Equipment Finance in 2025: 6 Themes, and Technology's Role

Rate Changes and Cooling Inflation

A gentle reduction of rates through the second half of 2024 was welcomed by the industry, increasing demand from historic lows and boosting overall confidence. Although further rate cuts are possible in 2025, a cautious approach is anticipated—despite potential pressure from the incoming administration for more aggressive reductions.

While further rate cuts, cooling inflation, and the new administration could stimulate demand, the recent economic turbulence has highlighted the need for increased investment in risk and fraud management. Well publicized advancements in AI and other data-based tools can be employed to support increased demand, while adhering to established risk policies. 

Regulatory Landscape and Data

Much of 2024 was spent assessing the impact of regulatory change, such as the CFPB’s Section 1071 rule. While some believe the new administration may change course, providers must remain prepared to implement and comply with this regulation.

From a technology perspective, the collection of key data—and the standardization of reporting over it—offers benefits beyond regulatory compliance. Companies capable of real-time reporting on a wealth of portfolio data stand to gain significantly, by feeding that data into increasingly sophisticated risk models, and identifying emerging trends early to support changes in strategic direction. 

Similarly, given expectations of lighter regulation from the incoming administration, the development of AI tools is poised to accelerate. However, this shouldn’t diminish the importance of the key guardrails lenders should look to implement alongside AI; explainability, traceability and control not only provide operational benefits but also establish a core foundation for future, unforeseen regulatory changes.

Climate Financing

Climate financing incorporates a range of financial instruments and mechanisms aimed at supporting climate action. This includes public and private finance, green bonds, carbon markets, and impact investing. 

Recent years have seen a welcome environment for climate financing, driven by growing awareness, policy support and investor demand, but uncertainty looms as the incoming administration is expected to reduce support for climate projects. That could mean lower funding for research and development and infrastructure projects, increased risk for private investors, and hindered long-term planning for businesses.

Despite this, climate financing may be buoyed by wider global and corporate sentiment, driven by end customers. Flexibility is the most important aspect of this shifting landscape, particularly the ability to accurately reflect government programs that affect the underlying financials of a deal.

Telemetry and Subscriptions

The trajectory of software and other services to complement hard assets is expected to persist into 2025, driven by developments in remote telemetry technology and an economic incentive to increase recurring revenue amongst existing customers.

Customer adoption and retention are driven both by the value of the asset and the onboarding and billing experience. Being able to offer customers a simple onboarding experience through customer portals is an important key to adoption, with back-end processes streamlined through APIs to ensure scalability without increased costs. 

Similarly, a seamless billing process should be in place, allowing customers with assets on finance to see and pay their subscription fees alongside their core financing amounts due. For customers without assets on finance, the ability to bill and account seamlessly for subscription services opens up a wider market.

Harnessing Cloud Technology

Investment in technology is often linked with high, inflexible costs which can stifle innovation. This caution may be especially heightened during periods of economic uncertainty, such as those experienced in 2024.

Software-as-a-Service (SaaS) platforms have become increasingly prevalent as a lever for organizations to invest in new technologies, without having to take on the risks and costs associated with managing new applications, and allowing their operational expenditure to scale in line with growth.

SaaS’s momentum is expected to continue in 2025, providing more flexibility and simplification for technology projects, and lowering the barriers to entry.

Flexible Offerings and Experiences

Recent years have witnessed the emergence of flexible product offerings, such as Pay-per-Use. Although the cooling inflation and improving rate environment may temper demand for innovative products, the overall requirement for more flexibility around financial commitments remains, especially after periods of economic uncertainty.

Additionally, an omnipresent requirement is expected to continue into 2025: the need for compelling and streamlined digital experiences. Within the equipment finance industry, this can enable operational scalability, especially for small- to medium-ticket lenders, allowing their customers to self-serve and reduce operational costs. Similarly, enabling efficient and clear digital experiences for vendors can benefit both parties by maximizing originations, allowing both parties to reap the rewards.

Alfa Systems 6

Alfa Systems 6, the latest flagship version of Alfa Systems, introduces a host of features and innovations designed to bring heightened productivity to equipment finance providers, opening up new revenue streams and elevating the customer experience. 

Alfa Systems 6 is built on six pillars, introduced via a series of software releases rolled out over the past year: 

• Efficiency presents Compose: superpersonalized screen design.
• Total Capability introduces Total Originations, an advanced originations product.
• Sustainability offers powerful new capabilities for providers to support sustainability products and changing business models.
• Scalability presents leading-edge functionality designed for providers looking to scale their business with flexibility and speed.
• Intelligent Automation creates efficiency gains through automated decision-making, including Alfa’s gen-AI chatbot built in-house, AskThea.
• Collaborative Ecosystem allows customers to source and integrate with new technologies painlessly, creating their own customized, end-to-end solutions.

The six pillars of Alfa Systems 6 are driven by common requirements of influential operators in the US equipment finance space. By combining Alfa’s deep understanding of market requirements with our highly configurable, single-product strategy, our customers are perfectly placed to navigate challenges and opportunities effectively, and drive sustainable growth.

Already being implemented with customers, Alfa Systems 6 is now available to finance companies globally, offering a comprehensive solution to meet the evolving needs of the asset and automotive finance industries.