High Profile Market Activity, Pent-Up Demand
Reflect Digitization and Regulatory Pressures

John Rizzi, head of The Alta Group’s digital business advisory practice, has noted a significant upswing in information technology (IT) activity by equipment leasing and finance organizations. We recently caught up with John and his colleague, John Hurt, to discuss the current marketplace, digital challenges and opportunities in the industry, and their advice for businesses considering system evaluations, upgrades, and digital innovation. John Hurt recently moderated a panel on digital disruption at the Odessa Technologies user conference and both he and John Rizzi will be attending other software provider events to continuously stay abreast of new industry developments.

Q What are you seeing currently in terms of portfolio management systems implementations taking place in automotive and equipment finance?

There are quite a few high profile back-office system implementations and vendor selection projects occurring as we speak, however, there still exists significant pent-up demand. Many in the pent-up demand category are waiting to learn the go-live results of current projects so we anticipate an increase in new system activity once there are successful implementation results. In our opinion, the “wait and see” dynamic we are experiencing is the result of a lack of proven new technology implementations that have taken place in the industry in recent years. Legacy platforms that have served the industry well for the last 30 years can no longer be merely upgraded. New entrants into the market with modern architecture and configurable tool sets offer lessors more choices than ever before.

Q Why is this activity increasing in the industry?

Beyond the need for lessors to modernize their portfolio management platforms, the appetite to embrace all things digital and the regulatory environment are the core drivers for change. Digital based applications supporting customer-facing activities have been widely adapted over the past 10 years so the focus today is on enhancements to the balance of the operational leasing lifecycle.

Q Briefly, what advice can you give equipment leasing companies that are facing system evaluations, implementations, or upgrades?

  • Be open minded to new products and system vendors.
  • Spend more time on due diligence and proof of concept before committing to a program.
  • Adapt your business to closely align with the new system’s capabilities and work flows.
  • Avoid code customization simply because you have always done it that way.
  • Invest in change management programs and trust your employees’ ability to adapt to change.
  • Add skill sets in your organization that will leverage the self-service configuration and integration capabilities offered in open architecture systems.

Q Which digital challenges – and opportunities – are the most critical right now for equipment leasing and finance businesses?

The only “critical” challenges are primarily related to regulatory and compliance edicts. Regulated bank lessors inherently spend a large percentage of their IT budgets implementing and managing compliance requirements, which unfortunately has hindered their ability to focus on operational effectiveness.

Beyond this, however, there are new application and analytical tools being developed every day. In many cases, lessors are surprised to learn that they can take advantage of these opportunities without having to change their entire operating platform.

The biggest complaint from lessors is the struggle to modify core system capability to achieve full alignment with the value-added business functionality unique to each company.  Traditionally, this has required significant time to explain business requirements to the system provider and money to have the customization completed, resulting in a lag in delivery.  Systems today are being evaluated in large measure on how well they can be configured vs. customized via APIs or standard platform bolt-ons.  Systems that achieve full alignment the best are more attractive, especially to lessors whose business models are constantly evolving.

Q Managed solutions transactions (MSTs) that bundle financing for related equipment and services are forecast to generate more than 22% of industry volumes in a few years. What digital capabilities and processes are most needed for early evolutionary stages in offering managed solutions financing?

That is a tough question to answer because what we have seen is a wide disparity in how companies operationalize managed solutions type transactions. Clearly, usage data capture and variable billing capabilities are the “table stakes” necessary for getting in the game. Expert asset management in conjunction with or independent of the equipment and service providers is also critical. Where many have struggled are in the risk and legal domains. With the continued development of machine sensors coupled with promising technologies such as smart contracts, greater control and management of MST portfolios will be realized, driving further expansion of this product category.

Q How is the industry using technology to address concerns about cyberattacks, ransomware, and other cybersecurity issues?

It is really a castle defense strategy.  There is not a single method or technology that addresses the spectrum of threats.  Technologies that rely on threat signatures captured during forensic audits after an attack are good – unless you’re the first one hit. One interesting innovative addition is the use of AI (artificial intelligence) to watch “how” a service is behaving on a network or device.  With this technology, a system watches how a service or application is acting and interacting.  It looks for traits consistent with a malicious intent and takes steps to mitigate it, even if it has never encountered the specific threat before.

Q We are reading a lot about newer technologies including artificial intelligence and blockchain within the equipment financing sector. Which new technologies are likely to have the greatest impact on the leasing industry in the next five years? How are they being incorporated into today’s leasing systems, and what capabilities will they bring, if you are seeing this?

There certainly has been a lot of interest in blockchain and other emerging technologies. While there is a firm belief that blockchain can be implemented in the commercial equipment leasing industry to manage issues related to equipment installation disputes, payment validation, fraud prevention, and the like, few commercial applications have been developed that can be implemented in lessors’ environments today. With that said, we fully anticipate that the significant venture and early stage investments being made will certainly result in commercial applications over the short-to-medium term.

We have already seen virtual reality applications developed by software vendors for manufacturers and dealers. Automotive dealers allow potential buyers to “walk their lots” and options selection applications provide buyers with a 3D view of the models they virtually build. On the equipment side, off-lease resale participants should also save time and cost as a result.

Q What is the scope of your digital business advisory to serve equipment leasing and finance organizations?

Our clients primarily engage us to provide them with an outside perspective on both front- and back-office system and platform selection, application software implementation that drives operational effectiveness or enhances analytics, change management programs, digital road map development, and global process alignment. We lead programs at the steering committee level and/or provide significant resources and expertise in system design and implementations in cooperation with our Genpact strategic alliance.

Q Where does your expertise provide the most value to organizations in the process of digital innovation?

The Alta Group is made up of 60 professionals globally situated that have direct senior-level, hands-on experience in all aspects of the equipment leasing industry. When we serve clients in our digital business advisory practice, we select consultants who will best fulfill the project deliverables. While most consultants aligned with our digital practice have CIO, IT, and/or software experience, we also draw on our functional experts in the fields of accounting and finance, risk, asset management, sales, syndication, training and professional development.  Digitization opportunities encompass all aspects of a lessor’s operation and touch each functional domain and every employee.

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