On-Demand Vendor Finance: Creating Innovative Solutions to Exceed Customer Expectations
by Monitor Staff May/June 2018
In a Q&A with Monitor, top vendor finance leaders — Jeff Berg from DLL, Anthony Cracchiolo from U.S. Bank Equipment Finance and Jim Kelly from Wells Fargo Vendor Financial Services — rate 2017 and provide an outlook for the year ahead. They examine how customer needs have changed over the last five years and share the innovative approaches their companies have employed to keep vendor partners, and end-users, satisfied.
Anthony Cracchiolo, President & CEO, U.S. Bank Equipment Finance
Jeff Berg, EVP, North America, DLL
Jim Kelly, Head, Wells Fargo Vendor Financial Services
MONITOR: On a scale of one to 10, with 10 being the best year you could imagine, please rate 2017 and provide an explanation of your rating. What were the primary takeaways for the industry? Which trends and obstacles emerged?
BERG: I would rate 2017 a seven out of 10. Overall, it was a year of positive growth based on continued capital spending in our core sectors along with year-end tax changes, which helped carry momentum into 2018. This was balanced by continued regulatory uncertainty and the challenges of possible global trade trends that emerged towards the end of the year. Optimism in the construction and technology industries remained high, and we saw steady growth in healthcare as well. The food and agricultural sectors remained stable year over year, with commodity prices still limiting growth. Throughout 2017, we worked with our partners to respond to industry changes and achieve their objectives, which led to positive outcomes for DLL as well.
Additionally, advancements in technology and tightening margins are putting pressure on companies to optimize their day-to-day operations and create efficiencies wherever possible. This is not just true among vendor finance providers. Our customer base, including dealers and manufacturers, are experiencing it as well.
CRACCHIOLO: Looking back at 2017, I would give it an overall rating of eight. Several strategic events occurred which are positives for our industry. The first is that the business community began to get a much more optimistic view of the economy and its ability to expand, while several key regulatory factors have shifted in a way that supports business growth. Stock market valuations rose significantly, also feeding positive growth prospects. Added to this, the corporate tax rate reduction occurred at the end of the year which solidified 2017 and positioned the economy for sustained growth in 2018.
KELLY: 2017 was an outstanding year for Wells Fargo Vendor Financial Services (WFVFS). We saw 7% growth year over year across our entire business, with some of our industries up double digits. Within the WFVFS’ construction industry, we saw tremendous growth across the U.S. Several of our customers saw equipment sales and services up more than 10%, which translated to strong finance volume for our business. For these reasons, I rate our performance in 2017 a nine.
Given the past several years of growth and expansion, our industry is strong. Our dealers continue to express confidence and are ready for another great year in 2018. I see this renewed optimism and activity likely to continue for the next several quarters and into 2019.
MONITOR: How have your customers’ needs developed in the last five years, and how do you see them changing over the next decade? What is your company doing to meet these needs?
BERG: Today, customers expect 24/7 on-demand access to account information and customer service. Over the last few years, we have introduced new technologies and comprehensive customer support solutions to meet the evolving needs of our customers. From improved account access via apps and online portals to upgraded digital billing and invoicing processes, we are focused on providing increased transparency, access and control to our partners.
We are also seeing a growing demand for flexible payment options and usage-based structures. In response, DLL is continuing to implement solutions that enable customers to pay for the use of equipment, including the necessary maintenance and services, versus the fixed fees included in traditional time-based contracts. At DLL, we refer to this as servitization.
CRACCHIOLO: For the last five years, our customers, as well as the overall economy, were in a low growth equipment replacement environment with limited growth prospects fueled by very, very low interest rate lending.
During this time, U.S. Bank focused on developing innovative solutions for our vendor clients. In the technology space, this included products that help vendors deliver comprehensive solutions for complex sales. Many times vendors are providing a hardware, software and services solutions to the end user, and we help them manage their cash flow while creating a billing system that’s easy to understand by their customers. In today’s ultra-competitive market, we are also helping many of our vendors and dealers win the transaction as fast as possible with decision-making speed throughout the credit and documentation process.
Over the next decade, I’m hopeful we’ll see a more positive outlook to overall growth, building on the successes of 2017 and those that we’ve seen thus far in 2018. Our company, and the entire equipment finance industry, is well positioned to assist in fueling the overall economic growth in the U.S.
KELLY: Customers now expect more in terms of ease-of-use, speed and convenience when interacting with our dealers and with us. They demand the same customer-centric experience on the business-to-business side that they have as individual consumers. We have seen the industry — both large, traditional players and new, emerging fintechs — building and creating new systems and technologies to meet this demand.
For Wells Fargo, this means that we are building integrated and intelligent systems that provide a fully-integrated customer experience from credit application to funding and throughout the life of their financing agreement. Over the past several years, and continuing ahead, Wells Fargo has dedicated tremendous resources in enhancing our technology systems to provide this convenient, best-in-class experience. Our primary goal as a vendor provider is to add value for our customers and help them increase top-line growth and operational efficiencies. As we continue introducing these technology enhancements to the marketplace, we see increases in customer satisfaction and loyalty ultimately leading customers who stick with us for life.
MONITOR: What is your outlook for the vendor finance market in 2018? What are the greatest opportunities, challenges and concerns that you anticipate?
BERG: The outlook for vendor finance continues to be positive in 2018. The U.S. economy is poised for growth, and we see our industry partners contributing to this momentum. Across all sectors, customers will continue upgrading to new equipment and technologies that help them meet their business needs.
Beyond 2018, there are many factors we need to monitor that could heavily impact the industry, including rate increases, trade imbalances, changes in accounting rules and the regulatory environment. As always, we will continue to adapt to oncoming changes to make sure we are providing the best service to our partners.
CRACCHIOLO: As the economy expands, we see the vendor finance market continuing its positive growth and expansion in 2018. Our greatest opportunities are in front of us. It has been a very long time since the U.S. economy has experienced significant growth in the broad market. Our primary challenges revolve around a climate where expansion becomes the norm as opposed to steady state or contraction. We are already seeing signs of this, as there continues to be interest rate pressures and the reactions of businesses to those rising rates.
We believe our vendor partners continue to see their finance partners as a critical part of their overall success. Many of them have integrated our solution into the core of their sales process, and this ongoing partnership creates many opportunities to differentiate our value proposition together. We continue to see opportunities to help vendors win business by creating an efficient and creative finance product that is more than competitive with any other financing options the end user may have.
KELLY: 2018 has already started strong. Our customers are reporting increased activity and that translates to increases in applications bolstering the pipeline.
Our outlook is positive. We are focused on delivering results for our customers and helping them grow. One of the challenges we anticipate is the rising interest rate environment. Despite this, we feel that even an industry-wide increase in rates would not have a detrimental impact on overall business volume. In addition, the regulatory environment continues to shift, so being flexible in addressing new and changing regulations is critical.
Our greatest opportunity continues to be helping our customers grow. Our deep-domain financing expertise in the industries we serve allows us to be fully integrated into the sales, credit and equipment management components of the transaction lifecycle. We intimately know the equipment we are financing and can provide a better end-of-term experience for the dealer and customer. When we combine this expertise with our enhanced ease-of-use capabilities, we help customers grow in ways that are specifically-tailored to their needs.
Whether you are a third-party originator or a funding source/bank, the responsibility lies with all parties to build partnerships based on mutual trust, mutual commitment, shared ideas and common goals.