These experts offer a glimpse into the state of banking from the perspectives of those sought after for delivering financial business advice and giving beneficial updates about trends and changes in banking.
Have the selection criteria changed for businesses looking to build new banking relationships? If so, what are businesses looking for now compared to 10 years ago?
Brian Enzler: Businesses continue to increase expectations of their bank and their bankers. Some of the most important selection criteria remains unchanged from 10 years ago – strong, stable interpersonal relationships; knowledge of the business; competitive rates; sound advice on capital structure; and cutting-edge technology. But in addition, today businesses expect dedicated industry expertise, robust and proactive support on mitigating business risk (such as fraud), and resources to facilitate strategic initiatives, such as acquisitions and ownership transition.
Christopher Holder: Yes and no. It’s still a relationship business. However, technology continues to play a bigger role, especially around the cash conversion cycle. While credit is important, most CFOs and treasurers want to discuss efficient ways to move funds.
Sharmila Solanki: Today, there are many more capital options for business, from traditional commercial banks to BDCs and other non-regulated finance companies. Businesses are weighing the cost of capital and flexibility between the different capital providers. Today, due to the free flow of information and globalization, companies are looking for lenders that understand their business and no longer have a myopic view of an industry or geography.
What does your bank look for in an emerging business in which to invest?
Christopher Holder: Banks in general will continue to invest in commercial relationship management technology that includes a good commercial loan origination system for speed to market – something Commerce Bank has executed. In addition, payments and especially person-to-person (P2P) payments will be a focal point.
Brian Enzler: A high-quality management team is the single most important factor in determining where we invest our resources.
Sharmila Solanki: East West Bank has a foundation of purpose and entrepreneurial spirt, with growth in specialty lending, its regional expansion and its cross-border bridge financing products are optimally positioned to pair with emerging businesses’ needs. When the two connect in a thoughtful and purposeful manner, the bank will commit the resources for its clients’ success.
How is the current tax landscape affecting your business clients in terms of their banking strategies?
Sharmila Solanki: Since the Tax Reform Bill was implemented, businesses have greater clarity as to its impact. Several of our clients have seen lower tax rates and are able to make strategic decisions regarding their business which have included making additional capital investments. Others have moved to a C-corporation status and worked with their lenders to determine how it can affect the level of debt supportable by the company.
Brian Enzler: The recent tax cut has enabled businesses to increase investment in new equipment to streamline operations and add product capabilities. Often, these purchases are financed through various debt and leasing instruments. Lower tax rates have also enabled our customers to retain and attract talent through increased wages. This new talent helps grow the business, which in turn requires new or different capital strategies supported by our bank.
How are you positioning your clients for the potential of a slower growth economy?
Christopher Holder: As trusted advisors, we will be direct and transparent about managing leverage as uncertainty continues to exist about the timing of the next recession.
“A high-quality management team is the single most important factor in determining where we invest our resources.”Brian Enzler, Texas Commercial Banking, BMO Harris Bank
Brian Enzler: Fortunately, we bank very talented management teams that bring their own insights and outlook, and we’re able to collaborate with them to share ideas not only about how to position their balance sheets for a slowdown, but what other businesses are thinking about, and perhaps even thoughts on taking advantage of opportunities to enhance their position during a cycle.
Sharmila Solanki: We have ongoing discussion with our clients because a slower growth economy could potentially impact their near term and long-term performance. While many of our clients have been through cycles, understanding the potential downside and how to navigate those challenges is important to being a thoughtful and strategic financing partner with a listening ear and forward-thinking attitude.
What are some of your predictions for how business banking may change or evolve over the next five to 10 years?
Dennis Wright: If you look back five years, it’s amazing to see how much has changed, mostly in the technology space. There is an enormous opportunity for businesses – and banks – to continue to leverage technology to grab more of the market share or to create a new market. From a banking perspective, we are excited about the value real-time payments and integrated payables will bring to our commercial and retail clients. Both will speed up delivery of payments and improve operational efficiencies.
Brian Enzler: We will see significant increases in technology spending in the next five to 10 years to address not only the growing cybersecurity and fraud threats to the financial system and businesses generally, but also disruptive technologies such as blockchain, AI, and machine learning. Banks will automate processes to make better decisions more quickly. There will be a growing separation between the customer experience of those banks who innovate and invest and those who don’t. Consolidation will occur so that local and regional banks can leverage scale to support these investments.
Sharmila Solanki: Given the current rate of change we have experienced over the last 10 years seeing the disruption of many of the traditional go to market strategies, I am sure there will be sectors that will have further paradigm shifts from how they operate today. Who would have thought 10 years ago you would literally not have to leave your home for anything from groceries, to ordering your favorite food from virtually any restaurant, and one day, when you leave your home you could be in a self-driving car. Certain companies will need to evolve, and others will elect to completely reinvent themselves in pursuit of opportunities. All companies, including bankers, need to stay on the forefront of these changes and have the ability to adapt, be responsive, and pursue new ways of doing things. Logistics, movement of product, and even movement of ideas and services across the value-chain in banking, healthcare, and all industry are vital and changing rapidly.
Christopher Holder: The client service model is and will continue to be extremely important as banking moves into the next generation. Today, most large banks are moving relationships to service centers. We will always service relationships with bankers in the market.
In today’s economic environment, which industries and markets show opportunity?
Brian Enzler: Technology and healthcare continue to demonstrate outsized growth potential. Rapid advances in technology are being applied across almost all industries to increase efficiency, improve quality, and more precisely deliver desired products and services to consumers. Healthcare, as a broad category, is a growing industry with tremendous opportunity for cost reduction and innovation.
Sharmila Solanki: Technology is growing at an accelerated pace and touches every industry now. With artificial intelligence, machine learning, and autonomous vehicles, there is no end in sight. Another industry is healthcare. Today, health spending accounts for approximately 20% of GDP. Coupled with the growing and aging population, there is an increased demand for products and services. Energy, construction, and business services are also growth industries from the financial sector to technical engineering expertise. Overall, today industries that are poised for growth are those that fundamentally take cost out of the system, create efficiencies, and fulfill an unmet need.
“As trusted advisors, we will be direct and transparent about managing leverage, as uncertainty continues to exist about the timing of the next recession.”Christopher W. Holder, Commerce Bank
Dennis Wright: The North Texas area continues to grow at a rapid pace, which has resulted in a healthy economy and an optimistic business environment. There are several industries doing well in the region, including commercial real estate, manufacturing, wholesale distribution, construction, transportation and logistics, energy, and healthcare, among others.
Christopher Holder: Healthcare, especially with respect to the revenue cycle of large physician practices and hospitals. Commerce has invested heavily in a team of professionals and committed significant resources to be a top regional and national player in this space as it continues to evolve.
Do businesses have more or fewer options today than they did 10 years ago? Why?
Sharmila Solanki: There is no doubt that today borrowers have more options for capital than they did 10 years ago. Commercial banks have more sophisticated technology and products and services with industry specialization. In addition, to reach all different types of capital is at one’s fingertip. Outside of the commercial banks, there are business development corporations and other non-traditional financing companies with tremendous liquidity that are funded by insurance companies and other institutional investors. These non-traditional providers of capital can provide alternative structures with higher leverage profiles and minimal or no covenants depending on the industry and size of the business.
Dennis Wright: Businesses do have more options today due largely to technology, which has been a game-changer for businesses and their ability to expand market share, product delivery, and customer reach. In addition to that, we are operating in a very competitive banking environment, which gives businesses more options than ever before. More banks are playing on a larger scale because of access to technology, which is advantageous for the customer. In addition, there is an increasing number of non-bank competitors that offer services online without having brick and mortar locations that are attracting customers, particularly in the consumer space. Going forward, banks must be focused on building solid relationships while offering competitive products and user-friendly technology.
Christopher Holder: Much more with the acceleration of electronic payment and card services. The evolution of Fintech companies provides businesses with more and different solutions today. However, the longevity of financial institutions, a traditional capital base to compete in this space and the fact money and banking is built on trust, positions banks as a better financial alternative.
Brian Enzler: Businesses in North Texas have far more options for banking than they did 10 years ago. Over the last five years, numerous banks, both large and small, have entered the market, giving businesses more choice than ever as they consider their banking partner(s). Further, we’ve seen a proliferation of finance companies that are regulated differently than commercial and retail banks and provide a wholly different financing experience.
How serious a threat to businesses is cybercrime? Are we seeing more or less of this activity?
Christopher Holder: More. Cyberattacks continue to be one of the key threats to U.S. financial stability, and banks will increase the investment in cybersecurity for the protection of its clients. This is a top priority for all banking executives.
Brian Enzler: Cybercrime is an extremely serious threat to business. Businesses are seeing ever-increasing levels of this activity with ever-increasing and evolving levels of sophistication. All businesses are at risk of attack, and perhaps counterintuitively, smaller businesses are at just as much, if not more, risk. Since bad actors know they likely do not have sophisticated systems and infrastructure in place to protect themselves.
Dennis Wright: Fraud is not a new problem for businesses, but unfortunately, the people who are committing it are becoming savvier by the day. According to the Association for Financial Professionals’ (AFP) 2019 survey, payments fraud has seen a dramatic increase during the past five years with 82% of organizations reporting they have experienced attempted or actual payments fraud in 2018. This trend is one companies are closely monitoring and is leading businesses to make every effort to try to stay one step ahead of these threats. We advise customers to educate employees, make sure they are using the most up-to-date technology, and work with their financial partner to ensure the best practices and protective measures are in place.
What do most Dallas-Fort Worth businesses need to succeed, and what are some common obstacles getting in their way?
Brian Enzler: Access to high-quality, stable talent is the most critical success factor in almost every business. With historic lows in unemployment today, growing a business can be extremely challenging due to inability to obtain and retain talented individuals. Further, with our educational system underperforming and falling further behind, access to a high-quality workforce will likely be an obstacle well into the future.
Christopher Holder: The ability to hire, develop, and retain top talent. Good leadership throughout the organization which empowers employees with accountability. Finally, a good external team of professionals (attorneys, accountants, and financial advisors) to assist in making sound decisions and navigating through tough economic times.
Sharmila Solanki: Dallas-Fort Worth has an entrepreneurial spirit, and businesses need favorable tax structures and to not be burdened by overregulation. This fosters an environment of innovation where new ideas flourish. Today, Texas is among one of the largest economies in the world with a diverse economy spanning industries such as energy, high-tech, healthcare, manufacturing, and logistics among many others. Some of the challenges today include infrastructure and keeping up with the pace of growth. In addition, talent acquisition is always critical for growing businesses. However, Dallas-Fort Worth remains attractive with a favorable business climate along with a good quality of life for its residents.
How have tariffs impacted businesses in North Texas? What are banks doing to help customers navigate the uncertain trade environment?
Brian Enzler: Tariffs have had wide-ranging effects on our customer base. Importers of goods produced in China have had varying levels of success in passing through price increases to customers and achieving vendor concessions, with the strongest companies actually gaining advantages over weaker competitors. Banks should be providing flexible capital to their customers to help mitigate volatility. For example, BMO agnostically provides asset based lending and cash flow lending products to our clients with seamless transitions between approaches to help our clients maintain access to working capital.
Based on what you’ve seen with your clients, how does the current state of our economy affect business banking strategies?
Dennis Wright: The Texas economy is performing well right now, which means companies are still investing equity in areas they are passionate about and that they believe will improve or expand operations. The biggest challenge we see is that everyone is still struggling to find qualified talent in the labor market. There are still a lot of companies that have pent up demand to fill open positions. Because of this shortage, many companies are making investments in automation to improve operations and make processes more efficient. This is especially true in the manufacturing and distribution industry.
Sharmila Solanki: Given we are in the longest expansion in our country’s history, understanding the potential challenges and opportunities that may arise for our clients as the business cycle changes is what sets East West Bank apart. Whether it is healthcare or with our cross-border clients, understanding the nuances of different industries and what keeps the C-suite up at night helps us to be an enduring strategic partner. We align to our clients’ vision and provide products and services to facilitate their short and long-term goals.
What financial services products and programs have emerged as popular among your business clients in the last few years?
Dennis Wright: We are talking to clients about integrated payables more and more as they look to create efficiencies in their payables operations. This capability allows you to create one file with all your payments that need to be made and then lets you to pay them off in the most efficient and effective way for your business. Having a one payment file submission versus separate payment streams has allowed companies to restructure this area and collect data that is improving their bottom line.
“There is an enormous opportunity for businesses—and banks—to continue to leverage technology to grab more of the market share or create a new market.”Dennis Wright, UMB Bank, Dallas
Sharmila Solanki: Many of our specialty lending clients pursue accretive acquisitions regularly. As such, financing mechanisms allowing time to act quickly puts them in an advantageous position. We facilitate their financing solutions, so they can put their efforts where most valuable. Popular structures include accordions or delayed draw term loans. And with our clients’ continued growth strategies, there is a mutual understanding of the parameters around accessing additional capital and asset growth.
Christopher Holder: Fraud protection programs, and virtual card solutions rise to the top of the list.
How does a bank in 2019 differentiate itself from the competition?
Dennis Wright: To stand out today, a bank needs excellent people to put in front of clients, consistency in management, and a strong balance sheet that can weather all economic cycles. At UMB Bank, our relationships and access to senior leadership set us apart. Every associate can reach a senior executive in a timely manner, which makes our response time shorter and allows our associates to be proactive with clients. We offer the best of both worlds; and we have the excellent client service one would expect from a smaller financial institution, as well as the products and services offered by a larger institution.
Christopher Holder: Great bankers who are strategic, intentional, and thoughtful about delivering value; it’s still a people business.
Sharmila Solanki: East West Bank has a unique competitive offering due to its global perspective along with focused industry specialization. We understand the strategic and operational challenges facing companies today when doing business domestically as well as internationally, and it sets us apart from many other commercial banks. Along with traditional real estate and commercial lending, we have numerous specialty groups focusing on energy, healthcare, private equity and structured finance to name a few. The bank has a national footprint that allows us to support our clients around the country as well as the globe.
What are the pros and cons of charitable giving for businesses today?
Christopher Holder: What’s important to our team members is important to commerce. Our top priority will be to invest in and support local and regional nonprofits that are meaningful to our employees.
Dennis Wright: We believe it’s important for business leaders to support causes they are passionate about as well as causes that resonate with their employees. When you are trying to attract and retain the best talent, those individuals want to work somewhere that has heart and that is trying to do something good in the community. That’s important to us at UMB, and it’s important to our team members. We believe it is our responsibility to give back to each community we serve, and we encourage our clients to do the same for their communities.
What are some of your clients’ biggest financial concerns currently, and how are you addressing them?
Sharmila Solanki: Specifically, in my focus area, healthcare, one the greatest concern is having the capital for growth, strategic alliances, and information technology. Reporting capabilities and data is critical to navigate the changing landscape. As the trend to value-based care continues to be a focus, healthcare companies must have the sophistication and technology to report data such as hospital readmission rates, therapy visit and the like for alignment with referral sources as well as for reimbursement. Healthcare through the payment systems is complex and different compared to most other industries as the vast majority of the healthcare spend is through a third party. There is not the direct relationship for payment between the provider of the service and the user of the service. It is a unique balance between providing quality care and operating efficiently and profitability while remaining in compliance within the regulatory guidelines. We have an understanding of the opportunities and challenges the sector faces with the ability to provide financing solutions for their needs.
“Today, due to the free flow of information and globalization, companies are looking for lenders that understand their business and no longer have a myopic view of an industry or geography.”Sharmila Solanki, East West Bank
Dennis Wright: While we are in a solid economy right now, there is enough noise out there about a potential slowdown that people are starting to give more consideration to their capital spending plans and what those look like one to two years down the road. We try to help clients not get overleveraged in these types of situations, meaning that we want to make sure their balance sheets and cash flows can weather a storm while also taking advantage of the growth economy.
Are the companies you work with prepared for succession of management/ownership?
Dennis Wright: Many of them are, but that is because we have worked closely with them to prepare years in advance. A well-thought-out succession plan can help prepare businesses for a smooth transition to the next generation or other ownership without the loss of revenue, cash flow, or customer confidence. We work with our clients to create an inventory of assets, identify the vision or goals for the business, and act to carry out the established plan. We believe that for any business owner, inaction is an action that can hold undesired consequences. A phased and thoughtful succession and exit plan provides long-lasting protection of the assets that have been built, which can continue to grow for future generations.
How have the events of the economic rollercoaster changed investment behavior and investor decision making?
Sharmila Solanki: There has not been much of a rollercoaster over the last few years with the continued market expansion. Overall, we are seeing more of our private equity clients be net sellers in the market. There are billions of dollars on the sidelines seeking deployment. As such, businesses today are trading for historically high multiples, and it is an opportune time to return capital to investors and secure gains. The ongoing challenge is to remain discipled to one’s investment thesis in a frothy market.
How will you continue to grow your bank if the economy slows?
Dennis Wright: UMB has a diversified business model that emphasizes diverse revenue sources, high-quality credit, and a strong balance sheet. Our commercial bank continues to demonstrate its value as the core of our business model, and we are prepared to weather any economic condition alongside our clients because of our stability and strength over the past 106 years. We’ve been lending across all sectors of the economy since the beginning of UMB’s lending history and that will not change.
Are there new banking opportunities for businesses in 2018-2019 that perhaps didn’t
exist in the past?
Sharmila Solanki: Unitrache loans, while have been around for years, are now a mainstay and more widely used as of late allowing the client to have a blended rate between an A and B piece. This structure typically allows the client to access greater proceeds compared to a bilateral senior commercial banking loan. This is attractive, as there is one loan agreement versus two loan agreements with the traditional senior and mezzanine structure and the relationship between the A and B lender is managed through an agreement amongst lenders or maintained with the same institution.
Any trends you are seeing in what Dallas-Fort Worth-based business borrowers are doing with the financing you provide?
Sharmila Solanki: Many companies, especially in healthcare, are spending capital to upgrade technologies, reduce paper, and focus on efficiencies. Platform companies need to continue to grow to remain relevant and are focusing on making accretive acquisitions or denovo projects as there is power with scale. As companies gain market share and scale, they have greater ability to access capital and negotiate favorable terms with vendors and customers.