Inertia is a major force in enterprise software, and the equipment finance sector is no exception. Often, adopting new technology gets put on hold because equipment finance companies have deep ties to existing vendors, new software represents potential disruption, and updating software is perceived as costly and time-intensive.
 
It’s perfectly understandable that equipment finance companies would avoid upending their tech stack. But there are costs to sticking with legacy systems — both in terms of existing costs and the opportunity cost of not adopting superior alternatives. Here is a rundown of some of those costs — and the opportunities that lie in modernization.
 
Challenges with Legacy Equipment Finance Technology
 
Data: Analyzing data to generate business insights will only get more vital as artificial intelligence and machine learning evolve. But when you’re on a legacy system that may have been built decades ago, you won’t be able to analyze big data and generate the most powerful possible insights. In turn, this analytical deficit will prevent you from unearthing insights that could improve your business.
 
For example, let’s say you have a big portfolio of deals and can’t analyze them efficiently. You might want to know what types of deals are causing a slowdown in a high-touch environment. With an outdated system, you won’t be able to identify bottlenecks because the system may not time-stamp deals appropriately, track the life stages of each deal, or analyze SLAs against individual transactions to ensure you’re maximizing efficiency. Modern platforms capture these crucial data elements, solving these problems to power optimal efficiency and identify growth opportunities.
 
Talent: You want your employees to be happy and comfortable. Younger professionals in particular demand sleek technology. For example, they don’t want to use a legacy system that is not being invested in for the future — an application where they may be spending 80% of their workday. Imagine an employer gave you a Nokia 8150 from 2001 instead of a smartphone. That’s what using decades-old enterprise software is like. And it will negatively impact your ability to recruit and retain high-quality talent.
 
Cost: Legacy systems are margin killers. You generally need more people to manage them, and they require specialized knowledge that is harder to find. It’s much easier to find people who understand current technologies. Plus, when your systems are outdated, you build processes to keep up with the old status quo, not contemporary market conditions. That raises costs per transaction, support ticket, and any modifications required to the system.
 
Growth: Legacy tech undermines the customer experience, potentially diminishing both retention and word of mouth and therefore growth. Equipment finance companies ultimately work with individual humans. Their demands evolve, and they expect tech to be able to support them. With outdated systems, equipment finance professionals may need to look at ten different tabs to get the data they need to serve the customer, increasing wait times and delaying time to value. The outcome is a less happy customer, which hamstrings any business.
 
Compliance: Financial services companies are facing additional regulations such as CFPB, CCPA, GDPR, etc., and if they’re not in compliance, they can suffer substantial fines as a percentage of their revenue. Not only are old systems not built for new regulations, but also, updating them is another cost. Manual workarounds are both expensive and risky from a regulatory perspective.
 
Capabilities of a Modern Asset Finance System
 
Let’s say you understand the costs of outdated technology and want to modernize your tech stack. What do you look for in modern technology? Here are three key capabilities:
 
Integrations: The system should be open from a business services layer standpoint. For example, let’s say a finance company wants to use its equipment finance system to quote a deal and another internal system to credit-decision it. The company should be able to create a quote, pass along the data to that other system that can assess credit risk, and then receive that credit risk information and make a decision — all in real-time. Modern systems have modular functionality that facilitates integrations, enables cost-cutting automations, and makes real-time decisioning possible.
 
Data Accessibility: Modern systems are able to capture as much relevant data as possible on the fly. They can add data points without customization, and that data is easily extracted to a data warehouse so it can be used in an analytics software like Tableau. Also, the platform should be able to use that data in a machine learning model so predictions can be done on the basis of it.
 
Two types of data modern equipment finance technology should allow its users to collect are usage and ESG data:

• Usage: Equipment finance customers increasingly want to pay for how much they use an asset, not a flat amount. This is part of the transition to an everything-as-a-service economy. To keep up with the trend, you need to be able to monitor usage of an asset — for example, how long a tractor is on and how many miles it went in a given day. This will impact how you set residuals and gauge performance against expectations. Plus, the system should be able to capture both qualitative and quantitative usage — not just how long a tractor was used for but also whether it was used for hay or corn. That’s also important to asset managers when they set residuals.

• ESG: Being able to capture the impact that an asset is projected to have on climate will be an increasingly prized aspect of modern equipment finance technology. What’s more, companies will need to track and report emissions for individual assets. Legacy systems are contract management systems; they’re not asset-based. Nowadays, systems should allow you to report on individual assets as regulations evolve.

Scalability: End customers are demanding more and more assets on individual schedules — up to tens of thousands. Legacy systems are unable to put that amount of volume on one schedule, which may lead to limited servicing flexibility as well as increasing costs associated with performing manual workarounds. A modern equipment finance platform should be able to accommodate this number of assets on one contract.
 
The Cost of Doing Nothing Isn’t Nothing
 
In business, the status quo often wins. And there are good reasons for that, as making a big change comes with risk as well as investments of money and valuable time.
 
But when it comes to your tech stack, the cost of doing nothing isn’t nothing. Failing to modernize technology eats into your margins at a time when efficiency is critical. Modernizing cuts costs while facilitating growth. For strategic operators, there can be little doubt. Outdated technology doesn’t cut it. It’s time to leap into the future.