October, 2000 -- Experts agree that business to business (B2B) e-commerce is recasting how corporate credit is originated and obtained. Now with more data being generated from the B2B e-commerce marketplace, the data flood associated with these electronic transactions means data-mining and credit information will become more available to businesses than ever before. At the very least, the Internet allows for the easier transfer of credit data. The real benefit, however, lies in sophisticated database technologies making scoring, modeling and mining faster, cheaper, and more accurate and relevant¾particularly the small to mid-size borrowers for whom lessors have had to rely on imperfect data.

The Equipment Leasing Association and PayNet, Northbrook, Illinois, have joined forces to help manage the changing credit environment for lessors and perhaps make credit decisions a little easier and more profitable.

PayNet, in partnership with ELA, will launch an online lease payment history database called PayNet (also known as Payment Information Network) later this year. This new service will offer leasing companies the ability to obtain valuable payment history data via the Internet.

"We are participating in PayNet and other initiatives," said ELA President Michael Fleming, "because we want to incent and hurry the adoption of new initiatives that will make companies more competitive. It’s critical that we play a role of encouraging adoption.

"When you have such a hotly competitive industry where margins are razor thin and the ability to compete is in question," says Fleming, "Part of our responsibility is to at least help the viability of the leasing community."

How Does It Work?
Participating lessors will exchange their portfolio’s payment histories by providing this data directly from their accounting systems into the PayNet system. This database is then accessible to any PayNet lessor-subscriber. The online data shows the payment history of lessees, making it easier than ever to ensure quick credit approval turn-around, more informed credit assessments, and ultimately help reduce delinquencies and write-offs.

"Let’s face it," says Bill Phelan, President of PayNet. "There is no better credit data than a lessee’s own history as an indicator for making lease payments."

Benefits Abound
PayNet promises real savings in both time and money. With reports costing as little as $5 a report, and by eliminating the more manual method of having to call competitors to check references (why alert the competition?), lessors can realize not only a more efficient process but also more profitability.

"[PayNet] does make a lot of sense," says Curt Zoerhof, Senior Vice President and credit manager of Wells Fargo, Minneapolis. "Our credit department is reluctant to call other lessors for a reference. If you have an anonymous system, that’s helpful."

"PayNet is taking a very focused approach by only developing it for the leasing industry," says James Watson, Volvo Commercial Finance, Greensboro, NC, a lessor who has signed a letter of intent with PayNet. "It will certainly streamline the process and reduce the man-power involved."

Making a credit decision today versus tomorrow also could save a deal.

"Technology is driving a lot of things," says Zoerhof. "Because information is more readily available, there’s a demand for speedy credit decisions. Answers need to be given quickly. Expectations are that you can make a credit decision quickly so you have to.

"It takes an awful long time [to check credit]," adds Zoerhof. "Waiting for information to be released, phone tag, etc.it all slows things down. But now with a few clicks on a computer, you can get payment histories. These are efficiency benefits for us."

Immediate Benefits
Participating lessors will immediately realize the benefits of consolidating their portfolio’s payment history data into one central network. Agreeing to exchange their data means they will be able to submit their applicants’ information and the system will comb through the database to produce a Payment History Report. Confidentiality is secured as the name of the leasing company supplying the data will not be disclosed on the reports.

Phelan assures, "We are committed to obtaining as much credit information from as many companies as possible. Having a robust database is the only way it will work. Several companies are already committed and more are in the pipeline and view this as a win-win."

The data will not be used for marketing purposes, adds Phelan, and will not be sold to anyone seeking to market the data.

PayNet’s pilot program officially launches at the ELA annual convention this month.

Technology Saves the Day
PayNet is working with Decision Systems, Lease Team and e-business consulting firm The Revere Group and Northern Consulting to ensure the technological solution is user-friendly and compatible with most lessor accounting systems.

An easy-to-use system will be key for adopting PayNet, as businesses continually seek to streamline processes and avoid cumbersome solutions, technological or otherwise.

"We expect the system to have a one-time set-up process, but then basically run on its own," says Phelan. "The idea is that a company can make automatic downloads straight from their accounting system. We can set it up to run, say, every third Tuesday of the month at 2 a.m."

"A big selling point, in addition to getting leasing-oriented data, is being able to transmit data to them in a form easily and that would not create a lot of work for us," added Brad Brolsma, Farm Credit Leasing Services, Minneapolis, a lessor who also has signed a letter of intent with PayNet.

Competitive Questions
But why would a lessor provide his credit data and "help" the competition, so to speak?

Industry members already do release data into credit bureaus and to other credit reporting systems. Says Fleming, "if people recognize the need for a common credit reporting system, they have to look at PayNet as being just a different version of [other mechanisms]. It’s not like people can go out and search your database. Whose payment history it is, is anonymous. You can’t trace it to a company."

"Having access to PayNet does not help the competition in their marketing efforts," explains Dan Michalek, PayNet’ chairman. "It simply provides the ability for the entire leasing industry to make better informed credit decisions, which has enormous benefits. Every time a leasing company goes out of business due to delinquencies, write-offs, etc., then the capital markets tighten up and everyone suffers."

"The smart people realize this industry is becoming more and more based on knowledge and some of the knowledge is good, fast credit information," Fleming explains. "But you have to contribute to that base of knowledge. If not, you won’t be any better off than anyone else.

"It’s shortsighted for people to not be willing to share credit information anonymously into a situation that is an open market, " he adds. "Leasing companies are going around checking with other lessors anyway."

Brolsma agrees: "If you want access to data, you need to give up something. It’s a two-way street. To get information you always have to pay for it in some form."

Wells Fargo’s Curt Zoerhof also believes their company will participate, though as ELT went to press no formal agreement had been signed. "It will work so long as the companies contributing information are significant and are in our markets. But somebody has to take a leap of faith. We will because, if everybody waits, then what’s the good in that?"

"If everyone in the industry can make better credit decisions then the industry looks better as a whole," Fleming agrees. "This goes back to the tremendous advantage of operating in a community."

By Suzanne Jackson of Cornerstone Communications
Reprinted with permission from the October 2000 issue of "Equipment Leasing Today"