Wolters Kluwer announced new third quarter analysis from its Equipment Lease Finance Digital Transformation Index, a key resource that tracks the rate at which equipment lessors and service providers are seeing growth in the evolution from paper-based finance back-office processes to digital. The third quarter report also introduces a new section covering securitization markets for ELF.

According to the Index, the rate of adoption for digital contracting in Q3 decreased 23% compared with the previous quarter. While the quarterly adoption rate volume dropped from the previous quarter, it still aligns with annual volumes for the same period. The Index increased 21% compared with Q3 2023, and the report noted that the moving, four-year trend continues to show digital adoption growth at 26% dating back to Q3 of 2020.

"While 2024 has presented its share of challenges for business investment and equipment financing, particularly in sectors like transportation and manufacturing, the industry cannot afford to be complacent,” said Tim Yalich, Head of Motor Vehicle Strategy for Wolters Kluwer. “As interest rates begin to ease, it's crucial for businesses to position for success by relying on digital transformation to fuel and shape the path for future growth. In today's rapidly evolving business landscape, those who invest wisely in technology now will be in the driver’s seat to capitalize on the anticipated economic upswing in 2025.”

Business investment and equipment financing have faced challenges in certain sectors during 2024, despite overall moderate growth, according to the report. Transportation equipment investment remains in negative territory, reflecting ongoing struggles in this area. The manufacturing sector has been particularly soft, with the ISM Manufacturing PMI declining for three consecutive months after briefly expanding in March.

Small businesses continue to feel the impact of high interest rates and inflation, with rents rising 12% year-over-year. This has led to hesitancy in capital expenditures and inventory investments among many manufacturers, the report stated.

Wolters Kluwer’s also launched this quarter the tracking of digitization adoption rates for securitization markets. The digital ELF loan volume in securitization markets decreased 85% in Q3 compared with the second quarter of 2024. The year-over-year adoption rate decreased 59%; however, over the last four years, the trend in digital adoption for securitization is up 54%, illustrating a continued positive adoption rate over that period.

The equipment lease finance industry's securitized markets and asset-backed securities (ABS) in 2024 present a mixed landscape of opportunities and challenges. Despite economic headwinds, the market has maintained notable activity, with several significant transactions taking place. A number of large companies have issued ABS deals, indicating ongoing demand for equipment lease securitizations. These transactions showcase strengths such as diverse collateral spanning various industries, robust structural protections including overcollateralization and cash reserve accounts, and the advantage of short asset terms which help mitigate certain risks.

However, inflationary pressures and higher interest rates have led to some deterioration in underlying collateral performance, according to the report. DBRS Morningstar has issued a negative collateral performance outlook, particularly for small ticket and transportation-backed transactions. The industry anticipates increased delinquencies and defaults, along with lower recovery rates.

See the full data report.