As originally published in Equipment Finance Advisor.
Throughout the pandemic, there was an incredible amount of innovation and investments made to improve the end-customer-facing commercial transaction process and technology workflows, which has resulted in exceptional acceleration in the transaction becoming more digitized, or at least digitized when it comes to the customer-facing touchpoints.
However, while the ecosystem focused on technology-driven innovation to fuel the improved customer experience, the less glamorous parts of the process, and many components of the processes between equipment lessors/financiers and customers remain largely paper-based, unsecure and inefficient or clunky. And even those systems that are using a more digitized process continue to suffer from a fragmented system using disparate technologies and platforms that severely hamper the broader experience for everyone involved.
As the next phase of digital transformation happens, what will surface is an awareness of more improvement needed throughout the journey, particularly around paper used in the transaction. In today’s world, the use of paper in the equipment finance transaction is inefficient risk and liability.
Equipment finance providers are willing to make changes to processes to meet customer expectations, which we have seen throughout the pandemic. The economic changes that were brought about as a result meant equipment finance providers and their commercial customers need more business agility and flexibility incorporated, and digital helps in this regard.
Commercial enterprises and equipment finance providers must leave the paper world
The use of paper is not only inefficient, but it also carries significant compliance risk. We still have a very paper-driven culture in equipment finance, wrought with risk and liability for everyone involved. We now need to shift focus to digitization as a solution for the risk and liability we have in the transaction around use of paper and management of original documents, to find end-to-end solutions that eliminate the need for paper.
Digitization of the entire process will solve several key pain points for the industry. First and foremost, digitization will significantly improve the risk and liability of exposed PII (personally identifiable information) in a paper-based environment. There are major inefficiencies and added costs to manage paper, keeping up with revisions, etc. What’s more, a paper-based environment often results in outdated contracts used, which usually leads to lender rejections, and paper returned to the customer which further increases the risk of exposure.
Lenders have recognized the importance of evolving from paper only, as seen with the emergence of eContracting solutions. Equipment finance providers and lessors have seen significant enhancements here by way of faster processing, streamlined workflows and a more reliable, trusted document handling system.
Additional solutions exist, from digital signatures, to leveraging digital vaults to protect who has access to documentation or digital transfer between the lender and customer to get a contract funded. And ultimately, the ability for documents to be created so lenders can digitalize and securitize assets. There is a future of paperless and efficient process that can be achieved in the ecosystem – backed by the security of a documented audit trail.
The next phase of digital transformation will leverage words such as e-contracting, multi-channel origination, digital certainty, auditing, document governance, security, post-transaction asset management and analysis tasks across all parts of the document journey. It’s not as flashy as the customer experience rally call of the past several years, but nonetheless critical for the industry to evolve to the next chapter of digitalization.
The need for purpose-built digital ecosystems
To overcome these challenges, equipment finance and lease providers and commercial accounts are leveraging digital ecosystems that are purpose-built to handle the industry’s origination channel diversity, eliminating the complexities around managing various multi-channel assets post-execution, and drastically reducing operational and time costs.
This process allows for improved visibility of assets, quick expansion of the investor and lender pool, agility, and the ability to scale quickly and dynamically.
It also provides the assurance of legal and regulatory compliance, enabling financiers and lessors to securely manage digital assets throughout their entire post-execution lifecycle through an electronic collateral control agreement (ECCA).
This advanced process will offer centralized data management across an entire portfolio, allowing equipment finance professionals to view metadata across various origination channels and asset classes.
What’s more, it will help to control and track access, manage status changes, and transfer control of digital documents while utilizing sophisticated granular controls and permissions to allow for departmental separation and visibility. All of this will result in improved speed and process efficiency, and for lenders particularly it will free up capital through syndication, sale, or securitization.
With these enhancements the industry can boast about its digital transformation on the front end of the customer transaction, and also in the back office between equipment financiers and lessors and regulators.