Six Trends That Will Shape 2023

by Dillard Van Dango Jan/Feb 2023
Dillard Van Dango explores six trends and hot takes that will shape the equipment finance industry in 2023, exploring M&A, syndication, specialization, regulations, investing in human capital and artificial intelligence.

Dillard Van Dango,
Senior Executive,
Equipment Leasing & Finance Industry

As a tribute to Dexter Van Dango and as we enter 2023, it behooves me to share a trends piece. It was one of his favorite annual traditions as a seasoned industry pro and one can only hope that this next iteration jives with what he — and you — are seeing in the field and beyond.

Future generations of leasing and finance professionals may stumble upon this utterly bewildered, thinking to themselves amusedly about how primitive our Teams calls on back-logged operations and antiquated leasing models must be. “Hold up,” they will think-laugh to each other. “They actually interfaced with vendors?” “What do you mean they didn’t study equipment leasing in college?”

Zooming that far out provides perspective. The important things about our business will (hopefully) improve, and the new will replace the old. Here’s a stab at shaking the crystal ball with a handful of predictions for our sector.

Trend: Reduced M&A

There were well over 25 completed acquisitions in 2022. FNB takes Howard Bancorp, Great America takes IRH Capital, Peoples Bank takes Vantage Financial, M&T takes Peoples United Bank, Webster takes Sterling Bancorp. It’s difficult to keep track any more. Did US Bank close on MUFG yet? To borrow from the iconic lyrics of YG and 2 Chainz, “Big Bank take Little Bank.” For context, in 2020 there were 11 acquisitions. In 2021, there were 12 expected to close but many got pushed to 2022 due to federal regulatory backlogs.

Hot take: As recent mergers work to combine various equipment finance and leasing divisions, it is safe to say we hit our all-time high of M&A in the equipment finance space. While we may see a little more activity from small banks seeking equipment finance platforms or independents, I would wager that we can expect a material slow down similar to what we are seeing with the public markets and IPO issuances. This M&A trajectory may likely be exacerbated by the Boomer generation retiring, with organizational shifts mirroring the changing of the guard as some of our current executive leaders activate succession plans.

Trend: Increased Buy & Sell Actives

A lot of groups who typically relied on syndication activities to fund business loans were put on hold or limited because of rising rates and margin compression. With funding partners “hoeing for yield,” many firms relied more heavily on their warehouse and credit facilities.

Hot take: Considering the Equipment Leasing and Finance Association’s recent forecast for equipment and software investment growth at 4.2% — plus potential rate declines — we can likely expect an uptick in portfolio syndication beginning in late Q2/23 as smaller lenders free up capital and manage exposure and risk. Safe to assume in this scenario we can anticipate several of syndication roles to open, as lenders proactively staff their bench with tenured professionals who know how to play musical chairs and generate fee income.

Trend: Specialization

It’s not uncommon for financial institutions and lenders to specialize in specific industries or market segments. This can be particularly beneficial for businesses already operating in those industries, as lenders with specialized knowledge of their industry may be better equipped to understand their unique needs and challenges. Additionally, lenders that focus on specific verticals may be better positioned to offer more tailored financing solutions that are more closely aligned to the foundational needs of those businesses. For instance, Regions launched a franchise team in December. SBA loan teams are on the rise. DEXT Capital continues to make major strides in the healthcare space. Other lenders like ApplePie Capital, OnePlace Capital and AP Equipment Finance hang their hats on several key segments like Quick Service Restaurants (QSR), veterinary practices and FedEx Route drivers.

Hot take: Lenders are going to consistently focus on specific industries or customer profiles instead of going after the traditional model of product or equipment-specific loan origination strategies. From healthcare to the clean energy space, we will continue to see teams develop highly specialized groups built on servicing niche verticals. As our peers and colleagues dig into more singular market expertise, we could witness some cross pollination with our vendor partners, including talent recruitment focused on new skills and sector experience. Commercial clients want to work with lenders who know their business, who know the players and who can quickly adapt and understand what’s ahead for their respective industry.

Ultimately, the success of these specialized teams will depend on whether they can meet the needs of their partners and can prove a certain level of durability (and compatibility) amid changing market conditions.

Trend: Regulatory Purgatory?

Dec. 9, 2022 will hold a special place in my heart. This was the first time in this millennial’s professional experience (barring the 2008 crisis, what a time to start a career!) when California enacted new disclosure laws for lenders. We are already seeing how this legislation is becoming a model for other states, infusing a new level of transparency in rates for commercial lenders that was previously never required. But what if this extra work, this newfound level of accountability, could become a major competitive advantage for our industry? It may even be a good thing in the long run. The current regulatory environment is smoothing out the rockiness and exposure of the pre-Dodd era, as witnessed by our collective portfolio strength during the market volatility of the COVID-19 pandemic.

Hot take: We can moan and groan about the extra paperwork and macro political weight of these regulations ‘til the cows come home, but they have also created a welcome solution for more stabilizing, reliable compliance and risk infrastructures. Companies that efficiently alter their processes and reduce the amount of sweat equity will have a major advantage over their peers. With the help of reporting software and other tech-enabled tools to manage third-party providers, we can easily adjust documents, pricing and ensure transparency while mitigating long term systemic risk.

Trend: Investing in Human Capital

Gen-Z has entered the chat. Following the COVID-adjacent phenomena of ‘Quiet Quitting’ and the Great Resignation, the labor market has now taken somewhat of an inward look in balancing the needs of a changing workforce with the whispers of recession. Our industry may be a bit more bullish as our employers (and HR managers) evaluate the future of our business. Do we have the right grade mix? Front to back ratios? Do we need different kinds of managers who can train the next crop of leasing professionals who have never stepped foot in an office, let alone met with a dealer ‘IRL’ (in real life)? One item that continues to be an issue for HR leaders is finding qualified candidates and motivating our teams in ways that drive productivity and engagement. Considering high employee churn rates and a competitive hiring market, finding the right culture fit and searching for new talent can get expensive.

Hot take: More lenders will look for advanced training programs that help mold the next generation of leasing professionals and team leaders. Programs that go beyond just checking the on-boarding box and give employees an additional four letters in their LinkedIn title. Not all of us will have the good fortune to start out in this business guided by seasoned (if not salty) mentors to fill in the hidden curriculum of how commercial leasing works. Thankfully, programs like STRIPES have come into the mix. Props to Lisa Rafter and Blair Dawson! If our employers truly see the ROI of developing the best and brightest, managers must have these individuals be exposed to and engage with the industry rock stars. A big part of the STRIPES program is heeled around informative breakout sessions and Master Talks. These session leaders are absolute killers. Programs like STRIPES will likely have a huge long-term impact beyond what the cohorts bring back to their teams. The bonds forged across companies during these sessions can manifest into lucrative professional networks and friendships that will last a lifetime.

Trend: The AI Breakout and Techno-Optimism

I must spend some time here. This trend covers all of business and I will try and touch on some key points. It’s possible that we will see increased optimism around the potential of technology to solve some of the major challenges facing society in the coming years. The increasing adoption of artificial intelligence (AI) and robotic process automation (RPA) in business is likely to continue to be a force to reckon with in the year ahead. These technologies can help companies to improve efficiency, reduce costs and enhance their ability to compete in a rapidly changing business environment However, any dystopian Sci-Fi film points out the obvious pitfalls of technological disruption. The adoption of these modalities and digital-first strategies raise countless ethical, social and economic issues that our industry will need to consider cautiously as they become more widespread.

Hot take: The launch of ChatGPT was among the biggest pieces of tech news this year and the resulting interest was intense, with no indication that it is slowing down. While the ‘Rise of the Machines’ mentality is a bit overdone, I think there’s an enormous potential for AI to do good for the world. AI allows us to unlock a labor supply that is vastly lower than the cost of humans.

OpenAI, the ChatGPT interface, is driving one of the most interesting new product cycles in financial services as we think about how we can automate end-to-end loan application processes.

For example, one of the most common and cost-effective ways to deliver credit underwriting is to counter the costs with high document fees or bundle them into the finance product. Recently, we have seen lenders come to market with a much less personalized experience via a self-service phone app, think QuickFi.

Both options have flaws, but ChatGPT and other generative AI apps open the door to a whole new possibility. The ability to receive and deliver a near-human-quality credit review and counseling experience changes the game. Especially for our most underserved and sub-prime customers. Simple financial coaching could help so many consumers and businesses and it may even lead to major improvements in some of the negative macro factors currently affecting consumer and commercial credit such as inflation and employment.

Other automation practices are also being implemented. For my Ted Lasso and Iverson fans out there, we’re talking about practice! Robotic process automation (RPA) solution providers like UiPath open huge increases to operational efficiency. In July, UiPath announced their RPA technology which allowed Mitsu Trust Bank to automate more than 250 critical business operations, saving more than 400,000 hours. As automation moves beyond the “pilot” stage and steps on the court — it really just becomes a question of how fast can we go?

There is so much more to tackle heading into 2023. I’m sure plenty of these predictions will miss the mark, but I know one thing for sure: rates, inflation and innovation will continue to motivate and disrupt our industry. The best is yet to come, and I am excited for what the future holds for all of us.

ABOUT THE AUTHOR: Dillard Van Dango, the son of Dexter Van Dango, is the pen name for a greying millennial entering the peak of his equipment finance career. He has held various roles within independent and bank-owned leasing companies. A recession grad and rising rate virgin, Van Dango is also a family-renowned home chef and the world’s proudest dog dad.

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