Cloud is shaping the future of asset finance
By David Hamilton, CEO, IDS
The asset finance industry is at the heart of our global economy. Our industry is the gateway to the funds needed for everything from start-up organisations through to large enterprises.
As more diverse asset classes are being financed, and new lease and loan products are introduced, it is important for financial service companies to adopt technology to help support their growth and the continued evolution and innovation of their product and service offerings. Cloud based technology offers the flexibility and scalability required to facilitate and accelerate growth.
Cloud is not new, but the ability to shift traditional enterprise workloads to the cloud and have vertical software applications delivered through the cloud remains an emerging trend in the business-to-business (B2B) financial services sector. This trend will only increase as the benefits associated with cloud outweigh any reservations or concerns financial services firms may have with moving lease and loan origination and portfolio processing to the cloud.
In recent years, cloud applications have become mainstream in the daily lives of consumers, but comparatively slow adoption has taken place in financial institutions, particularly within the asset and equipment finance sector. Even with slow adoption in our industry, some more innovative companies are leveraging the cloud to help increase efficiency and provide a competitive advantage over companies who have not yet made the strategic move.
Over the course of the last year, there have been several significant announcements of larger financial institutions making this transition. Capital One announced that it is moving as many of its applications as possible to the cloud.1 National Australia Bank has followed suit and announced that they are partnering with Amazon Web Services (AWS) with a goal of migrating more than 300 applications, including some core banking systems, to AWS by the end of 2019.2
This is not limited to large financial institutions; small to medium lessors are also embracing this transition. North Star Leasing, based in Burlington, Vermont US, announced earlier in 2019 a move of its entire portfolio management system to a software as a service (SaaS) cloud solution.3
Cloud computing, hosting and SaaS. Cloud computing is a term that covers many types of on-demand compute power implementations including Enterprise Cloud and Public Cloud. While the broad definition of ‘cloud’ helps to describe the underlying delivery of compute resources, it is important to understand the distinction between ‘hosted’ software and a true Software-asa-Service (SaaS) delivery model.
Table 1: Cloud customer benefits from SaaSaccessibility and scalability reducing in-house IT
Hosting is simply the installation and availability of a software application through a private or public cloud provider. In this model, it is your IT department (or the hosting provider) that is responsible to define the underlying hardware architectures that will be used and provide all of the configuration and application management required. In this scenario, the hosting company provides the physical location for computing hardware and is responsible for ensuring the uptime of the internet connection but would have no responsibility for the application.
While the upfront costs of hardware infrastructure are often (but not always) avoided with software hosting, the hosting delivery model does not address the need for software licensing.
The SaaS delivery model extends the on-demand, low upfront investment nature of cloud computing to include the software you need to run your business. For the end user of the solution, this means that all of the IT infrastructure, security monitoring and management and application management are provided by the SaaS provider. This allows the end user to focus on what is most important to them, delivering great customer service and growing their business.
Cloud enables an ecosystem approach. One of the significant benefits of cloud delivery is the ability to integrate with an ever-expanding landscape of cloud-based solutions. The burgeoning landscape includes resources such as artificial intelligence and other advanced technologies that would otherwise be out of reach for many firms in a more traditional delivery model. Cloudfirst technology provides the ability to easily connect to other applications and develop ecosystems in support of business processes in a cost-effective and strategic manner.
The connections are made through standard web services or application program interfaces (APIs), an architectural model that has become the prevailing archetype for software integration in the cloud.
The technology ecosystem for asset finance becomes even more powerful with SaaS at the centre of a software purchasing model. For example, during origination, actions like credit check, tax estimation, pricing and electronic signatures, can be easily integrated into the origination workflow through APIs or web services. The combination of an API-based architecture, SaaS delivery model and underlying cloud-based infrastructure offers enterprises a compelling and truly strategic path forward for technology investment.
Beyond origination, a cloud-based ecosystem provides the ability to enhance portfolio management, improve customer engagement and drive innovation at a faster and more cost-effective pace. Leveraging the connectivity of the cloud, customers are able to get real-time information like current balance or payoff quotes via digital platforms.
Technologies like chat bots can be leveraged to answer general questions and give customers a more interactive experience with the digital channel.
Cloud enables scale. A challenge that many companies face is how to scale at the pace of business. Good management is always trying to balance the investment needed to grow the business with the gap in time when growth is realised. This is an area where cloud is especially valuable.
In the past, scaling for growth, especially when it applied to software, was somewhat of a guessing game. IT would be tasked with estimating how much computing and storage resources were necessary to support the application and projected growth in usage. Beyond the planning cycle, long procurement processes, particularly in larger organisations, meant that getting resources delivered and operational in a timely manner often resulted in the business stalling growth or making do with underperforming infrastructure.
With cloud, the resources you need to support growth are available on-demand, and in many cases real-time. Furthermore, SaaS based applications mean that the mission critical software and infrastructure your business depends on, scales seamlessly via consumption-based, or on-demand pricing.
With a SaaS application, asset finance companies only need to pay for the capacity used. There is no need to worry about what hardware is needed to support growth. No need to worry about storage capability for increased contract volume. No risk of having too much capacity if volumes change or you sell off a portfolio. The advantage of SaaS is the ability to both scale up and if needed scale down based upon current needs.
Additionally, SaaS enables scale beyond borders. As information security concerns increase, coupled with regulatory requirements, expanding to additional geographies can be challenging. With more focus on data residency, in order to achieve scale without the cloud, you would need to build infrastructure or find a data centre partner to ensure local data remains within a geographic border.
With services from global providers like AWS, the infrastructure already resides in the given geography. This allows a SaaS provider to stand up an instance of their application in a given geography allowing you to take on new customers in that region.
Geographic requirements become even more pronounced with initiatives like the General Data Protection Regulation (GDPR) which requires extra attention to how data is collected, stored, managed, and erased. In evaluating a SaaS application partner, the provider should be able to produce a detailed outline for how GDPR requirements are being addressed.
Cloud enables the future. Technology is evolving and rapidly raising the expectation level of customers and establishing new table-stakes for businesses. The asset finance industry is no exception. Lessors have been and will continue to face pressure to deliver products and services in an easy to use, easy to consume model. As tracking and sensor technologies improve, we are seeing the emergence of service-centric financing.
This trend towards “servitisation” allows for assets and their associated value-added services to be offered as a holistic or bundled offering. Customers can now pay for the usage and maintenance of an asset instead of simply leasing the asset itself. For example, manufacturers who provide office imaging technology have been providing an image-based “service” centric financial mode for many years now. Every image or copy is part of the service which is bundled with the associated supplies and maintenance of the machine.
With a proliferation of connected devices, this same model can be extended to assets of all types; pay-per-use solutions will become table-stakes in a rapidly innovating and increasingly connected marketplace.
This type of model is perfect for cloud. Lessors are able to track the usage of the solution through connected devices, aka the Internet-of-Things (IoT), and with a SaaS based portfolio management solution that can process this asset level data, be able to generate monthly invoices based on actual usage against agreed upon terms of service.
Table 2: Cloud enables the ability to connect all aspects of the asset finance lifecycle
The worldwide number of IoTconnected devices is projected to increase to 43 billion by 2023, an almost threefold increase from 2018.4 As assets become more connected and able to share usage and location data, finance companies have a great range of possibilities for creating innovative financial products to help grow their customers’ business.
In the broader ecosystem, financial services firms are exploring new technologies including artificial intelligence (AI), blockchain, robotics, to name a few. These are exciting technologies and hold the promise of increasing efficiency and providing a more seamless customer experience. The heart of these technologies is the cloud. Each one of these technologies has been designed to be cloud first and to interact with other technologies. The integration of these technologies has the ability to significantly impact the asset finance industry.
These future technologies will all be dependent on cloud connectivity. Blockchain has the potential to provide accurate and authenticated asset ownership and maintenance records in a universal distributed ledger. This type of indisputable record would significantly ease asset transfer and remarketing. While business, regulatory and practical hurdles currently exist, the underlying cloud infrastructure is in place ready to be unleashed.
Cloud ready? Cloud-based solutions are positioned to positively and dramatically impact the future of the asset finance industry. But it will also impact business as usual for IT professionals. One of the significant advantages of cloud and SaaS, in particular, is the ability for the vendor take care of day-to-day application health and performance and deliver new services without interruption to users.
The power of a connected ecosystem and the ability to embrace new technologies as part of the cloud can only take place if the underlying technology solution is upgraded to capitalise on these new architectures and opportunities.
With SaaS based solutions, upgrades happen in much shorter intervals and are deployed into an environment architected by the application developer. The SaaS developer is the expert and is able to deploy new functionality and manage the application without disruption to the end user; continuous integration, continuous deployment are the hallmarks of a modern SaaS solution.
Cloud technology is opening the door for new innovation within asset finance. Cloud technology enables a host of new and exciting creative products and services that can now be delivered to help optimise processes and improve the customer experience. The change will not happen overnight, but it is coming. Continued advancement of cloud solutions will level the playing field, allowing lessors of all sizes to have the same foundation to innovate with new financial products.
Famously said by Klaus Schwab, Founder and Executive Chairman of the World Economic Forum, in the new world, it is not the big fish which eats the small fish, it is the fast fish which eats the slow fish. Market share will go to the companies that can deliver the most value in a time efficient manner to their customers. Cloud offers a distinct advantage. Are you cloud ready?
3 https://www.idsgrp.com/north-star-leasing-company-goes-live-onidscloud/4 Internet of Things — Endpoints and Associated Services, Worldwide,
2017, Gartner, December 2017, gartner.com.
David Hamilton, CEO
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