While Blockchains mostly started as the technology behind digital and crypto, many companies in the financial sector are slowly realizing and evaluating their impact on the financial services sector. With blockchain technology and its application scenarios evolving and progressing, asset finance companies can benefit from increased transparency, traceability, and operational efficiencies in their contracts and business transactions in future.
Blockchain technologies can revolutionize the way traditional asset finance companies have worked and operated. It promises a new world of possibilities where traditional paperwork and mundane processes are replaced by speed, innovation, and collaboration. It’s doubly beneficial for the financial services sector because of its ability to curb fraud and crime by creating an environment of connected systems that ensure a highly secure, shared view of the truth.
What Is Blockchain?
Blockchain technology is a decentralised, distributed, and public ledger that records transactions across many computers within a network. As a result, currency transfers can be conducted with confidence that the transaction is safe and secure. Its inherent design principle and properties make it extremely secure, transparent, and tamper-proof- making it one of the most promising tech concepts for the financial services industry.
Essentially, blockchains are databases which use distributed ledger technology (“DLT”) to record transactions and maintain data between multiple computers on a shared network so that multiple users have secure access to the same information and data.
There is a growing interest in distributed ledger technology in the financial services industry and it makes sense. DLT promises considerable savings in infrastructure, transaction, and administrative costs. It can disintermediate the digital transfer of financial assets, reducing central counterparties’ role. It can also help improve the level of trust, accuracy, and resilience in the financial ecosystem.
Over time, the asset and equipment leasing industries have developed disparate, complex, and inefficient systems and processes that are often expensive and opaque. They run on extensive manual effort-intensive procedures and rely heavily on spreadsheets and paper-based methods to manage data and documents. Eventually, blockchain technology will help replace outdated approaches and make funding cheaper, faster, and more accessible by streamlining processes, increasing efficiencies, enhancing transparency, reducing costs, and speeding up transaction speeds.
How Will Blockchains Impact The Asset Leasing Industry
Blockchains can potentially transform multiple functions in the asset leasing and finance industry like securitizations, credit-decisioning, governance and compliance, just to name a few.
For example, securitization is a great candidate to benefit from blockchain technology since the underlying assets are extremely opaque and rely heavily on human intervention, obsolete tech like spreadsheets and files, and duplicative work processes. Similarly, loan and lease origination and underwriting are time-consuming tasks due to extended lead times, siloed data stored at disparate locations, and paper-intensive processes. Monitoring, collecting, and reconciling payments are all largely manual processes in service. It is common for information to be shared only after credit events or performance problems occur.
There are several ways that blockchain-enabled securitizations improve traditional processes. By creating a single, authoritative source of information (or “truth” in blockchain parlance) that can be accessed by all stakeholders, DLT becomes a more level playing field. It offers the following critical efficiencies:
Smart Contracts Usher In The Next Level Of Automation: There is much debate and discussion in the financial services industry regarding smart contracts – programmable contracts that execute at predetermined times based on predefined conditions. Smart contracts are enabled by blockchain or distributed ledgers and could be the single potential solution to many of the asset finance industry’s problems. Many companies are still stuck with traditional or heavily paper-based processes for financial contracts which often lead to delays, inefficiencies and exposure to errors and fraud. Smart Contract will enable asset leasing companies to automate and set up multiple tasks related to contract management like the automatic initiation of payment by one party upon a predetermined occurrence of a certain event or action by the lessee without the need for any intervention from the lessor, making contract management and services so much more efficient.
A Single Source Of Reliable Data: DLT creates visibility and increases the transparency of information which minimizes information asymmetry across all stakeholders, especially for due diligence and governance reviews. With Smart Contract, asset finance organizations can get access to standard portfolio data which helps employees and internal stakeholders get a more 360-degree, detailed view of the vast repositories of business and customer data like performance and payment history. By increasing transparency, originators, rating agencies, trustees, investors, legal firms, underwriters, and regulators get a better experience. Information that is reliable and readily available fosters greater trust among participants and speeds up payment processing.
Efficiency In Processes: One of the natural outcomes created by the efficiencies brought by DLT is the streamlining of processes. It streamlines the manual processes around settlements of transactions, processing payments, end-of-the-month reconciliation and collections. accounts. Blockchains will increase the efficiency and execution speed of transactions by providing more reliable and accessible information. Consequently, transaction costs may be reduced. Disintermediation and simultaneous recording of information make blockchain an ideal technology for reducing, if not eliminating, information and payment flow delays. Ultimately, this would mean better prices, volume, and perhaps even better customer service.
Unparalleled Security And Governance: Blockchain’s capacity to increase the security of transactions and mitigate fraud lies in its inherent design. Blockchain enables chronological and immutable audit trails of all transactions, from loan origination to every change in contract and transaction detail which enables organizations and regulators to view the underlying securitized assets more clearly and concisely. DLT creates immutable records that are tamper-proof, making it a highly effective way to minimize fraud risk. In addition, regulators and auditors can access records on the blockchain to trace the ownership of underlying assets and transactions in real-time.
Blockchain technology indeed remains relatively new. Its potential for transforming certain functions in the asset finance and leasing industry is tremendous. It is important, however, that the technology be able to interface with legacy IT systems and directly address interoperability issues between blockchain platforms. As the asset finance industry evaluates and embraces blockchain technology, new services can be enabled through monetization of data as well as improved product delivery, increased efficiency, and greater efficiency in the future. Despite slow adoption, blockchain-based capital market products are poised for a breakthrough.
About Odessa
Headquartered in Philadelphia, USA, Odessa is a software company exclusively focused in the leasing industry. The Odessa Platform powers a diverse customer base globally, providing end-to-end, extensible solutions for lease and loan origination and portfolio management. Odessa facilitates business agility through rich feature sets including low-code development, test automation, reporting and business intelligence to ensure organizations can more effectively align business and IT objectives. Learn more at www.odessainc.com