#06 - Breaking the Mold: How AI and Data Are Shaping Finance with Simon Harris

Simon is a consulting director for Finativ and what I’d like to do is invite Simon just to give a little background about himself because it’s absolutely pertinent and relevant to the questions and the answers that we’re going to be hosting today, so Simon, if you could just give a little bit of background to yourself for a couple of minutes and then we’ll get straight into the session.

Thank you, Jeff. And thanks again for the opportunity. I’ve been looking forward to it. My name is Simon Harris. I’m not the Irish Prime Minister, but I have got over 25 years operational experience in the mainly automotive finance area working for banks with vendor relationships and a captive, most recently Mercedes-Benz, I was with them for 14 years and having increasingly found myself working in the area of technology selection and implementation for those various employers, I branched out into consultancy. For the last eight years working with the people I used to work with and work for, as well as the vendors, which as Jeff said, that’s how we met.

So now that I’m more full time engaged with technology, I find myself with a few focus areas, which include pay per use or servitization. I think that might come up today, direct to consumer, data sourcing, data cleansing and increasingly microservices. So, still serving the asset finance industry, but very much on the technology side and leveraging over 25 years of operational experience on the client side.

That’s fantastic, Simon. Great background very much relevant. You mentioned servitization and I’d actually like to start with that topic specifically. Both you and I have discussed this at length on previous occasions and I’m definitely seeing that servitization or pay per use, as probably it’s more commonly referred to, particularly in a consumer context, is now increasingly gaining momentum in the auto and equipment financing arena.

And I’d be interested in your thoughts on, and I want to really drill down into this a little bit. On the organizational challenges that these funders are facing as many of them are having to move from typically a credit based risk to a utilization risk model. What are your thoughts in terms of the organizational challenges that funders are facing and will face as they adopt some of these servitization models?

I think the first thing to say, Jeff, is servitization is about service provision. And the funder themselves in many of the scenarios you described is rarely the service provider. So services are a bigger and bigger part of the products and the packages that they offer, the proposals that they offer, but they are not necessarily part of the service delivery or the service provision, which means that the supplier selection is critical for the success of that model for any financier. So who they choose to be the provider of the services and the deliverer of those services is key. Once they’ve selected them, it’s going to be the management of them and we all know about the technology providers that you suddenly find you have to engage with just to manage that proposition, but whether it is in the selection or in the management and the delivery, it is always going to be a balance between the price the funder pays for those services and the price that they then offer the product out versus the quality and delivery. And that’s why, I bang on about the funder not being the service provider.

They are seen as selling the service as part of their product or package as far as the customer is concerned. And frankly, the end customer doesn’t really care if it is an agent of that provider or not. They will hold the funder responsible. Of course, they want to be competitive on prime services. Quality really matters because the responsibility, the buck will stop with the funder. Therefore, it’s a balance. It’s a really tough balance. And having put your service and the management of all those services because all of a sudden it’s not just managing monthly payments and a contract.

The old fund and forget model that you and I used to treasure. It’s all about constant interaction with the end client, which is an opportunity. A cross selling, up selling, reselling opportunity. This is all good stuff. But it comes with its own risk in that there is an expectation of what gets delivered to justify that level of contacts and that level of intimacy, so it carries a rich reward, and that’s why a lot of people are chasing it.

It allows you to differentiate, but there is a huge amount of work and thought that needs to go into selecting the service providers, being aware of the quality of their delivery and being technologically able to manage that complexity. Yeah, no that makes absolute sense.

And at the end of the day I would say that, adopting these new, if you like products is in itself a big transformation of any business. One of the things that I have discussed within the kind of broader community, and there are varying views on this is, does it make sense for an organization to actually bring these new models into an existing if you like organizational structure or, and we’ve seen evidence of this in with some of the funders, they’re actually saying, you know what?

It actually requires a different set of skills. It requires different people, different processes and different systems. So let’s not disrupt, if you like, our traditional business, let’s set up a new business and actually bring these if you like new products in, because as I said they require different things.

What’s your view? Do you think organizations should try and morph that into their existing organizational structure, or would they be better served to actually have a totally separate operational unit for that? It’s a really interesting question. And as always, there’s probably not a right or wrong and we’ve all seen examples of both, and we’ve all also seen examples of both succeeding and both struggling.

And I think one of the fundamental reasons for that is that many of these specialist products that we talk about whether it’s

pay-per-use, servitization, products with increased services attached. One of the things you’ve already mentioned, actually, Jeff, which is a shift from credit risk to utilization risk, if we’re talking increasingly products based on rental rather than finance and leasing for all of these models to succeed and in fact, anyone who’s seen us talking about this before, will remember this being asked of us and giving a very direct answer.

They require scale to succeed financially. So a new business starting up and specializing rarely has that scale from day one. And it is a long, slow haul to build up the scale to make it price competitive or to be able to subvent it for long enough until it becomes self sustaining. So it’s a struggle for the specialists, but as you rightly point out for somebody who has the scale from an existing business, then the question is, do they have the skills and experience that are necessary? Do they have the ability in a big organization to devote the management’s attention to it, the resource to it, to acquire those skills, to develop those skills do they have the patience for the creativity for maybe different sorts of people to be allowed a seat at the table and to have their say and to have influence over what they put in place.

So there’s no right or wrong. There are definitely risks and opportunities with both versions. And what I have seen succeed is the larger organizations who gradually bring these products in for example on the pay per use or subscription products. One of the best examples I’ve ever seen of that was bringing it in, first of all, as a customer retention measure, in other words, not going out there with a huge fanfare and trying to attract completely new customers into a new market for which that brand isn’t known, rather they’re using it as a device to retain more of their existing customers to try the model out and to finesse it a little bit before the big fanfare and the big launch.

And I think that is, if I was a bigger business I think rather than setting up a separate arm or a separate business I would probably advocate that way. Try test areas, maybe that are less visible to the wider market. Try it out with people who are already well disposed towards your business, who are existing customers.

And that’s where you can refine things before you launch wider. And one of the other things. And I hesitate to use the word mistake. It’s probably more of a misunderstanding. But what a lot of businesses have also done, and maybe it’s been a misstep. is when they set up this separate organization, they have kept it so ring fence that they have separated the technology.

They have separated the organizational structure and all the rest of it, and then they lose visibility of those cross selling opportunities within their existing business. So if you separate it too, it’s a simple thing. We talk about contract management systems. If you can’t see all of your assets and all of your customers in one place, then I would venture to suggest you might be missing a trip.

Whereas if you can find a way of building it into your business, but not making it central to your business until you are much more comfortable with it, I think that might be a better way to go. No, that and it’s interesting, Simon, because I’ve done a 180 on this. I, when I was thinking about this a few years ago, I thought it’s just going to be too difficult, particularly for what I would call the more the larger monolithic type organizations.

But actually, as my thinking has progressed, I’ve definitely moved to your way of thinking here. And for all the reasons, you know you’ve just mentioned there. I think. One of the other very big challenges that I’ve seen is, and you touched on this in what you’ve just said, is how can organizations make enough time to actually ensure that they can actually start this journey?

And the point you made about taking, I We’ll call it small bites of the elephant is absolutely right. Don’t try and suddenly bring in, this way of working or these products, in a big bang way, because, at the end of the day, it is likely to fail. But my real question around this is more to do with who do you actually have as your team looking at what those requirements are, and I would call it.

across generational participation, because at the end of the day, with no disrespect to, senior executives within large funders, you just have to look at the generational gap between them and actually what the future holds. So I’d just be interested to get your views in terms of how organizations should thinking, should think about actually structuring their teams to actually look at future requirements, such as servitization and how they can, if you like, attract younger talent in there, who at the end of the day, it’s the next generation that’s going to really determine whether this is going to be a success or a failure.

Your views. Completely agree. And as Jeff with my automotive background I’ve worked for businesses who are very exercised by this topic because they basically see the market shrinking in front of them. We know that almost across the world, except for places like China and India, where you have a growing population wealth, even of course you have population size, but importantly you have growing population wealth.

In the established economies, the market, for example, for cars is quite simply shrinking. There are many reasons for that. But one of them is quite definitely generational. I think you and I are most kindly described as industry veterans. Probably not representative of the long term future of the industry.

Let’s put it that way. Bringing fresh blood, fresh ideas to bear on these new topics is absolutely essential because it is only when you engage with the younger generations that you’re going to find out what a buying signal looks like, what a compelling product looks like, what are the things that they engage with within

Biden? We also know, direct to consumer online automation is absolutely essential for these. younger end clients, especially if you’re dealing in the consumer market. If I go back to my sort of background in automotive, younger people do not want to go into car showrooms to buy their car.

They want to be able to select and play online. Even the older generation, if they go into a car dealership these days, they’ve increasingly made up their mind about the specification, the color, because they’ve been able to do a lot of research. Beforehand, they know what they want. Cross generational is absolutely essential, but I would also caution against forgetting the experience because you can’t let the creativity run untrammeled.

You still need somebody, a sage voice of experience that says what about the numbers? What about the risk? What about the technology that it sits on? What about strategy in other areas? There is some relearning and re skilling to learn. Again, you touched on it right at the start. The shift from credit risk to utilization it’s always fun putting advocates are both in the same room.

There’s always fireworks involved in that. But I think if you get the right mix and the right getting the right mix probably requires having the right leadership as well, frankly, because you are going to have to moderate some of these battles and somebody is going to have to take position and take a decision.

But having a mix in the room is essential. I don’t think the new generation can do it on their own. They could probably come up with something innovative and creative. The trouble is, would it financially fly? And I question whether the older generation could do it on their own, because they don’t know what the ever younger market base is looking for.

Absolutely. Absolutely. And just to pick up on one point you mentioned there around what I would call the offline to online to offline experience. I think many organizations, if they haven’t already, are now looking at that. Fact I was in a conversation with an organization only the other day who’ve actually determined as part of their digital transformation.

This being one of the highest priorities, and it’s really understanding that journey. And going back to your example of, buying a car. Yes. I agree, you can do a lot offline in terms of configuring that vehicle. Maybe I’m just old school, but at some point, I think a lot of people will actually want to go into the showroom, look at it, touch it, feel it, and then go back offline in order to, if you like, conclude it, assuming they want to go forward.

So I think that is actually definitely parts of the whole customer, if you like journey, which increasingly more and more companies. And honestly, I don’t think it matters what type of financial product is behind that. I think that’s just a customer or consumer, if you like, experience.

Just in the interest of time, I’d like to change the subject a bit to probably one of the hottest topics from an IT point of view, which is AI and data. Now. A quick plug for Amazec. Amazec has a data and AI practice and increasingly our conversations are turning to generative AI. And I think one of the reasons AI has now become of such interest is because the cost of processing has come down considerably whereas historically it’s been quite expensive, but I think now AI really, as far as any future development of any type of application is concerned is definitely on everyone’s mind.

So my question is where do you see asset finance companies using this technology to gain competitive advantage? That’s a good question. There are two important distinctions to make there. Where do I see them using it? Pause, and yeah, to gain to com to gain competitive advantage. That’s the second part and quite distinct.

Funny enough. Coincidentally, I was talking to the captive funder of a large global big ticket equipment manufacturer yesterday about exactly this topic. And they have an internal conference coming up and guess what? AI is about a third of the program. These big global corporations, not just the tech giants these big manufacturers and funders are taking it very seriously.

In terms of what they’ve achieved to date if this doesn’t sound too flippant, I would say so far, the evidence suggests it’s a little bit me too. So it’s around a chat box. It’s around the customer services assistance. Yeah. That sort of thing. It’s not groundbreaking in the applications in the asset finance area are not yet groundbreaking and certainly not differentiating that I have seen, and I’m willing to stand corrected on this, but yeah, based on what I’ve seen what you do see is pockets where even quite big companies are willing to deploy AI to make people’s jobs easier.

So there are areas of processing or preparing or drafting or reading where, you know, just the ability of AI to process vast volumes of data is just quicker than a human being. It just makes life an awful lot easier. So I see quite a few areas of that. But the genuine differentiation is difficult.

And I think the reason that it is difficult is the very slow recognition of many businesses, big and small as to just how ready they are. They’re like keen. They want to grab that shiny thing. And they want to be up there with everybody else who’s doing it but you have to do some fairly tough questioning of yourselves as to are you ready, is your business ready to take on the challenge.

No I completely agree. And that whole thing about, readiness. One of the things that we do as an organization is we actually look at look at it from a maturity point of view, and we get brought in based on where they are on that maturity access. And what. Ultimately, where they want to end up, not everyone needs to be, at the top of the line there.

It doesn’t lend itself to every business, but I think very quickly, Simon, I know Finitiv provide a, if you like, advisory service to help organizations in terms of readiness before or, whatever stage they are on the journey in terms of embracing AI to realize the full potential.

So can you just outline you know what that service looks like and how Finitiv help those organizations Yes, certainly. Thank you for the opportunity on that. In terms of readiness or preparedness, I can probably give you a one word answer and that’s data. But the interesting thing Finitive runs a monthly, we call it a technology and innovation forum, and we have 80 people growing every month, representing over 50 automotive assets, financiers global organizations amongst them.

This isn’t just my personal opinion. This is coming out of meetings like that where CTOs sat saying this is the problem I face and data is an issue. But interestingly it was ever thus. This is not new for AI. This subject of readiness and preparedness is exactly the same with any technology deployment.

I did a review recently of 18 months of the forum outputs, and I said, do you know what? It doesn’t matter what topic we’re talking about, whether we’re talking about a contract management system implementation, whether we’re talking about microservices, whether we’re talking about AI, it’s always the same.

It’s always the same conclusions in terms of readiness, in terms of planning, in terms of migration strategy, in terms of data cleansing. Again, you and I have sat this discussion before, what are the two things, what are the main reasons why projects are delayed or fail? And there’s usually, for me, two things.

It’s integration and migration. Yeah. And. That hasn’t changed much, and it doesn’t change with AI either. But I think in all cases, data plays a bigger and bigger role, and the more established the business, the longer the tale, the longer the legacy of the book the information. the more critical it becomes, because if you’ve changed systems and changed standards and the regulations changed and you’ve gone to different markets, trying to get that data consistency and data quality is a big job in itself. But if you don’t do that work, then I can, we can be fairly certain that AI will struggle because it needs clean, consistent data to learn from yes, these big organizations have the volume of data. But the question is, have they the quality of data? Yes. And that kind of how can I put it? I’m sure you’ve heard of the term garbage in, garbage out. And one of the things we’re also very passionate about is making sure, again, depending upon where an organization is in their data journey, making sure that, the data is clean and it’s relevant for whatever actionable insights an organization is trying to derive from that data.

And very often one of the big challenges is Where is that data? How do you get hold of that data? And yeah, data is the new gold. I think just one final question. And again, I know you and I’ve talked about it and it’s tangential to what we’ve been talking about just very briefly.

IOT, Internet of Things, which effectively connects assets. You and I have discussed this before, but I’d really be interested to get your views on whether there’s any shift around who owns the data. Classic example of that obviously being in auto, where quite understandably manufacturers will guard that data.

However, don’t other funders, banks, independents have the right to that data? Yeah, you know that I’ve asked this question myself because, when a, when, especially when it’s a leasing company or a rental agreement, then the owner of the asset is actually the financier. So who is the OEM to say they can’t have data of something they own? Especially the usage data by their customer. And especially again, in case of leasing or rental, they would invoice that asset, , the manufacturer let go of it when the invoice went to the financier. I think the. The ownership is becoming grayer and grayer. I think it is tilting in favor of the asset owner or the asset user away from the OEM.

And I think one of the reasons for that is that the OEMs, and I’m sorry to single them out, but their early attempts to try and monetize data, because that was clearly what they were, they saw as the opportunity to monetize it. We’re a little bit ham fisted and led to some backlash. And I think even the most traditional OEMs

are seeing the value in cooperating along the value chain, which includes the financier, includes the service provider, because, the data they have around, asset condition, asset usage all of these things can be fed into the total model. And if, it’s a little bit, it’s a case of you show me yours and I’ll show you mine.

So it’s the. If the OEM is prepared to let some data go, then they might find that some data comes back to them from from sources they weren’t previously accessible. And Again, it’s often said, I don’t know how often it’s lived, but this should ultimately be to the benefit of the consumer or the end customer.

And what it enables everybody to do is if they’re cooperating on data, they’re able to tailor that product. So we started this discussion around service optimization products. They’re able to tailor that product to the, at least the customer feels it’s much more individual to what they need. And, there are now technology providers entering the market who basically are just the vehicle for this data.

They’re not the funding providers, but they’re the vehicle for the data. They build the pricing models and they enable consumers to design a financial product that meets their precise requirements. Now, of course. Inertia means most people will still go for a monthly agreement. But when you get away to business users and the industries and the sectors they work on, the ability to have a price that it’s not just based on asset cost, but based on the energy I consume or the fuel I consume or the time I use it or the weight I carry or the depth to which I drill or the, the depth of the water I’m drilling in.

Yeah, there are so many different perspectives. That make the consumer feel, I feel like I’m paying for what I’m getting. What I do and how much of it I do directly influences the cost. Now, if the consumer has that feeling of security around what they’re paying, it actually gives a margin opportunity to the provider because it’s less and less about interest rates and stuff like that.

And it’s more and more about, I can, you can influence your price with your usage or energy efficiency or consumption. And that shows how this cooperation between the various recipients or guardians of data, let’s not call on the owners of data, the various guardians of data, cooperation between them can actually benefit all of them in terms of margin and give the consumer, the end customer, a good feeling about what they’re paying and what they’re getting in return.

No, absolutely, Simon. And not for now. Probably a different discussion. But that for me leads into another topic, which I definitely would like to discuss with you at a future date, which is more around the, if you like, sustainability, the circular economy, what’s happening with ESG, etc. Because again, I think these data points are just so important.

But both from, if you like, a consumer point of view, because I think the consumer is becoming much more conscious of these things, as well as obviously from the funders point of view as well, because ultimately they’re all going to be measured on on, on those things. So look, Simon, thank you once again.

It’s been absolutely a fascinating conversation as usual. And Just to say, look forward to having some follow up sessions in the future. So once again, many thanks for your time, Simon. Thanks for the invitation, Geoff. I thoroughly enjoyed it. Look forward to the next time as well. Perfect. Thank you very much.

Cheers, Simon. All right. Cheers for now. Bye bye.