Integration often happens slowly, then all at once. The equipment financing industry is no exception.
According to the Equipment Leasing and Finance Foundation, there are several “new” technologies that are beginning to make waves in the equipment financing industry, and about 1,000 reasons why it’s important to jump on these trends. These technologies are all internet and software-based, and aren’t technically “new” because some (like AI) have been used for several decades. It isn’t until just now, however, that AI has made its way into consumer-facing services. Since 2012, we’ve seen a five-time increase in investment in AI software technologies.
AI, obviously, is one of these growing technologies within the equipment financing space. The other two are blockchain and smart contracts.
Artificial Intelligence in the Equipment Financing Industry
Artificial intelligence encompasses two different types – programmatic and cognitive.
Programmatic AI focuses on automating repetitive actions. Within equipment financing, this could be things like software used to process applications and check credit scores automatically. If a lender gets hundreds of applicants a week, automating underwriting can save a ton of manual labor and expedite the entire financing process with just a simple programmatic algorithm. This is becoming more and more common, as most banks mainly use programmatic AI
Cognitive AI is more complex. This is where the machine-learning aspect of AI comes in. Cognitive learning is teaching AI to understand and interpret actions based on previous data. This requires extensive data-collection, so it can sometimes be more exhaustive and complicated to develop. In the equipment financing business, this might look like interactive chat-bots on websites to assist customers with the type of equipment they need, or the financing help they might need. These can use data inputted by employees to produce real-time answers for customers. The more questions and inquiries the bot gets, the more it learns, and the more it can help future customers.
Blockchain in the Equipment Financing Industry
Blockchain is a simple word for an intricate process. According to Investopedia, the “blocks” are groups of digital information, and the “chains” are the public database they’re stored in. To break it down –
- “Blocks” are compromised of all the information about a transaction. However, blockchain networks break down this information into a “digital signature,” meaning the information isn’t comprised of your actual name or other personal information, it’s broken down into a digital version of it. No actual identifying information is used, only code.
- The transactions have unique codes, like barcodes, that distinguish them from other transactions. After the transaction takes place, it’s verified by thousands of computers, and it’s stored in a block, then that block is added to a chain. Hence the name.
What does this have to do with equipment financing? It can be used for online transactions and payments. It’s more secure and reliable than other types of online transactions and can be a way to keep trust with customers.
Smart Contracts in the Equipment Financing Industry
Powered by AI, smart contracts are a way to expedite and speed up equipment financing. Smart contracts are binding agreements sent via online documents. They’re signed electronically, and eliminate the need for in-person meetings or waiting forever for mailed documents. They’re powered by blockchain and contain computer code built into the blockchain to facilitate, verify or negotiate an agreement. The code contains the terms, and blockchain powers the facilitation. It makes the smart contract trackable and irreversible.
According to Investopedia, “Smart contracts permit trusted transactions and agreements to be carried out among disparate, anonymous parties without the need for a central authority, legal system, or external enforcement mechanism.”
What can this do for the equipment financing industry? It can make contract negotiation infinitely easier and quicker, and it increases trust between parties. For example, a lender can exchange funds at the same time a borrower can exchange a document fee, and it forgoes the need for paying a third party.
Challenges of New Tech
There are several other ways new tech is being applied to equipment financing, and infinite ways it can be in the future. But with any new technology, it presents challenges for those trying to apply it.
- Standardization – software isn’t standardized, and there’s no regulating body for its implementation. This can make uniformity across outlets hard.
- Integration – since there’s no standardization, it can make integration across parties hard. For example, integrating AI software onto a customer’s website can be hard without a specialized team.
- Privacy – even though blockchain and smart contracts are more secure than other forms of negotiation and payment, there can still be questions and concerns about privacy from customers, especially if they’re unfamiliar with it.
It’ll take time for these challenges to play out and for solutions to be tackled, but with the way technology is advancing, they’ll be addressed in no time.
You don’t have to create all these technologies yourself to implement them into your equipment vending company. You can reap the benefits without the coding work. FaaStrak offers equipment financing software you can integrate with your company’s website. In seconds, your customers can be matched with the best financing options for their needs. We use algorithms and AI to process customer applications, which closes your deals in a fraction of the time. Schedule a demo to see how we do it.