Canadian Equipment Finance Magazine Winter 2019

Winter 2019 • Volume 7 • issue 4 | www.canadianequipmentfinance.com

Growing the resources markets What’s in store post-election?

How tech and flexibility helps farmers

Courtesy CWB National Leasing

Turning to low-carbon solutions

PM40050803

Contents Winter 2019 Volume 7 Number 4

News 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 Photographer Gary Tannyan

What’s in store post-election? »4

New textbook on lease accounting »7

Foundation: Cash on hand, interest rates, lowered U.S. financing share »6

REsources

Growing the resources markets

For subscription, circulation and change of address information, contact

subscriptions@canadianequipmentfinance.com

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. ©2019 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.

8 How tech and flexibility helps farmers »8

Courtesy CWB National Leasing

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

Turning to low-carbon solutions »11

Your Business How Ottawa can fight cyberthreats »12

Also Publishers of Payments Business www.paymentsbusiness.ca

12

Contact Management www.contactmanagement.ca

DM Magazine www.dmn.ca

Management Strategy The need for secure digital identities »14

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

canadianequipmentfinance.com | Winter 2019 | CANADIAN EQUIPMENT FINANCE

3

News

What’s in store post-election?

By Brendan Read

hat impacts could the Oct.21 federal election that resulted in a Liberal minority government have on Canada’s asset-backed lending sector? Canadian Equipment Finance reached out to the C.D. Howe Institute

W

Farah Omran

Jeremy Kronick

for answers, insights and recommendations. Here they are, from Farah Omran, policy analyst and Jeremy Kronick, associate director, research.

Productivity/finance “Our paper, Productivity and the Financial Services Sector – How to Achieve New Heights, released Oct.17, 2019, largely focuses on providing recommendations for policymakers and regulators on how to improve Canada’s productivity and the financial services sector’s contribution to it.

“The push forward to adopting such recommendations, however, has to come from different players, and that includes lenders. If lenders agree with our recommendations, they can play their part in boosting productivity by pushing regulators and policymakers to follow through with such measures. A few examples below: ◉◉ Big players in the lending space, such as banks, could encourage regulators to provide more guidance on the new rules removing restrictions on banks participating and investing in the growth of FinTechs. This can include defining ‘majority’ investments with more clarity and setting a date to enforce these rules; ◉◉ Small players, such as lending FinTechs, could work with regulators to ensure a functional and 4

proportional focus in regulations that creates an environment of healthy competition and in turn innovation and productivity. This includes regulations that are function based and proportional to the function’s risk; and ◉◉ In the case of asset-based lenders, competition has dwindled since the 2008/09 global financial crisis, where the impact can be seen in weak manufacturing and equipment (M&E) spending. These lenders could work with regulators to make sure regulation and capital requirements are tailored to and accommodative of different players, thus boosting competition. For example, they could focus on regulations that ensure the use of appropriate credit-risk weights for non-banks, leading to more efficient and less distortive investment decisions. This is especially important when asset-based lending may in fact be less risky than many other types of lending.”

Future legislation “No party looks especially keen on going back to an election. If we then assume the Liberals will continue doing what they have, in terms of what we think they could or even might do, the following are most applicable: ◉◉ Expanding guidance on the Bank Act and Insurance Companies Act amendments surrounding investment rules for banks and insurance companies vis-à-vis FinTechs; ◉◉ Improving access for small-midsized enterprises (SMEs) to affordable capital, via deepening capital markets.

This can be accomplished through measures like exempting from taxation capital gains on the sale of certain small businesses’ shares (e.g. those held for five or more years). Or via changing the incentive structures in the lending space to encourage more efficient allocation of capital towards innovative and productive businesses

CANADIAN EQUIPMENT FINANCE | Winter 2019 | canadianequipmentfinance.com

(e.g. risk-weights for CMHC insurance premiums); and ◉◉ Open banking. Continuing the work in this new space and promptly and efficiently moving towards implementation. Open banking could boost the economy by providing more innovative products to market and placing Canada on par with its peers.”

CFLA commentary

By Michael Rothe

The CFLA congratulates the leaders of all the national parties on the federal election results. We look forward to continuing to work with the Liberal government on a number of initiates such as: ◉◉ Continuing to ensure that 2018’s Accelerated Investment Initiative continues to enjoy the broadest possible application and utilization; ◉◉ Exploring the possibility of a made in Canada Open Banking approach that balances customer privacy with open competition; and ◉◉ Working towards a responsible balanced approach towards antimoney laundering rules.

Most importantly, however, is that the CFLA will continue to raise the issue and press the government for new and creative ideas for addressing Canada’s lagging competitiveness and productivity gap (something that was notably missing from all party platforms during the election).

Michael Rothe is president and CEO, Canadian Finance & Leasing Association (CFLA), (www.cfla-acfl.ca/).

To send press announcements, please direct them to Brendan Read, Editor, at brendan@canadianequipmentfinance.com

News

Foundation: Cash on hand, interest rates, lowered U.S. financing share The vast majority of American end-user businesses (79 per cent) relied on financing for at least part of their equipment and software acquisitions last year. But underlying this figure is a decline in the propensity to finance equipment investment, according to a new study, the 2019 Equipment Leasing & Finance Industry Horizon Report released by the Equipment Leasing & Finance Foundation (Foundation).

The study, commissioned by the Foundation and prepared

by Keybridge, revealed that of the total 2018 equipment and software investment of $1.8 trillion, the overall share of equipment investment financed was 50 per cent, resulting in an estimated industry size of approximately $900 billion. The figure, lower than that in last year’s Horizon Report, is attributed to additional cash on hand, which, coupled with higher interest rates, drove down the propensity to finance among private businesses.

The report draws on the results of a new enduser survey the Foundation conducted in July 2019 that was more than double the size of last year’s survey. It provides the data to estimate the current size of the equipment finance industry, assess the propensity to finance private sector equipment investment for key equipment verticals and forecast end-user plans to acquire and finance equipment over the next 12 months.

In addition to summarizing key industry performance data, this year’s Horizon Report includes a detailed analysis of recession risk. The new Foundation6

Keybridge Equipment Finance Industry Recession Monitor is comprised of a mix of 11 consumer and business-oriented indicators that are designed to anticipate a recession: even if the downturn has yet to fully materialize throughout the broader U.S. economy.

Key findings Highlights from the 2019 Equipment Leasing & Finance Horizon Report include: ◉◉ Leasing remains most used method of finance. According to the end-user survey (which focused only on private sector investment), the most common financing method used by businesses to acquire equipment and software in 2018 was leasing (24 per cent), followed by lines of credit (16 per cent), secured loans (12 per cent) and other forms of finance (3 per cent); ◉◉ The share of businesses using financing reached new high. The end-user survey result showing that 79 per cent of respondents used at least one form of financing to acquire equipment in 2018 is a substantial increase from the previous year’s result of 58 per cent, and a return to levels observed in 2015 (78 per cent) and 2011 (72 per cent); ◉◉ Equipment and software investment to remain steady.

The majority of survey respondents expect the volume of their equipment and software acquisitions to remain the same over the next 12 months (56 per cent), while the share of endusers who expect volume

CANADIAN EQUIPMENT FINANCE | Winter 2019 | canadianequipmentfinance.com

to increase (22 per cent) roughly matches the share who expect it to decrease (21 per cent). Of those who expect acquisitions to increase, the majority (59 per cent) expect to use a financing method to cover at least a portion of the cost; ◉◉ Office equipment leads among verticals most likely to be financed. Of the 12 equipment verticals for which a sufficient number of responses were collected, office equipment was most likely to be financed, with an estimated 65 per cent of acquisition volume secured through a lease, loan or line of credit. Other verticals with relatively high financing activity include other industrial equipment (59 per cent), agriculture equipment (59 per cent), communications equipment (58 per cent), medical equipment (58 per cent) and automobiles (57 per cent). Materials handling equipment (41 per cent) was the least likely to be financed in 2018 among the 12 verticals analyzed; and ◉◉ A recession is unlikely in the near future. The current reading of the FoundationKeybridge Recession Monitor is that the conditions of a full recession or a nearrecession that drags down the business and industrial segments of the U.S. economy, including the equipment finance industry, are unlikely to occur in the next six months. However, the preponderance of economic data suggests that a recession in the next

six to 12 months would not be particularly surprising (though the probability appears to be less than 50 per cent), and a recession in the next 12 to 24 months is more likely than not.

The 2019 Equipment Leasing & Finance Horizon Report is available for free download at https:// www.leasefoundation.org/ industry-resources/horizonreport/.

All Foundation studies are available for free download from the Foundation’s online library at http://store. leasefoundation.org/.

Jeffry D. Elliott, Foundation chairman and senior managing director of Huntington Equipment Finance.

“The Horizon Report shows that while more businesses than ever are using financing, they aren’t financing as much of their acquisitions as they have in the past,” said Jeffry D. Elliott, Foundation chairman and senior managing director of Huntington Equipment Finance.

“With opportunities for growth in this competitive landscape, Foundation resources like the new Recession Monitor, are critical for equipment finance professionals in their portfolio and strategy decision-making.”

News

New textbook on lease accounting A new textbook on lease accounting by industry authority Shawn Halladay, managing director of the Professional Development Practice, The Alta Group, is now available.

Accounting for Leases: Embracing the New Paradigm provides valuable guidance to both U.S. and international lessors and lessees by covering the many commonalities between ASC 842, the new U.S. lease accounting standard, and IFRS 16, the new lease accounting standard for countries outside the U.S. Although IFRS 16 recognizes one lease model for lessees and ASC 842 recognizes two (both finance and operating leases), there is significant overlap between the two standards.

The new lease-accounting standards are the result of an expressed need by the FASB and IASB for greater transparency into leasing obligations that were not on lessees’ books, says Halladay.

“My book examines numerous lease-accounting considerations under the new rules, including partial off-balance sheet financing, sale-leasebacks and changes to how U.S. lessors account for their leases. It also has particular applicability in emerging markets, because it provides up-to-date guidance as companies establish accounting policies and procedures.”

Finance executives worldwide, along with banking and legal executives, and

the international leasing consultancy, will find in the 400-page book a wealth of lease-accounting information not likely available elsewhere.

Halladay even includes a guide for marketing under the new rules that lessors can use to assist their clients.

Also, now available is another textbook on leasing that contains two chapters written by Halladay and Diane Croessmann, an Alta director.

Leasing—The Creative Financing Alternative, by Sudhir P. Amembal, is a comprehensive review of lease fundamentals meant to serve as a reference for lessors. Halladay’s chapter speaks to navigating the new lease accounting standard, while Croessmann’s chapter

pertains to managed services, the fast-growing pay-for-use trend impacting IT and health care equipment, as well as other equipment types.

For additional details including tables of contents and pricing, visit www. amembalandhalladay.com/ publications.

For breaking news and in-depth features, visit our website at www.canadianequipmentfinance.com

.com

LEASING MADE SIMPLE

Flexible Leasing Opportunities with Expert Advice

LEASING WHAT YOU NEED, WHEN YOU NEED IT. • Equipment Leasing • Whole Fleet Leasing • Private Sale Leasing • Auto Leasing • Sales and Lease Backs Providing Leasing Solutions Since 2003 • Member of the CFLA, NVLA & BCTA

CONTACT US: FirstWestLeasing.ca | 604-539-7041 canadianequipmentfinance.com | Winter 2019 | CANADIAN EQUIPMENT FINANCE

7

8

CANADIAN EQUIPMENT FINANCE | Winter 2019 | canadianequipmentfinance.com

How tech and flexibility

helps farmers

By Curtis Gulka

s winter befalls the Canadian landscape, our agriculture customers are working on their businesses. Despite snow-covered fields, winter isn’t an off-season for farmers. Heck, some of them are still harvesting. Beyond that, there’s equipment to maintain and decisions to make, especially when it comes to gearing up for another growing season.

As a CWB National Leasing account manager, I’m in constant contact with Canadian farmers. Many of them are asking these questions: ◉◉ What tech developments can help increase my yields? ◉◉ Which financing terms or structures make sense for my business? ◉◉ Are there ways to make financing easier?

A

While farmers think about their businesses, so does the equipment finance industry. Looking towards trends sheds important light on how lenders can improve and create mutually beneficial relationships with Canadian agricultural producers.

Courtesy CWB National Leasing

IoT becoming prevalent Manufacturers are designing more machines with Internet capability than ever, and agricultural equipment is no exception. According to Allied Market Research, the worldwide agriculture Internet of Things (IoT) market is expected to grow to $48.71 billion by 2025.

It’s not just the big international corporations that are using this technology to farm more efficiently. Many of CWB National Leasing’s small-to-medium-sized agricultural customers use Internet-enhanced machines in their day-to-day operations.

While CWB National Leasing has commonly funded auto-track GPS systems separately from equipment, that business trend has largely fallen off. Today’s new tractors come with Internet capabilities built right in. Almost any farmer who’s farming 5,000-plus acres is using

canadianequipmentfinance.com | Winter 2019 | CANADIAN EQUIPMENT FINANCE

9

Resources these systems to boost their efficiency, or at least looking at the possibility.

John Deere has been leading the IoT charge since 2016. The newest models of tractors come equipped with GPS and analytics, features that John Deere promises will pay for themselves in two years by eliminating overlaps and reducing fuel and input costs. Major equipment brands have followed suit, and as a result IoT in agricultural equipment is becoming the industry standard.

Cutting-edge equipment carries a bigger price tag than older models.

But farmers are reaping the benefits of these smart machines. Therefore, it’s important for financing account managers (like myself) to keep up with tech developments in agriculture, so we can speak our customers’ language and deliver the best possible service.

Structural flexibility Poor weather and crop conditions over the past two years have hit Canadian farmers’ bottom lines, so they are tending to wait for ideal times to market their grain. There’s been massive growth in the demand for flexible payment structures. This year, deferred payment options have been the biggest trend.

“When money isn’t coming in, farmers put away their wallets and work with the gear they have,” says Bill van de Vorst, CWB National Leasing senior credit manager. “Equipment dealers want to offer more financing flexibility, so our credit department works to create structures that make sense for dealers, lessees and our company.”

This year has shown that farmers are looking to finance a wider range of products than ever.

In the past, CWB National Leasing primarily funded big-ticket items like combines, tractors, grain bins and semi-trailers.

While we still fund those large pieces, today there’s an increased demand for financing smaller equipment like haybines and augers.

CWB National Leasing works to fund items large and small, and our customers are taking advantage. Items farmers have traditionally bought with cash are becoming leasing opportunities as customers look to keep their operating capital flexible, so that they’re ready for the unexpected.

Farmers have moved towards on-farm grain storage and marketing their own crops. You can see those bins scattered across the landscape as you drive along Canada’s rural roads. As a result, grain bins are big business for lenders, and farmers are looking for creative financing solutions that match their cash flow.

10

Courtesy CWB National Leasing

Wider equipment range

keep with the times. Still, it’s not about going digital for digital’s sake. It’s about hearing and matching the needs of the customer.

Do farmers want online services?

The answer is a resounding yes. The main thing they want is instant access to their information: If a customer is sitting on their combine wondering about their financial information, they want it on-demand.

The team at CWB National Leasing works to match service to the varied needs of our customers. Some appreciate the personal assistance of a dedicated account manager, while others are switching to the convenience that comes with applying for funding online. It’s increasingly important for lenders to be flexible and interact with customers on their preferred platforms. Our vice president of innovation and marketing, Joel Druwe, knows this all too well.

“We understand that during peak times of the season, farmers need to be in the field, and our account managers are happy to meet them there,” says Druwe. “If customers prefer digital solutions, we have systems that can work for their business. The digital trend is not going away, so we’re focused on providing the choices our customers need to run their businesses effectively.”

With price tags in the hundreds of thousands for agricultural equipment, many farmers appreciate the trust that comes with personal relationships.

In this market, the human touch will never go away. Finance companies can, however, look to augment these relationships with online features that make farmers’ lives easier.

Now more than ever, it’s important for equipment financing companies to be creative, flexible and tech-savvy, so their services can help agricultural producers reach new levels of growth and efficiency.

Farmers are becoming accustomed to applying advanced technologies to become more efficient and profitable.

Many of these increasingly popular structures start as ideas from account managers and farmers. From there, creative solutions become reality when credit departments craft the deals.

Equipment finance companies need to stay flexible and creative to help farmers succeed.

Digital innovation There’s a trend in nearly every industry toward giving customers more choice.

In the increasingly consumer-centric finance industry — full of FinTech disruptors that change the way people do business — a successful company must

CANADIAN EQUIPMENT FINANCE | Winter 2019 | canadianequipmentfinance.com

Curtis Gulka is senior account executive, CWB National Leasing.

Resources

Turning to low-carbon solutions

By Dana Krechowicz

griculture and mining are on the front lines of climate change. Why? First, they depend on predictable climatic conditions to ensure stable outputs and operations. Climate change is making it harder for farmers and mining companies to predict operating conditions, which adds additional risks and costs to their businesses. More powerful storms, rising temperatures, droughts and floods and higher risk of fire and pests can damage both their natural and hard assets.

Second, agriculture and mining companies are both making their businesses more resilient to climate change and they are investing in carbonintensity-reducing technologies. At the same time, we’re also starting to see abandoned mining pits be repurposed for renewable energy generation in the forms of solar farms and, in some cases, for hydroelectric pumped storage.

Third, these sectors are an important part of the solution. The agricultural sector can make a tremendous contribution to combatting climate change by sequestering carbon in healthy soils. Meanwhile mining provides the metals and minerals that are necessary inputs for low-carbon technologies, such as solar panels and electric vehicles.

A

Onsite energy and electrification In particular, two low-carbon technologies are starting to take root in agriculture and mining, as well as in other resource sectors. These are onsite renewable energy production and equipment electrification. None of this is new: farmers have historically relied on wind power to pump wells, while mines have used electric trains to transport materials and workers, particularly underground. But these methods have fallen out of use in favour of grid power and diesel-powered equipment.

“Agricultural producers are early

adopters of new ideas and technology and as a result we expect to see more interest from agriculture sector clients. A good example of this is solar — not just as a power or backup power solution, it’s more than that — there are now solar powered sensors, fence chargers, drying, irrigation and ventilation equipment and greenhouse heating,” states Pete Molenaar, senior vice president and head of Commercial Banking, Western Region for HSBC Canada.

While some of these technologies may not be widely adopted yet, they are becoming accessible and affordable and can lead to substantial operational energy cost savings.

Whereas solar-powered or electric tractors are in their infancy, mining equipment electrification is again becoming a major trend. In an industry where on-site renewable energy generation is becoming increasingly mainstream, according to the Rocky Mountain Institute, its movement towards equipment electrification is equally impressive.

Newmont Goldcorp recently opened an all-electric mine in Ontario. This “mine of the future” features digital mining technologies and processes and electric rubber-tired vehicles. In the case of another mining company, HSBC Canada supported it in its acquisition of lithiumion battery-powered scoops and trucks for its underground gold mines through leasing and equipment financing covering 100 per cent of the cost of the assets.

Benefits and financing Though current adoption rates of lowcarbon technologies have been minimal, they are expected to grow in the future, as companies look for ways to cut costs and carbon emissions and as more technologies hit the market.

For example, while electric equipment may currently cost more up front, the investment results in substantial cost savings, such as by eliminating the need for new ventilation systems deep

underground. It also improves employee health and safety — and staff recruitment and retention — by eliminating diesel fumes and particulate matter.

Even so, the initial cash outlay required to outright purchase some of these technologies (despite the money they will save) may be a barrier for some business owners. There also is the unfamiliarity with the equipment reliability, repair cycles and upkeep.

Financiers also need to get up to speed on low-carbon technology specs including their expected lifespans to gain comfort with these solutions. However, in the end, client demand is the key driver.

“Leasing and equipment finance has always brought inherent sustainability benefits as companies upgrade to more efficient equipment. But now companies are going one step further and are exploring which carbon reducing technologies are viable and commercially available in the market, and we’re keen to be at the forefront of this trend,” says Grant McFarlane, national head of Leasing and Equipment Finance, HSBC Canada.

The acquisition of these assets can soon even be financed with a “green lease”, which HSBC Canada plans to introduce to the Canadian market, and will be aligned with the Loan Market Association’s Green Loan Principles.

Green-labelled financial products such as green leases (as well as green bonds and green loans) help companies tell their sustainability story to their stakeholders and the market in a more compelling way.

Climate change and increasing pressure on companies from their investors, customers and employees to green their operations will mean more and more companies exploring lowcarbon technological solutions. Leasing and equipment financing will play an increasingly important role in helping businesses finance low-carbon solutions in a cost-effective manner.

Dana Krechowicz is senior sustainable finance manager, HSBC Bank Canada.

canadianequipmentfinance.com | Winter 2019 | CANADIAN EQUIPMENT FINANCE

11

your Business

How Ottawa can fight cyberthreats

By Scott Talbott

echnology has transformed our lives in myriad ways. We can send messages, post images, stream videos and effortlessly connect with each other instantaneously. We can take courses, obtain medical diagnoses, shop, read customer reviews and easily compare prices between items online.

Entrepreneurs and business owners can now even “close the deal” on equipment financing agreements and other financial services completely online, helping them quickly grow their businesses.

The technology powering these transformative changes to the way we do business and live our lives have contributed to social, economic and political progress all over the world.

Yet these remarkable technologies that have presented so many exciting new opportunities aren’t invulnerable. Bad actors can target these systems and make business owners and consumers victims of cybercrime. While almost every business insures themselves against risks like fire and theft — and invest in

T

12

prevention measures — investment in cybersecurity lags well behind the risks.

The risks to small businesses Small businesses, like the smaller equipment dealers and lenders, face tough enough challenges for survival.

But cyberattacks can drive too many viable businesses into bankruptcy.

at $200,000 per incident — can be an existential financial burden to many businesses. According to the U.S. National Cyber Security Alliance, a staggering 60 per cent of small businesses go bankrupt within six months of suffering a cyberattack, resulting in job losses and damaging economic ripples.

Investment in cybersecurity lags well behind the risks.

The 2017 Canadian Survey of Cyber Security and Cybercrime by Statistics Canada revealed that 19 per cent of small businesses had been affected by cybersecurity incidents, while five per cent of businesses had no cybersecurity measures in place at all. Studies have also found that over 70 per cent of data breaches in Canada involve attacks on small to mid-sized enterprises.

The steep recovery costs of a single cybersecurity incident — estimated

CANADIAN EQUIPMENT FINANCE | Winter 2019 | canadianequipmentfinance.com

Cyberattacks, and their potential financial damages to small businesses, represent a growing risk for lenders serving these firms. For example, last year the asset-based lending market in Canada directed $300 billion towards retail vehicle lending. One can well imagine the potential losses there due to cybercrime, given the depth of personal and corporate financial information that are incorporated in these transactions.

Your Business Cyber insurance obstacles Cyber insurance will help affected businesses continue to service their financial obligations. Cyber insurance policies reimburse businesses for various costs associated with a breach, like remediation and notification expenses, and losses caused by damage, theft, disruption or corruption of electronic data. Annual premiums for cyber insurance are typically a few dollars per thousand dollars of coverage.

Even though failing to act leaves them vulnerable, most small businesses struggle to find the funds to put mitigation measures in place and secure cyber insurance.

A recent study by the Senate of Canada’s Committee on Banking, Trade and Commerce acknowledged that more support for businesses is needed. A recommendation in the Committee’s 2018 report on cyber threats noted “… businesses should be given incentives to invest in cyber security improvements, for example, by making these investments tax deductible.”

While the Government of Canada continues to emphasize the link between digital adoption and economic growth, it has also recognized that the lack of cyberpreparedness has the potential to hurt Canadians and damage the economy. Budget 2019 stated that “as rapid growth in the digital economy continues, safeguarding cyber security has become a priority for governments, businesses and individuals...”

Enabling cyberresilience Recognizing these alarming realities, some countries have

It’s critical for small businesses to adopt strategies to fight these threats. taken steps to help small enterprises improve their cyber-resilience. In Australia, for example, small businesses can qualify for government grants of up to $2,100 for a certified cybersecurity check from an approved provider.

The Electronic Transactions Association (ETA) applauds the Government of Canada for working to develop a voluntary certification that would recognize small businesses that meet a baseline set of security practices. However, given that the need for businesses to protect themselves against cyberthreats has never been more important, the ETA calls on the Government to spur faster adoption of safe practices by providing a non-refundable tax credit for Canadian-based small businesses to purchase cyber insurance.

Taking the steps required to become adequately insured against cyberattacks and making sure that the insurance is incentivized and available to small businesses, can give these firms a tool to help ensure their survival.

Here are the payoffs from the cybersecurity, business, and ultimately customer perspectives. Providing a 15 per cent non-refundable tax credit for those small businesses that have met the requirements of the voluntary cybersecurity certification program to purchase cyber insurance would encourage the adoption of enhanced security practices.

The tax credit would also serve as a catalyst for businesses to improve their cyber-resilience. That’s because, to be eligible for a cyber insurance policy, firms must demonstrate certain requirements to insurers, including inventorying data, assessing steps to protect data, utilizing technology controls, implementing employee training and other key best practices.

Some insurers also focus on additional steps

like encryption that helps promote businesses’ cyber awareness and frequently leads to additional measures.

The results are tangible and incremental improvements to a firm’s cyber-resilience that strengthen our economy’s resilience to cyberattacks.

As the digital economy grows, so too will the risk of cyberattacks. It’s critical for small businesses to adopt strategies to fight these threats. The proposed tax credit would encourage business owners to take the steps necessary to protect their livelihoods, local jobs and, in the process, the Canadian economy.

Scott Talbott is senior vice president of Government Affairs for the Electronic Transactions Association (ETA) (www.electran.org).

canadianequipmentfinance.com | Winter 2019 | CANADIAN EQUIPMENT FINANCE

13

Management Strategy

The need for secure digital identities

By John D’Apolito

rust, security and confidence in partners are the fundamental underpinnings of supplier/ procurement relationships, especially today’s digital supply chain. For without current information, such as potential red flags or insights into ethical practices, partners will be cautious.

These trading relationships require secure digital identities. Enhanced digital identities are about securing data and building trust with other entities in a supply chain, whether they are suppliers, buyers or financial institutions.

Secure digital identities, which are often coupled with digital access management platforms, then become the foundations for fast, secure, lowrisk transactions, including trade, finance and payment authorization.

This is accomplished by storing trading information in a completely auditable and immutable digital ledger.

In digital supply chains, this secure foundation is tied directly to an organization, which means any financial transactions from that organization are recorded into the ledger. The process allows organizations to quickly build a foundation of trust with financial institutions and lenders. Supply chain organizations can be granted faster access to financing, and even preferential rates based on their performance characteristics.

T

Reducing risks Building secure digital identities into supply chains is not only about transforming financial processes. It’s also about managing disruption. This is essential in notably the automotive and manufacturing industries, where critical delivery items are required to keep production moving efficiently.

Today’s supply chains are less like chains and more like networks.

Purchasing organizations can trade with thousands of suppliers, and disruption in supply chains can mean delays and lost 14

revenues throughout the network.

Secure digital identities are tied to an organization’s public financial data.

They can help mitigate risks in a network by allowing purchasing organizations to find trading partners that best fit their risk profiles. The actual trade ledger, which can be seen in some cases as a type of immutable record of the contracting/payment tool, lends itself very well to commercial finance, and in the automotive space; consortium-owned tools can be a composite identity for financing arrangements.

With the digital trade ledger, each participant can determine their ownership percentage, banks can lend at different rates and payments can be segregated for audit and compliance purposes. The concept of a secure digital identity doesn’t necessarily have to be an individual or even an entity profile.

With better monitoring technology and near-real-time data, purchasers can see further into their supply chains for risky behaviour from suppliers. Those that may be flagged include poor credit ratings, tax disputes or trading partner appearances on sanctions lists.

Not only does this visibility assist manufacturers, suppliers and financial organizations operating in global trading networks, it can also help these enterprises mitigate business risks and better manage ethical supply chains.

Impacts of ethical supply chains This last point is becoming increasingly important. More than ever, consumers are aware and interested in the source of the products they buy.

Purchasing decisions often take into account the processes and means through which products are created. A study from research firm Euromonitor International found 65 per cent of consumers say they try to make a positive impact on the environment through everyday actions, like purchases.

Organizations that monitor suppliers for economically, environmentally and socially responsible business practices

CANADIAN EQUIPMENT FINANCE | Winter 2019 | canadianequipmentfinance.com

can see a tremendously beneficial impact to their bottom lines. This would include vehicles and would also apply directly to larger capital equipment financing activity/purchases for farming and construction machinery.

Many organizations operating supply chains have supplier codes of conduct, but far fewer of them have the ability to enforce them with total visibility. But digital supply chain networks grounded in secure digital identities are providing new ways to gain visibility, which allows businesses to operate with more certainty that their supply chain partners are ethical. Some of the information now available includes compliance information about sanctions, social and environmentally responsible behaviour and history of work with small- or minority-owned businesses.

For many organizations, the ethical nature of a supplier/profile, or any relationship between buyer and seller can be seen as complementary to an overall risk profile. This also includes behavioural trends and transaction history, like payments made on time.

Providing a new assurance level Organizations working in today’s digital supply chain networks require a new level of assurance from their supplier partners. Secure digital identities provide businesses with an innovative way to build trust. They give trading partners immediate visibility into publicly disclosed information around financials, ethical and responsible practices and risk of disruption. As they build their foundation of trust, they gain faster access to capital through connected lenders and financial institutions.

Secure digital identities are more than a way of ensuring minimal disruption in a business. They provide the means to transform and increase the efficiency of financial processes within modern supply networks.

John D’Apolito holds the position of regional vice president, Business Network Sales at OpenText.

Multiple Channels. Multiple Media.

Digital. Print. Web. ONE MEDIA BUY.

TotalFinance MARCH/APRIL 2020

C A N A D A’ S M A G A Z I N E F O R F I N A N C I A L E X E C U T I V E S

Tax Time: Digital Challenges Remain Treasury & Capital

Payments & Transactions

THE CFO SUITE Asset-Backed Finance & Leasing

Canadian Lender

The Voice of Canadian Lenders

Marketing, Content & eCommerce

Premier Issue | June 2019

Advocate Collaborate Educate Features, Trends, Insights, Research

Lending, Loans & Credit

Back Office, A/P, A/R, Documentation

How It Works. Advertise in Total Finance Magazine and your ad will also appear in the digital edition of one specialized publication of your choice.

You may also choose to add additional magazines up to all 6 individual editions.

Reach marketers & financial executives Our magazines are must-reads for key executives in core corporate competencies.

To advertise or get more information and media kits:

Steve Lloyd 905-201-6600 ext 225 | 1-800-668-1838 | steve@totalfinance.ca