Inasmuch as banks are a for-profit enterprise and are designed to generate value for their shareholders, they serve an important social function as well: to direct capital to capable entrepreneurs and spur a society’s economic growth and activity. One way banks can do this is by making capital available, at rates of return that are affordable yet beneficial to the bank, to allow small business owners and private individuals to make big-ticket purchases.
This is the segment of finance known as asset financing, and the need for this varies from client to client. A small business may be looking to scale up its operations and needs to purchase some machinery or a fleet of delivery trucks, while a private individual preparing for retirement may want a relaxing home in the countryside. Whatever the motivation, asset management is a vital part of a bank’s operation and must be suitably equipped to address the needs of today’s consumer.
Unfortunately, many small and mid-sized banks still insist on hanging their operations on the same legacy systems and IT support that have been in place for decades. This inability to move away from old workflows and an unwillingness to embrace modern systems create multiple problems within a bank’s operations. Such issues include inaccessible, siloed-off information, revenue leakage, poor interdepartmental communications, and a host of others. To truly win in the asset management and finance space, today’s banks need an asset finance solution that is flexible, modular, easy to use, and will continue to receive developer support well into the future.
If you’re part of bank leadership and are looking to modernize your asset finance operations, here are some things you should know.
Based on analytics from 2020, an estimated 90 percent of internet users access the web from devices other than their desktop computer or laptop. Truly, digital connectivity has left the personal computer in the dust, with home appliances like TVs, refrigerators, washing machines, and microwaves now coming equipped with internet functionality. This has led to the establishment of the Internet of Things (IoT), with previously unconnected devices now being given access to the wealth of information that the Internet holds.
What does this mean for asset finance? Now, loan officers can get a view of their clients’ usage habits that is more granular and holistic than ever before, if they are equipped with an asset finance system that supports IoT integration. For example, if a client takes out a car loan and purchases a car with IoT capabilities, banks can connect to the car’s onboard computer and learn about their client’s driving habits. Total distances driven, maintenance schedules, and even fuel consumption are all available data points that banks can use to determine the real-time value of the car.
Product Life Cycles and a Reasonable Obsolescence Horizon
One of the major problems of legacy IT systems is how difficult it can be to keep them updated. On the systems side, it’s entirely possible that a bank’s IT infrastructure has simply been rendered obsolete by newer technology. Developers inevitably decide that it just isn’t worth their time and effort to maintain a piece of software that is outdated and does not interface with newer programs. This leaves banks in the precarious position of relying on software that isn’t going to receive important updates for things like security and encryption. As a result, banks are left vulnerable to attacks that their system is not equipped to defend against.
Forward-thinking bank management must choose an IT system that has a product horizon that will justify the cost of the upgrade. On the one hand, annual system refreshes would likely be wasteful and burn through a bank’s operational expense budget fairly quickly. On the other hand, failing to upgrade regularly has its own pitfalls, as mentioned above. Bank leadership must balance these two factors carefully and must look for a product that will be refreshed and maintained for a long enough period of time to justify the cost of the software.
Holistic Client Captures Refreshed in Real Time
Today’s consumers don’t just want personalized service; they expect it. With almost anything they could ever need available at their literal fingertips, consumers who have grown up immersed in internet culture expect to be spoiled for choice. Banks must acknowledge this expectation and cater to it, or risk losing accounts to competitors.
To help banks attract and retain clients for the long haul, they must invest in an IT infrastructure that helps build a more complete picture of clients and their tendencies. Newer IT systems can provide more granular client information. More importantly, these systems often update on their own as clients’ circumstances and financial positions change over time. This gives lenders a real-time picture of a client’s bankability and helps them determine attractive interest rates, flexible payment terms, and other perks that would further incentivize clients to keep their accounts intact.
Asset financing is a valuable income stream for banks, and an inability to fully leverage it could put a bank in dire financial straits. Consider the tips mentioned here and give your bank the competitive edge you’ve been looking for.