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Are You Being Held Hostage?

October 24, 2018, 12:00 PM

Business customers are increasingly choosing digital options when it comes to fulfilling their financial needs. This shift to digital financing is primarily due to the saturation of wireless data, and smartphones in both their personal and business lives. As people become more comfortable with using online banking in their personal lives, it makes sense for equipment finance companies to offer businesses digital financial services that are not restricted by outdated traditional protocols.

This leads me to ask the question: Is your company adjusting to changing customer expectations? Enterprises that are not in the process of making plans for conversion will most likely not be sustainable in the long term.

In today’s world, experiences are delivered in real time and based on predictive algorithms. People are also learning to depend more on voice user interfaces like Alexa and Siri. Meanwhile, smartwatches and smartphones are also becoming increasingly sophisticated. As we carry those devices everywhere, equipment finance will become embedded in the smart world. This will be the purest form of a utility versus a product.

Change is Underway – The Twilight of the Analog Customer Journey

This is not a future trend. Humans are morphing into cyber/tech focused beings. They are being motivated and governed by the relentless progress of technical innovation and the adoption of high-speed digital networks.

As we look at common practices nationwide, lending of all types has gone digital, including business lending. The time to establish your company as a leader among equipment finance companies is running out. Forward-looking equipment finance companies are focused on growth and recognize the importance of capitalizing on the opportunities represented by new digital products and processes—right now. The idea is to make the buying journey easier with less friction.

According to Juniper Research, by 2021, half of all adults worldwide will use a smartphone, tablet, PC or smartwatch to access financial services — up 53 percent from 2017. 1

Customer Expectations

Companies that resist the shift to change, do so at their peril. Customers are moving away from seeking financial solutions solely from traditional banking sources. They are now assessing solutions which are available from nimbler organizations that are fully invested in the transformative benefits of the digital revolution. They desire a journey that is integrated into their digital lifestyle.

As customers embrace the universal application of technology across all aspects of their daily lives, financing sources should expect to provide:

  • An accelerated customer journey for credit approvals and documentation;
  • Opportunities for customization and personalization during the experience;
  • End-to-end digitalization to include monthly invoicing;
  • Blending personal interaction with high-quality self-service portals;
  • The passing of cost savings on to the end-user; and
  • Trust for the borrower to gain loyalty via competence.

RJ Grimshaw blog chart of Bank and Credit Union Applicants and Satisfaction

Redefining the Balance of Power

The new equipment finance ecosystem will affect the position of each incumbent differently while providing a great opportunity. All parties in the ecosystem, from the dealers selling the equipment to the bank that offers the financing, need to reevaluate their business models. The smaller, nimbler dealers and equipment finance companies will have an incredible opportunity to expand their reach and take market share.
 
Dealers
The majority of equipment dealers are stuck in the pre-internet era. This means they aren’t able to leverage the tools to make the purchase as simple and as empowering as the forward-facing, digitally enabled dealer will. Instead of sending purchasers to a third party for financing, dealers need to embed financing and the application process into the online buying process. The suppliers that don’t show this initiative will lose sales and show declining profits. Conversely, those who are adopting digital protocols will have access to additional data, which in turn will allow them to understand their customer's buying habits.

Captives
Going forward, captives will have to make a difficult decision to finance other original equipment manufacturers’ equipment or support their OEM exclusively. From an OEM’s perspective, a large captive balance sheet might not be desirable. OEMs that use third-party lenders will have to choose their banks carefully to develop new approaches in the ever-changing world.
 
Equipment Finance Companies
For many finance companies, delivering a new digital offering requires a significant departure from their company’s current operating model. Today, we all face competition from a vast array of fintech startups that are meeting customers’ needs faster. However, this comes with a cost to the end-user, namely higher rates for the borrower.
 
Banks still have the fundamental advantage of access to cheaper funding. However, if you’re an institution steeped in old traditions with antiquated systems, this change will be challenging. In essence, if you want to embrace the Bank 4.0 world, you need to break your business down and rebuild. If you don’t, it is just a matter of time before your business is no longer viable.

The opportunity to level the playing field between the large and small finance companies has never been better. To adapt to this fast-changing environment, every participant in the sale cycle must remove the friction from the customer’s journey when purchasing equipment.

Will Banks Innovate and Join the Movement?

“Neither Redbox nor Netflix are even on the radar screen in terms of competition.” – Blockbuster CEO Jim Keys, speaking to investors in 2008.

Although some banks are showing signs of changing the status quo to work within this new revolution, it’s still hard for most banks to make the necessary changes. Banks are not famous for thinking outside of the box. Today, many banks are still married to the process of a “wet signature” on a piece of paper and of mitigating risk to the bank through a legal, physical paper record.

Equipment finance companies have tried very hard to train people to think in terms of products, versus utility. The biggest banks will have the strongest headwinds as they typically have the most complex legacy systems, which on top of the regulatory scrutiny, makes it difficult to adapt and change. This innovation also requires significant investment in new technologies, which is key to meeting new customer demands in financing.

For the most part, banks are subject to strict regulations, and every change made must pass under the watchful eye of compliance. This limits risk-taking, which stifles innovation. Where change is advocated, it is usually met with resistance at the compliance level. These big institutions are not as agile as the smaller banks and fintech companies of today, and it’s holding them back from changing with the times. Change is always perceived as risk, and risk is the last thing banks will entertain.

So, What Does This All Mean?

“We can’t solve problems by using the same kind of thinking we used when we created them.” – Albert Einstein

Although it’s difficult to predict the pace of change or what the new ecosystem will look like, one thing is for certain… no company will emerge unscathed. Every incumbent should think through what the new world will mean to them. Transforming your business overnight is basically impossible, however, focusing on the customer experience will demonstrate the beginning of your transformation. Fintechs are gradually taking market share, and while they don’t dominate the lending environment yet, their growth means they will absolutely be part of the future, and others will be consolidated out.

While our fate is yet to be determined, I can be sure of one thing: Customers will benefit enormously from the new changes underway, and with a frictionless ecosystem in place, finding, purchasing and financing equipment will be much faster and easier.

1 Bhas, Nitin, “Retail Banking: Digital Transformation & Disruptor Opportunities 2017-2021,” Juniper Research, February 2017.

RJ Grimshaw
President & CEO | UniFi Equipment Finance
RJ Grimshaw is the President and CEO of UniFi Equipment Finance, a Bank of Ann Arbor wholly owned equipment finance subsidiary that is headquartered in Ann Arbor, Mi. UniFi was founded in 1978, and serves manufactures, distributors and resellers in four main market segments which include industrial, specialty markets, technology, and health care. Reach RJ at rgrimshaw@unifiedge.com and on twitter @rjgcoach. Learn more about UniFi Equipment Finance at unifiedge.com.
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