a user perspective, a more frictionless application experience (typically online), fast decisioning and fast funding are important attributes. For lenders, the use of data to analyze credit, replicability without subjectivity and an

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Management Strategy acceptability of higher costs given the alternative of no access to capital all mean the value proposition is well established.

What product and when Lending technology companies have been slow to build out multiple products in their quest to provide capital to SMEs. As a result, they seek to solve the capital needs with their particular products. The dynamic at play here is the fact that many small business owners are unaware of the different lending products on offer, and even if they were, they may not understand what applicability (or product fit), each has to their business’s need. As a result of this, the borrower may apply to several online lenders, find several products and chose one for some particular reason that may or may not be the right choice. This is generally the result of the SME being so pressed for capital that their priority tends to be: “how long will it take to get it, how much can I get and how long can I keep it?” But somewhere down the list is “how does it work and what does it cost?” However, the products offered by the online lenders do provide very good applications towards meeting a need; installment term loans, factored receivables and merchant cash advances are all examples where the credit products can suit borrowers’ needs pretty closely. Online working capital loans can often be perfectly complementary to leasing products, bank lines and overdrafts. Most online lenders will lend behind the longer-term credit products of the banks, take second positions and even provide down-payments towards entering into a large lease as an example.

The challenge of borrowing to lend Any company needs a track record to establish itself as a good counterparty risk.

Just as the FinTech lender assesses the worthiness of its applicant for credit, so too does its funder(s) review same of the FinTech. Thus, the challenge of obtaining credit at a reasonable price is equally hard for the FinTech lender, whose track record on loan performance and business development is early and unproven.

New entrants now have a significant foothold in this unregulated commercial lending business marketplace.

consideration of lending decisions through the request for business plans, the FinTech lender looks back, capturing applicants’ current and recent activities to drive its decisions. For Lendified, as one of the known brands in the Canadian SME lending space, its adjudication process has been built on the concept of applying technology to the five Cs of credit: character, collateral, conditions, capacity and capital. Lendified’s approach displaces the hours, days and weeks of information gathering and review into a datadriven, replicable and customer-focused credit adjudication engine. Pulling information in electronically, including obtaining and critiquing of companies’ bank statements to understand their financial positions and moving the credit applications through gates and automated calculations to capture the applicants’ loan eligibility, effectively delivers replicable credit decisions.

Where do we go from here? For this reason, there are relatively fewer SME lenders than consumer lenders (as the risk analysis is more challenging: a key barrier to entry to the lending business). Raising capital in the Canadian FinTech marketplace has a wide-ranging history. And commonly known is the fact that it can often be the case that seed capital and early stage capital is easier to come by than the growth capital needed to see these businesses through to growth and profitability.

Lendified, Inc.: a case study in alternative SME lending Where the traditional underwriting procedure seeks out applicants’ views of their business’s future in its

The existing players in the Canadian marketplace, originating from different fields of expertise, home grown or having crossed the border (from the U.S. mostly), have an opportunity to grow. Demand is high. New entrants are few—giving benefit to the incumbents—and some mergers and acquisitions are taking place. Certainly no one is asleep here! The larger institutions are well aware of what is taking place, are investing and building better products and services and in certain cases, leveraging the innovation now developed in the FinTechs themselves. Kevin Clark is president, Lendified Holdings, Inc. and is chairman, Canadian Lenders Association https://www.linkedin.com/in/kevincharlesclark/.

To send press announcements, please direct them to Brendan Read, Editor, at

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