Equipment finance providers need to consider their future role in the industry as the market is reshaped by digitalisation and changing customer expectations.
That’s the view of Charles Anderson, the chief executive officer and founder of technology platform Currency, which is driving the development of new digital channels in finance.
Despite the size of the $1.7 trillion equipment purchase market, with $1.1 trillion in finance, the sector is ‘behind the curve’ compared to other finance verticals, such as credit cards, mortgage, auto loans and general consumer finance, he argues.
Anderson believes it is not a question of ‘if’ the market will be reshaped by technology, but ‘when’, as the sector adapts to meet a huge unmet need for an updated, digital finance experience.
Currency’s technology streamlines both approval and funding by getting a more complete financial picture at the beginning of the application process. Since launch, Los Angeles-based Currency has enabled more than $500 million in loans.
Currency’s Express technology can digitally obtain a complete picture of finance companies’ clients, so they can be approved within three minutes at the point-of-sale.
Speaking in an Alta Group podcast, Anderson said: “I saw a huge opportunity and an unmet need as well.”
Currency has an ambition to be ‘the world’s largest lender with no money’ by acting as a unique link between lenders, sellers and customers.
This recognises the unique strengths of each element of the value chain, which Anderson calls “superpowers”.
Anderson said: “Banks have a cost of capital that we will never achieve, while captive finance houses have vertical expertise and asset class knowledge and manufacturers also have a superpower that we can’t achieve.
“We believe a successful strategy for Currency is recognising why we are unique and partnering with those that have superpowers that we don’t have.
“Our leading idea was that if we could bring a digital experience, we would win.”
However, there can be a clash between the digital ambitions of disruptive companies and the difficulty of taking the first steps away from physical processes to digital solutions for finance providers.
As banks are built on trust, they have been designed not to fail, with large numbers of checks and balances, rigidity, processes and quality control that is designed to keep things safe.
Furthermore, after the global recession, banks reduced levels of lending, while there were delays between application and the funds being delivered.
This tends to be incompatible with the flexibility and speed consumers expect in the modern world, which in turn is leading to a growing number of fintechs trying to bring technology into the financial services sector.
Anderson said: “The millennial generation does not have the same confidence and respect in the banking system that their parents or grandparents do. The things they value are not the things their parents do.”
Developments in finance include products such as digital signatures, which can be a more robust method of preventing ID fraud than using paper methods, but persuading banks to accept this change requires persistence, a clarity of vision and strong, clear evidence of the benefits.
Anderson cautioned: “Sometimes, the right answer isn’t the right answer if you can’t get buy-in.”
Despite its benefits, technology is only an enabler, according to Anderson, who says what sets fintechs apart is their obsession with the customer experience and achieving a step-change in the way customers and providers interact with each other.
This includes adapting to the way customers do business. For example, a restaurant owner may not have time to sit at a computer arranging finance and instead they need a high-quality experience designed specifically for a smartphone.
Fintechs ask how they can solve day-to-day real-world problems, because while digitalisation can optimise back-office processes, the real revolution comes through customer interaction.
Anderson points to three ways companies can compete in the finance sector, firstly on the cost of funds, secondly on their range of products and thirdly how customers are acquired, for example through a better experience and easier processes.
If the customer is acquired at the point of sale, with a digital process from the start, this brings customer and finance provider closer together and enables a competitive proposition, while also protecting yields.
Anderson said: “Technology will make it cheaper to process a transaction, so the borrower can pay a lower rate, with a better experience. The lender will capture the same yield they were expecting, but with a new way for the transaction to flow.
“We want to win at being a transaction empowerment company. If we can help process the transaction and add value, we will make money through renting our technology as a service, payment processing volume and facilitating transactions where we capture an origination fee.”
Currency remains mainly focused on the small ticket market, which is estimated to be at least a $50 billion sector. This sector allows Currency to follow a learning curve as it grows.
“You can’t make many mistakes, if any, in the mid-ticket market. The small ticket market is big enough to be active in for a long time,” according to Anderson.
In 2016, Anderson founded the Commercial Equipment Marketplace Council, a community of corporate practitioners in commercial equipment and asset financing, which has a charter to create a forum in which industry executives can get the insight, interaction, and information they need to make good business decisions.
He added: “The industry will reorganise itself. If that is true, we should be thinking about what role we will play when this happens. Not if this happens, but when.”