Canadian Equipment Finance Magazine Spring 2019

Spring 2019 • Volume 7 • issue 1 | www.canadianequipmentfinance.com

Construction equipment trends

Continued non-res construction & M&E growth: Statistics Canada

Courtesy Kobelco USA

Infrastructure, incentives in new B.C. budget Why open banking matters PM40050803

Contents Spring 2019 Volume 7 Number 1

Publisher and Editor-in-Chief Steve Lloyd steve@canadianequipmentfinance.com Editor Brendan Read brendan@canadianequipmentfinance.com

NEWS »4 Market Report

Advertising Sales Mark Henry mark@canadianequipmentfinance.com

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Courtesy TransLink

Photographer Gary Tannyan

18

Brendan read

Creative Direction / Production Jennifer O’Neill jennifer@canadianequipmentfinance.com

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Courtesy Kobelco USA

subscriptions@canadianequipmentfinance.com

Construction equipment trends 2019: KOBELCO »13

Continued non-res construction & M&E growth: Statistics Canada »7

Infrastructure projects streamlined, more responsive »15

Infrastructure, incentives in new B.C. budget »10

Foundation: Independents excel in construction, other niches »17

SME investment shifts to tech: BDC »12

High-performance rail for Ontario? »18

Feature Why open banking matters »19

Also Publishers of Payments Business www.paymentsbusiness.ca

Your Business

Contact Management www.contactmanagement.ca

The 9 important LMS purchase factors »21

DM Magazine www.dmn.ca

Management Strategy Planning for change »22

Made possible with the support of the Ontario Media Development Corporation Ontario Interactive Digital Media Tax Credit

canadianequipmentfinance.com | Spring 2019 | CANADIAN EQUIPMENT FINANCE

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News

U.S. NBV down slightly The Equipment Leasing and Finance Association’s (ELFA) Monthly Leasing and Finance Index (MLFI-25), which reports economic activity from 25 companies representing a cross section of the U.S. equipment finance sector, reported overall new business volume (NBV) for December 2018 was $12.7 billion. This is a decline of 1 per cent year-over-year from NBV in December 2017.

At the same time, volume was up 59 per cent month-to-month from $8 billion in November in a typical end-of-year spike.

Cumulative new business volume for 2018 was up 4 per cent from 2017. Also: ◉◉ Receivables over 30 days were 1.7 per cent, up from 1.6 per cent the previous month and up from 1.5 per cent the same period in 2017. Chargeoffs were 0.55 per cent, up from 0.37 per cent the previous month and up from 0.48 per cent in the yearearlier period; ◉◉ Credit approvals totalled 77.9 per cent in December, up from 77.2 per cent in November. Total headcount for equipment finance companies was up 0.1 per

cent year over year; and ◉◉ Separately, the Equipment Leasing & Finance Foundation’s Monthly Confidence Index (MCI-EFI) in January 2019 was 53.4, down from the December index of 55.5.

The MLFI-25 is the only index that reflects capex, or the volume of commercial equipment financed in the U.S. It measures monthly commercial equipment lease and loan activity as reported by participating ELFA member equipment finance companies.

MLFI-25 complements the U.S. Department of Commerce durable goods report and other economic indexes, including the Institute for Supply Management Index.

Together with the MLFI-25 these reports provide a complete view of the status of productive assets in the U.S. economy: equipment produced, acquired and financed. The latest MLFI25, including methodology and participants, is available at www.elfaonline.org/Data/MLFI/.

“December new business volume capped off a very good year for the equipment leasing and finance industry,”

said ELFA president and CEO Ralph Petta. “Solid demand, an abundant supply of funding in the credit markets and quality portfolios all contributed to an extremely healthy equipment finance sector in 2018. Notably, MLFI-25 respondents indicated that credit approvals were at an all-time high in December, reflecting members’ willingness to provide the necessary financing to thousands of American businesses as they take advantage of a benign economy to acquire equipment to grow and expand their operations.”

“2018 was another strong year for the equipment finance industry, as reflected in the most recent MLFI-25 data,” added Jud Snyder, president of BMO Harris Equipment Finance Company and ELFA chairman. “Customers across a wide variety of industries and revenue sizes invested in their businesses last year and the equipment finance industry supported that growth.”

Slowdown ahead?

But there are signs that the market may be slowing down.

Petta reported that most

economists expect a lowergrowth scenario in 2019, as a result of trade policy frictions, rising interest rates and U.S. political instability that led to the recent federal government shutdown.

“Whether these and other potential headwinds act as a brake on continued growth in the equipment finance sector over the next 12 months remains to be seen,” said Petta.

“What is known, however, is that ELFA members always seem to rise to the occasion to do whatever is necessary for U.S. businesses—both large and small—to acquire productive assets that drive their businesses and move the economy forward.”

“Looking forward, the primary issues we hear about from our clients revolve around global trade uncertainty and a lack of skilled labor availability,” added Snyder. “Despite those concerns, we see continued business optimism and investment in automation and capital equipment expansion throughout the early stages of 2019.”

CLA rolls out Smart Box transparency tool The Canadian Lenders Association (CLA) in collaboration with Navigant and the Innovative Lending Platform Association (ILPA) is rolling out the SMART Box™ programme. SMART Box is a pricing disclosure model and comparison tool that will enable Canadian small businesses to better assess and compare their debt finance

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options. In 2018, SMART Box was successfully adapted by the CLA for the Canadian market and to conform to Canadian regulatory requirements.

SMART Box was introduced to the U.S. by the ILPA in 2016 in response to a need for common language and standardization in pricing disclosure in small business

CANADIAN EQUIPMENT FINANCE | Spring 2019 | canadianequipmentfinance.com

finance. It includes clear and consistent pricing metrics, metric calculations and explanations to help small businesses understand and assess the costs of their finance options.

Navigant is working with Canadian commercial lenders that adopt SMART Box to validate that their annual percentage rate (APR)

calculation methodology on small business installment loans is consistent with the APR calculation methodology outlined in the Ontario’s Consumer Protection Act, 2002: as if such small business lenders were subject to that Act. Canadian lenders will benefit from Navigant’s experience with the U.S. SMART Box, which adopts the calculation

News

methodology in the U.S. Truth In Lending Act as implemented by Regulation Z. “The CLA is looking forward to collaborating with Navigant to expand the use of SMART Box in Canada and to serve and support our growing client base,” said CLA president Gary Schwartz. “Combining

the CLA’s tools to innovate, grow and foster safe and ethical lending practices with Navigant’s know-how represents a significant opportunity for small businesses in Canada to better understand and assess the costs of their finance options.”

“We’re excited to work

with the CLA to further expand the use of the SMART Box comparison tool to help standardize pricing metrics for small businesses in Canada,” said Christopher Sicuranza, managing director and co-lead of Navigant’s banking, insurance and capital markets practice within the

Financial Services Advisory and Compliance (FSAC) segment. “This is a great opportunity to apply Navigant’s deep expertise in lending regulation to create a win-win both for lenders and for small businesses.”

The Equipment Leasing & Finance Foundation has released the Q1 2019 Equipment Leasing & Finance Industry Snapshot, an indispensable resource for industry participants to incorporate into executive briefings and presentations.

The presentation slide deck summarizes the current conditions of the U.S. economy and equipment finance industry with clear, easy-to-digest charts and short narratives of key trends.

Among the range of details in the new release: ◉◉ The U.S. economy expanded at a 3.5 per cent annualized rate in Q3 2018, easing slightly, but still robust; ◉◉ Consumer spending and private inventories were the strongest drivers of growth in Q3; ◉◉ Seven key verticals have shown stronger growth above their historical average and nine have seen recent momentum accelerate (see graph); ◉◉ The Foundation expects equipment and software (E&S) investment to grow at a 4.1 per cent pace in 2019, decelerating from an estimated 7.9 per cent in 2018. E&S investment growth is likely to weaken over the course of the year (see graph); ◉◉ Top economic headwinds include increased trade pressures and global credit 6

Courtesy

Foundation releases Q1 2019 industry snapshot

tightening; and ◉◉ Business investment slowdown, oil sector uncertainty, continued housing sector weakness and the return to divided government are among additional factors to watch for impact on the economy.

CANADIAN EQUIPMENT FINANCE | Spring 2019 | canadianequipmentfinance.com

Prepared by Keybridge Research and updated quarterly, the snapshot is available for free download at https://www.leasefoundation.org/ industry-resources/industrysnapshot/.

“The Industry Snapshot aggregates a wide range of

data in addition to Foundation research to provide a macroeconomic to an equipment finance industry perspective,” said Kelli Nienaber, Foundation executive director. “This is a unique, onestop intelligence resource for equipment finance executives.”

Market Report

Continued non-res construction & M&E growth: Statistics Canada nticipated higher capital outlays on non-residential construction assets are driving an expected third consecutive year of growth in capital spending, according to Statistics Canada. The Capital and Repair Expenditures Survey1, released Feb. 28, reported that capital expenditures on non-residential construction and

A

1.2 per cent to $87.7 billion in 2019, is also forecasted.

Growth in capital expenditures on privately held non-residential tangible assets is expected to accelerate by 2.8 per cent in 2019, after two years of moderate increases (+0.7 per cent in 2018 and +1.4 per cent in 2017). In 2019, 12 out of 20 industrial sectors plan to increase

machinery and equipment (M&E) are expected to rise 2.5 per cent to $252.1 billion in 2019. This follows increases also of 2.5 per cent in 2018, and 4.3 per cent in 2017.

Anticipated capital outlays on construction assets, excluding housing, is expected to be up 3.2 per cent in 2019 to $164.3 billion. Higher M&E spending:

Capital spending on non-residential tangible assets, industrial sectors 2016

2017

2018

2019

2018 to 2019

millions of dollars

millions of dollars

millions of dollars

millions of dollars

% change

Total, non-residential construction and machinery and equipment

229,952.3

239,906.4

245,936.9

252,060.7

2.5

Total, private capital expenditures

153,922.4

156,106.7

157,227.6

161,567.0

2.8

Total, public capital expenditures

76,029.9

83,799.7

88,709.3

90,493.8

2.0

6,341.4 48,202.2 30,823.2 5,890.2 16,491.4 3,469.7 6,444.7 27,775.4 11,487.7 3,601.1 12,745.1 2,810.2 418.7 1,545.7

7,733.2 50,565.6 31,525.2 6,244.8 15,366.8 3,600.5 6,607.9 28,953.8 12,496.7 3,617.9 13,387.8 2,448.1 548.9 1,681.8

7,995.7 47,616.5 27,772.0 5,742.5 18,252.1 3,855.3 6,376.4 31,599.7 13,478.5 3,574.3 14,044.6 2,545.2 555.3 1,611.5

7,974.6 48,234.4 28,926.8 5,860.6 19,145.6 3,876.1 5,927.8 35,578.9 13,865.8 3,918.2 14,491.3 2,434.1 737.8 1,525.7

-0.3 1.3 4.2 2.1 4.9 0.5 -7.0 12.6 2.9 9.6 3.2 -4.4 32.9 -5.3

9,519.3 8,363.8 2,586.0 4,051.7 1,238.2 26,146.5

10,582.9 8,114.8 2,610.7 3,610.9 1,073.5 29,134.3

12,030.0 8,235.5 3,036.9 3,576.4 1,333.2 32,705.2

10,276.0 9,088.0 3,215.9 3,439.5 1,125.0 32,418.5

-14.6 10.4 5.9 -3.8 -15.6 -0.9

Industrial sectors Agriculture, forestry, fishing and hunting Mining, quarrying and oil and gas extraction Utilities Construction Manufacturing Wholesale trade Retail trade Transportation and warehousing Information and cultural industries Finance and insurance Real estate and rental and leasing Professional, scientific and technical services Management of companies and enterprises Administration, support waste management and remedial service Educational services Health care and social assistance Arts, entertainment and recreation Accommodation and food services Other services (except public administration) Public administration

Note(s): Data may not add up to totals as a result of rounding.

Source(s): Statistics Canada, Tables 34-10-0035-01 and 34-10-0037-01.

canadianequipmentfinance.com | Spring 2019 | CANADIAN EQUIPMENT FINANCE

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Market Report capital expenditures, though this is down compared with 13 sectors in 2018 and 15 sectors in 2017.

Transportation, warehousing could hit record Spending on non-residential tangible transportation and warehousing sector assets is expected to accelerate in 2019 by 12.6 per cent, which, if realized, could reach an unprecedented $35.6 billion in investments. The sector had grown by 9.1 per cent in 2018 to $31.6 billion, driven by pipeline, rail, transit and ground transportation and by transportation support activities.

Both private and public organizations reported increased spending intentions.

While the largest contributor is a 19.6 per cent (+$1.7 billion to $10.4 billion) anticipated rise in transit and ground passenger transportation, increased capital spending is anticipated across almost all transportation subsectors.

For example, investments intentions for transportation support activities are expected to grow by 22.6 per cent to $4.1 billion.

Meanwhile capital expenditures in the utilities sector are anticipated to increase 4.2 per cent to $28.9 billion, resulting from increased water, sewage and other systems subsector investments (+23.7 per cent to $6.2 billion). On the other hand, intended spending in electric power generation, transmission and distribution is down slightly (-0.8 per cent to $20.3 billion), following a 14.1 per cent decline in 2018 due to the completion of major projects.

Mining, quarrying spending to rise The mining, quarrying, and oil and gas extraction sector is still expected to be the top sector in 2019 in terms of capital expenditures. It is anticipated to rise from $47.6 billion in 2018 to $48.2 billion, though capital spending has declined significantly from the record levels achieved in 2014.

The growth is primarily due to increased mining and quarrying (except oil and gas) spending intentions in Saskatchewan, said Statistics Canada.

Oil and gas extraction subsector capital spending is expected to remain stable at 8

$36.7 billion in 2019, following an 8.8 per cent decrease in 2018. The completion of several large projects in the nonconventional oil extraction industry caused the decline in 2018.

Spending on transportation and warehousing sector assets is expected to accelerate in 2019 by 12.6 per cent, which, if realized, could reach an unprecedented $35.6 billion.

Manufacturing increases Manufacturers anticipate a 4.9% increase in capital spending in 2019 to $19.1 billion. Out of 21 manufacturing subsectors, 17 reported an expected increase for 2019. In the Fall Economic Statement 2018, the federal government introduced the Accelerated Investment Incentive to encourage business investment. Eligible manufacturing and processing equipment acquired after November 20, 2018, will be eligible for a full tax write-off the year it is put in use in the business. Increased spending intentions by chemical manufacturers in Alberta (+$992 million to $2.1 billion) more than offset declines in transportation equipment manufacturing (-$841 million to $2.6 billion), primarily in Ontario and Quebec.

The manufacturing sector was the second largest contributor to the $6 billion increase in capital expenditures for 2018. Spending in this sector was 18.8 per cent above 2017 levels (+$2.9 billion to $18.3 billion). Notable increases were reported in petroleum and coal products, transportation equipment, chemical, primary metal and food manufacturing.

Higher public sector investments Spending on non-residential assets by

CANADIAN EQUIPMENT FINANCE | Spring 2019 | canadianequipmentfinance.com

public sector organizations is anticipated to increase 2 per cent in 2019, following a strong 5.9 per cent growth in 2018, reported Statistics Canada. Public administration sector capital spending grew by 12.3 per cent in 2018 (+$3.6 billion to $32.7 billion), led by provincial and territorial public administration as well as by federal public administration.

Capital spending in educational services increased for the fifth consecutive year in 2018. Several organizations reported major projects partially funded by the federal government through the Post-Secondary Institutions Strategic Investment Fund.

B.C. growth to be strongest British Columbia is likely to lead the nation in increased capital spending for 2019, reported Statistics Canada. A 12.9 per cent growth in capital spending to $34 billion is expected, following a 3.8 per cent climb in 2018 and a 10 per cent rise in 2017.

B.C.’s growth is being driven by anticipated increases in several sectors, mainly in transportation and warehousing (+35.6 per cent to $7.6 billion), utilities (+21 per cent to $4.8 billion) and public administration (+14.4 per cent to $4.2 billion). All three sectors were also the largest contributors to the provincial increase in 2018; Ontario continues to dominate overall capital spending and is expected to see a 3.8 per cent growth to $75.2 billion in 2019. It had seen increases of 4.9 per cent in 2018 and 7.4 per cent in 2017. The utilities (+17.2 per cent to $10 billion) and transportation and warehousing (+16.3 per cent to $10.2 billion) sectors are the primary contributors to the increase.

The public administration sector also indicated increased spending intentions in 2019 (+7.2 per cent to $11.9 billion), as did most others.

But educational services sector investments are expected to decline, following the completion of several projects at post-secondary institutions in 2018 (-16.4 per cent to $4.2 billion). At the same time manufacturers anticipate spending 10.3 per cent less in 2019 after a sizeable increase (+18.9 per cent) in 2018.

Decreased spending intentions in the

Market Report

Capital spending on machinery and equipment, provinces and territories 2019 (millions of dollars) plus 2018 to 2019 % change

Canada 252,060.7 2.5% Yukon 638.4 -23.8%

British Columbia 33,975.9 12.9%

Northwest Territories 820.1 -16.7%

Nunavut 1,439.1 -19.1%

Alberta 59,716 -1.3% Saskatchewan 14,882.4 -3.6%

Newfoundland and Labrador 6,436.5 -0.7%

Manitoba 8,842.7 -5.0%

Quebec 41,447.8 5.7%

Ontario 75,216.1 3.8%

New Brunswick 4,052.8 1.7%

Note(s): Data may not add up to totals as a result of rounding.

Source(s): Statistics Canada Table 34-10-0035-01.

transportation equipment manufacturing (-25.3 per cent to $2.1 billion) and primary metal manufacturing (-33.6 per cent to $447 million) subsectors in 2019 is the main factor of the sector’s outlook.

Capital expenditures in Quebec are anticipated to reach $41.4 billion in 2019, with a 5.7 per cent growth, and following a 4.2 per cent gain in 2018 and an 8.2 per cent increase in 2017. Manufacturing sector is expected to lead growth in 2019 (+26 per cent to $4.8 billion) following

Prince Edward Island 679.9 2.7%

two years of declines. Transportation and warehousing sector spending is anticipated to increase by 18.6 per cent to $5.6 billion, following a 29.7 per cent increase in 2018. Health care and social assistance sector investments are expected to rise 32.6 per cent to $2.1 billion. At the same time intentions for the utilities sector point to an 8.5 per cent decline to $4.4 billion as major electric power projects near completion.

Meanwhile Alberta is expected to

Nova Scotia 3,913 -5.8%

remain near $60 billion for the third year in a row, with capital spending likely to decline by 1.3 per cent in 2019. Decreases expected in the mining, quarrying and oil and gas extraction sector (-4 per cent to $27 billion) were only partially offset by anticipated increases in the manufacturing sector (+31.5 per cent to $3.7 billion).

1 Statistics Canada, “Non-residential capital and repair expenditures, 2017 (revised), 2018 (preliminary) and 2019 (intentions)”, The Daily, release, February 28, 2019.

canadianequipmentfinance.com | Spring 2019 | CANADIAN EQUIPMENT FINANCE

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Market Report

Courtesy TransLink

Infrastructure, incentives in new B.C. budget

TransLink’s SkyTrain at the VCC-Clark station in Vancouver. The new British Columbia budget has allocated funds to extend it to Arbutus Street. Plans call for SkyTrain to be completed to the University of British Columbia’s Point Grey campus, and for it to reach further east in Surrey and to Langley, replacing the previously approved LRT network following the election of a pro-SkyTrain mayor, Doug McCallum and council slate, in Surrey last October.

ritish Columbia’s provincial government brought down its 2019 budget Feb.19 that includes substantial new money for measures aimed at spurring, ensuring and supporting long-term growth.

The Ministry of Finance has assembled a three-year fiscal plan in which the province is expected to spend and see about $31 billion invested from taxpayer and self-supported i.e. revenuedriven resources over this period on capital projects. A majority of that spending will be taxpayer-funded. But there are also business incentives in the new budget.

B

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Record public capital spending The B.C. government will be outlaying $20.1 billion—which it said is the province’s largest-ever taxpayer-financed capital plan—to expand and sustain infrastructure, including hospitals, post-secondary facilities, schools and transportation. The funds will support existing approved and new projects.

The fiscal plan total is $4.3 billion higher than the 2018 budget mainly due to new education, health and transportation capital spending, as well as revised timing for capital projects. A portion ($2 billion) will be supplied by the federal government.

CANADIAN EQUIPMENT FINANCE | Spring 2019 | canadianequipmentfinance.com

Here are several examples of taxpayerfunded projects: ◉◉ A new and seismically safer Burnaby North Secondary School has been approved for up to $79.2 million. It will have 1,800-seats and include space for child care, adult education and language development programmes. It is expected to be ready for students in Sept. 2021; ◉◉ A new $126 million Sustainable Energy and Environmental Engineering Building at the Surrey campus of Simon Fraser University that will provide space for 515 students, expand research opportunities and foster innovation;

Market Report ◉◉ The new St. Paul’s Hospital at the Station Street site in Vancouver. It will comprise of a new core hospital (acute care and outpatient centres), capacity for 548 inpatient beds, a larger emergency department, surgical suite, consolidated specialty outpatient clinics and an underground parkade.

Procurement is planned to start in fall 2019, with construction planned to start in fall 2020 and expected to complete in 2026; ◉◉ The Broadway Subway, which will extend the TransLink SkyTrain system 5.7 km from VCC-Clark station to Arbutus Street with six stations, including a connection with the Canada Line. Construction is anticipated to begin in 2020 and finish in 2025 at a cost of $2.83 billion; and ◉◉ Replacing the R.W. Bruhn Bridge on Highway 1 in Sicamous with a fivelane structure, including four-laning the approaches, a new roadway under the bridge to increase connectivity, a multi-use path and intersection improvements.

The B.C. government is taking steps to ensure that its own facilities are in excellent shape and that they meet evolving needs. The 2019 budget includes $1.6 billion in capital spending by government ministries over the plan period. The funds will be used to maintain, upgrade and expand infrastructure such as courthouses, correctional centres, office buildings, the Royal BC Museum and information systems.

Higher self-supporting capital spending Self-supported capital spending is projected to total $11 billion over the fiscal plan period. The lion’s share (94 per cent) will be spent on electrical generation, transmission and distribution projects to meet growing customer demand and to enhance reliability. The system, largely provided by BC Hydro, was built from the 1960s through the 1980s. BC Hydro is upgrading and maintaining aging assets and building new infrastructure. Included in the electrical power investment is construction of a

Capital spending Government of British Columbia ($ millions)

Updated Forecast 2018/19

Budget Estimate 2019/20

Plan 2020/21

Plan 2021/22

562 1,002 1,147

843 1,034 1,255

971 1,096 1,406

862 1,187 1,692

974 96 492 432 66

1,881 194 672 393 68

2,097 181 497 534 55

2,060 175 447 378 110

4,771

6,340

6,837

6,911

3,923 4 37 72 80 76

2,999 1,001 8 92 105 69

3,115 14 6 40 105 53

3,153 18 2 40 90 58

Total self-supported commercial

4,192

4,274

3,333

3,361

Total capital spending

8,963

10,614

10,170

10,272

Taxpayer-supported Education Schools (K–12)..........................

Post-secondary institutions....

Health...........................................

BC Transportation Financing Authority1................

BC Transit.....................................

Government ministries................

Housing2.......................................

Other3...........................................

Total taxpayer-supported Self-supported BC Hydro.......................................

Columbia River power projects4 5..

BC Railway Company....................

ICBC..............................................

BC Lotteries..................................

Liquor Distribution Branch..........

1 Includes Transportation Investment Plan and Transportation Investment Corporation, which is a subsidiary of BCTFA effective April 1, 2018.

2 Includes BC Housing Management Commission and Provincial Rental Housing Corporation.

3 Includes BC Pavilion Corporation, Royal BC Museum and other service delivery agencies.

4 Joint ventures of the Columbia Power Corporation and Columbia Basin Trust.

5 Columbia Basin Trust and Columbia Power Corporation purchase of the Waneta Expansion asset for $991 million.

Source: Government of British Columbia, Ministry of Finance.

third dam and hydroelectric generating station on the Peace River through the Site C Clean Energy project and the purchase of Fortis’s partnership interest in the Waneta Dam expansion facility south of Trail, B.C. Here are other major self-supporting projects: ◉◉ $300 million for BC Lottery Corporation projects, including replacement of key legacy business systems, expansion of the lottery distribution network and acquisition of gaming equipment to support lottery, PlayNow internet gaming, casino and community gaming activities; ◉◉ $172 million for Insurance Corporation of British Columbia projects,

including investment in IT and facility maintenance and upgrades; and ◉◉ $180 million invested by the Liquor Distribution Branch for costs related to the Liquor Distribution Branch Warehouse project, updates and improvements to liquor stores and expansion of cannabis stores.

Business incentives In a new programme British Columbia will contribute over $800 million over the fiscal plan for investment incentives in capital assets, such as buildings, machinery and equipment. This move it said will make it more attractive for businesses to invest in assets while freeing up their capital.

canadianequipmentfinance.com | Spring 2019 | CANADIAN EQUIPMENT FINANCE

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Market Report

SME investment shifts to tech: BDC nvestment intentions amongst Canadian entrepreneurs are expected to remain stable, but more of their dollars are likely to be spent on technology.

The Business Development Bank of Canada (BDC)’s fourth annual survey of small-midsized enterprises (SMEs), released Jan.15, reported that 73 per cent of SMEs are expecting their revenues to grow in 2019, compared with 72 per cent in 2018.

But there are several factors, chiefly Canada’s labour shortages are holding their investment back, notably in the construction and resource sectors, according to the survey, Investment Intentions of Canadian Entrepreneurs: An Outlook for 2019. Other constraining factors include insufficient cash flow and lower confidence in the economy.

I

Tech outlook brightest The sectors with the brightest investment outlook are wholesale, technology and business services. But reflecting the growing digitization of the economy, SMEs are shifting their investments away from machinery and equipment (M&E) and buildings towards intangible assets, such as intellectual property, marketing, research and development (R&D), software and training.

The balance of opinion on their investment intentions for M&E (-2 per cent), and for buildings (-3 per cent) is negative for 2019, an indication that SMEs plan to spend less in 2019 than 2018, according to the BDC. On balance many SMEs reported plans to spend more on IP, marketing, R&D, training (balance of 8 per cent) and on software (balance of 3 per cent) in 2019 than they had done in 2018. Moreover, exporting businesses are more likely to plan new technology investments, thanks to a low Canadian dollar and strong U.S. demand.

Following on this, a quarter of businesses that will allocate all of their investment to new technologies expect revenues to grow by 20 per cent or more this year, the BDC investment survey 12

reported, compared to only a tenth of firms that will allocate their investment differently. According to BDC’s research, top-performing businesses invest more in intangible assets, allowing them to be more innovative and profitable1.

“In an economy that is increasingly automated and digitized, these assets are at the heart of a business’s capacity to produce goods and deliver services competitively,” said the BDC.

Small-midsized enterprises are shifting their investments away from machinery and equipment (M&E) and buildings.

Labour shortages to intensify The higher investment in training is a sound move. This is the second year in a row that staffing has been cited as the top obstacle to investing: 53 per cent of businesses did so for the most recent survey.

A recent BDC study found a direct link between the shortage of workers and slower growth in a company’s sales.

What’s more, it said, demographic changes, notably an aging workforce and retiring Baby Boomers, will make chronic labour shortages worse over the next decade2. The BDC suggests employers formalize their HR policies, develop employee value propositions to make their businesses more attractive to existing and prospective workers and consider hiring from underutilized segments of the labour force, including immigrants. Businesses should also

CANADIAN EQUIPMENT FINANCE | Spring 2019 | canadianequipmentfinance.com

improve operational efficiency, automate processes and leverage technologies to become less dependent on workers.

Cash flow issues The BDC investment survey said that insufficient cash flow generated by businesses is posing an increasingly important investment hurdle. But it noted that the majority of business owners prefer to invest with cash, instead of taking on debt.

“Entrepreneurs could invest more if they borrowed,” said the BDC report.

“Credit conditions remain favourable in Canada, with interest rates remaining low by historical standards.”

Business confidence There is growing concern by SMEs about the future of the Canadian economy.

Respondents said that higher interest rates, trade uncertainties and commodity price fluctuations are starting to weigh confidence, particularly in the Prairies.

But there is confidence and optimism in Manitoba, Newfoundland and Labrador and Quebec.

“We observe that a lower number of business owners show high confidence in both the Canadian and world economies compared to last year,” said the BDC. The BDC study is available for download at https://www.bdc.ca/en/ about/sme_research/pages/investmentintentions-canadian-entrepreneursoutlook-2019.aspx.

“It is encouraging to see some optimism from Canadian businesses as they adapt to the labour shortage and digital technology,” said Pierre Cléroux, BDC vice president, research and chief economist.

“SMEs make up 99.7 per cent of Canadian companies, so their success is crucial to the economy. Companies can better meet today’s challenges if they invest in retaining workers, hiring newcomers to Canada and adopting new technology.”

1 BDC, “Built for Performance: Discover Strategies Used by Canada’s Leading SMEs” May 2018.

2 BDC “Labour Shortage: Here to Stay—Worker Scarcity in Canada and What Businesses Can Do to Respond”, September 2018.

Market Report

Courtesy KOBELCO USA

Construction equipment trends 2019: KOBELCO

By Brendan Read

onstruction lays the foundation for business, including the market for equipment and the financing of these assets. To understand what is happening, Canadian Equipment Finance recently interviewed Denis Martin, who is district business manager, KOBELCO USA (www.kobelco-usa.com).

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Canadian Equipment Finance (CEF): What is your forecast for the Canadian construction equipment market?

Denis Martin (DM): The Canadian construction equipment market in 2019 looks to be relatively flat compared to 2018. However, it is looking positive in some areas, such as British Columbia, Alberta, Ontario and Quebec. The Atlantic provinces are still struggling economically. This is predicted to change but not in 2019.

We should start seeing an upswing in some markets in 2019. Eastern Canada is dependent on infrastructure, non-residential work and the housing market, which seems to be going well, especially in Ontario and Quebec.

Western Canada is dependent on major projects, such as the expanded Trans Mountain pipeline and other oil-related businesses, whose outlook appears to be fragile. It is difficult to predict how this will look throughout 2019, however, as infrastructure and residential work seem to be continuing in British Columbia.

CEF: What are the top market trends and their drivers?

DM: For Canadian KOBELCO dealers, leasing is not as popular right now as retailing i.e. purchasing equipment.

However, this is slowly changing. Given the instability in the construction market across Canada, customers are a bit

Courtesy KOBELCO USA

KOBELCO SK260LC-10 and SK300LC-10 at a stone rock quarry in Keller, Texas. KOBELCO dealer: Bane Machinery. While the Canadian construction equipment market is expected to be relatively flat it is growing in some provinces. KOBELCO recently added three Canadian dealers to its network: Abi-Quip, Conaker Equipment and Les Equipments Pinso Ltee.

Denis Martin, district business manager, KOBELCO USA.

hesitant to purchase equipment. Until there is more stability, renting and leasing will become more attractive, especially in Western Canada where pipeline construction is the question of the day.

The top emerging trend, though a negative one, is lack of labour. Dealers are having difficulties finding and retaining quality technicians. This is having a negative impact on dealers when it comes to supporting their customers and it’s not looking like this is going to improve anytime soon.

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Market Report rather than to replace, and why?

DM: Yes, customers are not trading in their equipment as quickly. I don’t believe this will change until there is more stability in the construction industry in Canada.

Courtesy KOBELCO USA

CEF: Are you seeing technology such as GPS, Internet of Things, play a greater role in equipment management and finance?

KOBELCO SK45SRX mini excavator digging utility line trenches for a new subdivision. Location: Oregon. Customer: GBL Construction.

KOBELCO Dealer: Feenaughty Machinery.

DM: Technology has become more important than ever for customers and contractors. Efficiency, improved productivity, time restraints, staffing and other factors are greatly affected by this. Doing a job efficiently and quickly plays into the amount of time using your equipment, the costs involved to use it, wear and tear of the equipment, labour costs and more.

The vast size of Canada also makes telematics extremely important for dealers looking to service machines that are long distances away from the dealerships. The ability to have an idea of what is wrong with a machine prior to showing up allows the technician to fix the problem with one trip. That is a huge benefit to the dealer and end user.

Courtesy KOBELCO USA

CEF: What are your recommendations to lessees and owners to maximize the benefits from their equipment?

KOBELCO SK270SRLC-5 excavator. Customer: Moss Utilities. KOBELCO dealer: Bane Machinery.

CEF: What changes are you seeing in equipment finance and what is causing them?

DM: Customers are buying less on the quality of the product and more on price based on “how much am I going to pay each month?” Retail financing has become more competitive with manufacturers and dealers now offering aggressive low rate financing on a monthly basis, i.e. zero per cent for 48 months. This part of the business has 14

become an important determining factor for customers buying heavy equipment.

Rentals and leasing may become more important options in the coming year for KOBELCO dealers also as more customers look at their purchases as monthly expenses rather than single outlays.

CEF: Are lessees and owners using their equipment longer, choosing to rebuild and upgrade

CANADIAN EQUIPMENT FINANCE | Spring 2019 | canadianequipmentfinance.com

DM: I would suggest scheduling consistent preventive maintenance by their certified original equipment manufacturer or OEM dealer to avoid any downtime. In addition, depending on the number of hours they intend to put on their equipment, I would suggest buying an extended warranty. This will give an added resale value to their equipment and help should they have any issues past their base warranty.

Finally, if you are not an owneroperator, I would suggest seeking a “top” operator to join your business and stay for the long term. A great operator will make you profitable and keep your equipment in tip-top condition. Allocate an excavator to this operator so they can make it theirs as if they own it. Pride in your work and your equipment goes far with this type of operator.

Market Report

Infrastructure projects streamlined, more responsive he federal government is making its $180 billion-plus 12-year public infrastructure plan more responsive to the needs of provinces and territories. Infrastructure and Communities Minister François-Philippe Champagne outlined changes Feb. 21 to the integrated bilateral infrastructure funding agreements with each of the 13 provincial and territorial governments. ◉◉ Simplifying the process by which proposed projects are approved. Such measures include streamlining the application process, launching an online portal for project applications to be submitted more easily and having a dedicated team of officials to shepherd large project proposals through approvals; ◉◉ Supporting more infrastructure renewal in rural and northern communities. These measures include making available

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federal funding to cover a portion of the costs associated with planning infrastructure projects in communities with less than 5,000 people; ◉◉ Increasing broadband access in rural communities. To improve access to high-speed Internet service in these communities, broadband projects undertaken in the provinces with for-profit recipients will qualify for a larger share of federal funding; ◉◉ Advancing reconciliation with Indigenous peoples. To promote a relationship with Indigenous peoples based on a recognition of rights, respect, cooperation and partnership, the costs of holding consultations with them about proposed infrastructure projects will be retroactively eligible for federal funding; and

◉◉ Expanding the types of energy retrofit projects that are eligible for federal funding. To support territorial governments in reducing greenhouse gas emissions, proposed projects that are eligible for federally funded energy retrofits will be expanded to include territorial administrative buildings, community administrative buildings and emergency services infrastructure.

Infrastructure Canada is among the 14 federal departments and agencies delivering more than 70 new funding programmes, which are supporting more than 33,500 infrastructure projects across Canada worth a total of almost $20 billion in federal contributions. Of these funded projects, 98 per cent are either underway, or already completed.

Examples of major Infrastructure Canada projects Title

Programme

Category

Location

Forecasted Construction Dates

Federal Contribution

Total Eligible Costs

Lake Manitoba/Lake St. Martin Outlet Channel Project

Disaster Mitigation and Adaptation Fund

Disaster Mitigation

Grahamdale, Manitoba

2018-06-30 to 2025-03-31

$247,500,000.00

$495,000,000.00

Massey Hall Revitalization Project

Provincial-Territorial Infrastructure Component - National and Regional Projects

Culture

Toronto, Ontario

2018-06-01 to 2020-09-30

$30,000,000.00

$91,869,423.00

Calgary Green Line Light Rail Transit Project

Green Infrastructure Stream

Public Transit

Calgary, Alberta

2020-04-01 to 2026-12-01

$451,694,410.00

$1,286,886,230.84

Calgary Green Line Light Rail Transit Project

Public Transit Infrastructure Stream

Public Transit

Calgary, Alberta

2020-04-01 to 2026-12-01

$1,078,305,590.00

$3,072,113,769.16

City of Kingston Third Crossing Bridge Project

Provincial-Territorial Infrastructure Component - National and Regional Projects

Highways and Roads

Kingston, Ontario

2019-07-01 to 2022-12-31

$60,000,000.00

$180,000,000.00

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Market Report Examples of major Infrastructure Canada projects (continued) Title

Programme

Category

Location

Forecasted Construction Dates

Federal Contribution

Total Eligible Costs

Institut nordique du Québec (Phase 1)

Provincial-Territorial Infrastructure Component - National and Regional Projects

Innovation

Québec, Québec

2021-03-01 to 2023-09-30

$25,563,509.00

$76,690,529.00

Millennium Line Broadway Extension (TransLink)

Public Transit Infrastructure Stream

Public Transit

Vancouver, British Columbia

2020-04-01 to 2025-12-01

$888,357,608.00

$2,220,894,019.00

Surrey-NewtonGuildford Light Rail Transit (TransLink)

Public Transit Infrastructure Stream

Public Transit

Surrey, British Columbia

2020-02-01 to 2024-02-01

$483,832,791.00

$1,209,581,977.00

City of Winnipeg Accelerated Regional Street Renewal Project

Provincial-Territorial Infrastructure Component - National and Regional Projects

Highways and Roads

Winnipeg, Manitoba

2019-05-01 to 2023-10-31

$100,000,000.00

$300,000,000.00

Trans Labrador Highway - Route 510 - Widening and Hard Surfacing of Phase III - 160 km east of Happy Valley-Goose Bay to Cartwright Junction (126 km)

Provincial-Territorial Infrastructure Component - National and Regional Projects

Highways and Roads

Cartwright, Newfoundland and Labrador

2018-05-24 to 2020-06-30

$31,884,767.00

$63,769,535.00

Design - LRT System Expansion

Public Transit Infrastructure Fund

Public Transit

Edmonton, Alberta

2018-06-30 to 2019-03-31

$48,204,226.00

$96,408,452.00

Inuvik Wind Generation

Arctic Energy Fund

Green Energy

Inuvik, Northwest Territories

2019-01-15 to 2021-03-31

$30,000,000.00

$40,000,000.00

Trans-Canada Highway 1 - R.W. Bruhn Bridge & Approaches

Provincial-Territorial Infrastructure Component - National and Regional Projects

Highways and Roads

Sicamous, British Columbia

2019-05-31 to 2023-03-31

$91,082,772.00

$182,165,545.00

City of Regina Railyard Renewal Project

Provincial-Territorial Infrastructure Component - National and Regional Projects

Brownfield Remediation And Redevelopment

Regina, Saskatchewan

2021-01-01 to 2025-12-31

$11,222,507.00

$64,075,000.00

Comox Valley Water Treatment Project

Green Infrastructure Stream

Drinking Water

Comox Valley, British Columbia

2019-04-01 to 2022-03-31

$34,308,048.00

$85,770,120.00

Note: Data may not add up to totals as a result of rounding.

Source: Infrastructure Canada.

Here are the large ($40 million-plus) Infrastructure Canada projects approved in 2018. They represent a sample of the more than $180 billion the federal government is investing over 12 years in five main infrastructure priorities: public transit, green, social, trade and transportation and rural and northern communities.

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CANADIAN EQUIPMENT FINANCE | Spring 2019 | canadianequipmentfinance.com

Market Report

pecializing in construction and materials handling appear to be helping U.S. independent finance companies grow their market share against banks and manufacturer-owned captive finance firms. The independents have also been targeting corporate aviation, healthcare, IT, office machines and trucks and trailers.

A new study, Independents: Banking on the Non-Banks, released by the Equipment Leasing & Finance Foundation, examines the domain of independents and how they create value and differentiate themselves. The in-depth study, commissioned by the Foundation, and released in February 2019 was prepared by FIC Advisors, Inc. More than 20 independent finance company executives were interviewed for this examination of how independents have built their current success and are preparing for future events. The study offers details concerning ways in which successful players identify the key issues that can impact their performance, engage their personnel teams in addressing them and make informed decisions. All at the same the time maintaining the flexibility to change their course as necessary. It also includes case examples with takeaways for independents and the larger industry to consider.

Here are the highlights: ◉◉ Independents had once dominated the equipment finance market, but lost share and volume to banks as a result of the economic downturn and banks’ capital availability to enter and expand in the market, including by buying independents. But independents have responded by focusing on customer service, on smaller deals (below $250,000) and specialized, highattention and/or lower-volume sectors; ◉◉ Independents have a potential financing market of between $50.6 billion-$176 billion. The range is based upon

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current market share as developed by two different but related sources, the Equipment Leasing and Finance Association’s annual survey of its members (4.6 per cent) and a separate survey of end users (16 per cent). Applying those percentages to the total market numbers accounts for the wide dollar range, but even $50.6 billion provides significant market potential; ◉◉ Market share numbers for independents show them capturing in total a stable singledigit share of new business volume (NBV). While banks Most independents’ new business volume (NBV) depends on six broad end-user segments. have been capturing Medical and furniture fixtures are equipment types that do not appear among the top increased NBV, five-volume areas for banks or captives according to the Equipment Leasing and Finance independent year-toAssociation’s Survey of Equipment Finance Activity (SEFA) report. year growth outpaces “muscle building”, responsibility and both banks and captives; restlessness (i.e. not being satisfied ◉◉ Independents continually review their with current status). These factors markets and enter and exit them based are helping them to attract and retain on their profitability vis-à-vis their high-qualified and entrepreneurial bank and captive finance competitors; Millennials to propel their growth. ◉◉ Independents have shown strong performance related both to yield Download the full study at http://bit.ly/ and returns on equity and assets.

ELFF2019Independents. All Foundation Independents’ metrics portray a studies are available for free download segment that may have smaller market from the Foundation’s online library at share than 20 years ago but which http://store.leasefoundation.org/. generates consistently higher yields and “This study provides great insights returns than banks or captives; and about an industry segment that is often ◉◉ Independents’ success relies on not uniformly or easily characterized,” strong corporate cultures that said Thomas Ware, Foundation stress accountability, adaptability, research committee chair and senior balance, constant communication, vice president, analytics and product continual innovation, employee development, PayNet. Inc. training and internal organization canadianequipmentfinance.com | Spring 2019 | CANADIAN EQUIPMENT FINANCE

Courtesy Equipment Leasing & Finance Foundation

Foundation: Independents excel in construction, other niches

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Market Report

here may be faster trains southwest of Toronto, Ontario, requiring improved and possibly new infrastructure, but it appears that they will not be high-speed rail (HSR).

The new Ontario Progressive Conservative government has broadened the scope of an environmental assessment (EA) for the previous Liberal government’s $11 billion-plus HSR plan.

The HSR was undergoing an EA to identify a route from Toronto to London and eventually Windsor, Ontario by way of the Pearson Airport vicinity, Guelph and Kitchener. However, the high costs, that it bypassed intermediate communities like Stratford and Woodstock and that a portion of the proposed route would cause the loss of agricultural land and interfere with farming created strong opposition in many communities, led to the government’s decision.

Oxford County, which includes VIA Rail-served Ingersoll and Woodstock, sponsored a report, SouthwestLynx: Integrated High-Performance Transportation for Southwestern Ontario, published in June 2018. It recommended high-performance rail (HPR) on expanded and rebuilt tracks and stations on existing VIA routes.

HPR, according to the SouthwestLynx report, is “a middle-ground between high-

Brendan Read

High-performance rail for Ontario?

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Brendan Read

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A VIA train at Woodstock, Ontario. There is strong interest in southwestern Ontario in improving intercity passenger rail but not high-speed rail (HSR). As a result Ontario government has expanded the HSR environmental assessment to look at other options.

(Above) There will be changes in the trains serving the Quebec City-Windsor, Ontario corridor, like those seen here at Toronto, Ontario’s Union Station. VIA Rail is buying 32 trainsets from Siemens Canada at a cost of $989 million that will replace older and outdated equipment. They will be suitable for high-performance rail (HPR).

end HSR and lower-speed conventional rail [like the current VIA service].” HPR trains operate at 175 km/h to 240 km/h compared with above that for HSR, and they can use diesel or electric power, or dual-power, whereas HSR requires electric power, fed by overhead wires.

HPR stresses frequency, door-to-door travel, on-time performance, price, comfort and amenities and station convenience, including connectivity with other public transit modes, as opposed to primarily focusing on speed. It is also scalable and its improvements can improve freight rail, unlike HSR And, said the report, HPR minimizes “urban, rural and agricultural land acquisition”.

At the direction of Ontario Transportation Minister Jeff Yurek,

CANADIAN EQUIPMENT FINANCE | Spring 2019 | canadianequipmentfinance.com

the government is analyzing a range of transportation options aimed at improving access for residents and businesses in southwestern Ontario. The results of this planning work will include input from stakeholders such as rural and farming communities and will help to guide future transportation decisions.

“The ministry will be looking at broader transportation needs across Southwestern Ontario, looking at all transportation modes including bussing,” said Ministry of Transportation Ontario spokesperson Bob Nichols. “Which together with the EA rail planning, will help guide future transportation decisions so that the province can implement the right decisions for the people of Ontario.”

Feature

Why open banking matters

By Gary Schwartz

pen banking is the creation of welldefined protocols and standards for sharing and exchanging real-time data in a secure and in a trusted manner between financial institutions, third parties and customers.

Department of Finance Canada has been conducting a review of open banking. The Canadian Lenders Association (CLA) has submitted our response supporting it. We view open banking standards as an essential step in normalizing the Canadian marketplace and bring vibrant, customer-first financial services to our economy. It is the next step and the natural evolution of banking and financial services in Canada.

Open banking aligns with the Government of Canada’s mandate to become a global player in innovation, data and technology. An open banking mandate in Canada will position our country as a global leader, alongside the European Union and United Kingdom.

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Air travel analogy The CLA sees moving to open banking as analogous to the transformation of other verticals both in Canada and internationally. One illustrative example is the airline industry. Travelers historically were required to contact incumbent airline companies directly to book or manage reservations, check availability, check in and check arrival times. Modern standards in our airline industry placed the customers in control, enabling them to decide what, when, where and how they wished to consume airline services. This amounted to expanded and improved services for the would-be travelers.

The modernization of the travel industry allowed for open functionality through secure application programming interfaces (APIs). This re-visioning of the industry enabled customers and third-party apps to perform most, if

not all of the travel functions, without the need to ever contact the airlines through slow, analogue channels. It allowed for a proliferation of enhanced functionality and services which are now accepted and indispensable and it helped incumbent businesses to thrive while opening the door to innovation across the sector spurring a larger and more vital economy.

Similarly, open standards in banking will bring that vitality to the financial services marketplace and spur new and enhanced functionality and services that will become an indispensable part of our growing economy.

Open banking benefits Open banking brings significant benefits to the Canadian market for customers and businesses. Providing all Canadians agency over their data also allows them to benefit from the resulting financial access, efficiency and innovation. Here is a list of some of the meaningful benefits that the CLA and our members expect from open banking standards.

1. Greater innovation and competition.

Open banking will fuel and fast track Canada’s FinTech and innovation ecosystem. It will open the doors for FinTech start-ups to offer customers the ability to better manage their debt and get sound real-time investment advice and offers. Open banking will also spark increased competitiveness between financial institutions, opening doors for new entrants to provide increased financial services and options to Canadian customers.

2. Improved access and efficiency. Open banking removes a huge burden off customers by giving them the ability to consent and choose what data can be shared with whom, thus allowing for faster and broader access to funds.

It will allow customers to effectively access third-party financial tools and products and make it easier for them to pay and get paid. Open banking opens the door to third party

providers to deliver services such as consolidation of payments (multiple invoices) and consolidation of account statements for treasury and investment purposes. Customers can give consent and provide instructions to their bank(s) to make multiple payments on their behalf, share their account balances with other banks and/or payment providers and save themselves the inconvenience of logging in to each bank separately.

3. Standardization. Open banking gives customers a consistent user experience across all banks.

Customers can better manage their financial health through better and broader access to their financial data: they will be able to see their credit scores in real-time through their bank accounts, get real-time advice to improve their scores and improve their debt management. Customers will also have the ability to change their addresses with all banks and/ or service providers without the need to do so separately with each institution. Without open banking FinTechs rely on offerings that might compromise banks’ security such as bank scrape technology. Open banking allows for these services to be more standardized and secure and will give banks the ability to monetize these services and make them readily available to customers.

4. Serving the underserved. Open banking will make banking broadly available to the underserved market including women, new Canadians (immigrants) and indigenous peoples. Lenders are requiring more and more banking data to understand their customers’ spending habits and behaviour to be able to provide funding. Open banking streamlines access to this data and will result in more access to funds for the underserved customer segment.

5. Customer-first design. Open banking allows customers to have agency over

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Feature their data that is critical to develop trust and accountability and to better participate in essential financial services. With open banking, customers can access and safely transfer their banking data to trusted parties. It will provide customers with more control over their data as they will have greater visibility into what data their banks have on them and can select which parts of that data can be shared and with whom.

Moreover, open banking provides customers more options to shop and compare products and end up with best products and rates. Crucially, open banking will result in a more educated, active financial services customers.

6. Commercial benefits. Open banking will allow more small-midsized businesses (SMBs) to access capital more efficiently than ever before, which increases economic output. It will increase cash

flow by streamlining access to capital for SMBs and increase the competitiveness of alternative lending options. At the same time open banking will decrease the amount of time SMBs dedicate to business administration, allowing them to spend more time investing in the success of their operations.

Security and compliance

Open banking relies upon the accessibility and sharing of customers data, and thus demands a higher degree of privacy safeguards, protection and information security provisions. APIs provide access to broader sets of data in a simpler and more scalable manner.

But this means that a breach of them could be extremely costly and could have significant consequences due to the vast amount of data that could be leaked.

In order for customers to feel safe and protected, there must be governmentmandated standards and framework that all financial institutions must comply. The rules within these standards should be comprehensive and cover all risk profiles and tiers by putting the customers in control of what data can be shared, when and with whom.

Banks today use their customers transactional data to educate their fraud detection systems and algorithms. Since open banking Do you want to reach executives who make key decisions allows customers about financing and leasing for their companies? to perform certain Sign up NOW for a free subscription third-party tasks to Canadian Equipment Finance magazine. and transactions from within Visit our website at www.canadianequipmentfinance.com their banks, and learn more about the magazine those transaction Canadian Equipment Finance is a Lloydmedia, Inc publication. details might not Lloydmedia also publishes Payments Business magazine, DM magazine and Contact Management magazine. be available to

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CANADIAN EQUIPMENT FINANCE | Spring 2019 | canadianequipmentfinance.com

the banks to analyze. This could make it more difficult for banks to protect customers from fraudulent transactions that are not within their control.

Open banking will introduce new types of transactions that incumbent banks are not necessarily familiar and might require time to adopt proper security to manage. A period of transaction history may be required to build appropriate fraud detection tools and algorithms.

In order to make open banking operate effectively and efficiently in Canada, unlocking its full potential and value for the customer, we believe that standardization and compliance is crucial. The Personal Information Protection and Electronic Documents Act (PIPEDA) already provides a robust framework for the privacy and protection of customer data. PIPEDA can be enhanced to make it more comprehensive by including open banking standards.

Crucial government role The federal government must play a leadership role in bringing open banking to Canada. Any open banking initiative necessitates that all stakeholders in the financial sector participate in it.

First, it is essential that the government mandate standards and enforce them in order to create a unified vision of open banking that all stakeholders in the industry can comply.

It should establish and advance them by working horizontally with incumbent and alternative sector stakeholders.

Second, the government should evolve the customer-first data policy, thereby ensuring the protection of customer data by placing customers in control of their own data.

Finally, the government should work across ministries, benefiting from standards in privacy and consent investigated by the Treasury Board’s Digital ID initiative.

Gary Schwartz is president of the Canadian Lenders Association (CLA).

The CLA www.canadianlenders.org represents and promotes services and innovation in the Canadian lending sector. The CLA’s lending members provide credit to both the SMB and consumer markets.

Your Business

The 9 important LMS purchase factors

By Agneta Venckute

f data loss has made you start questioning the effectiveness of using a simple spreadsheet, perhaps it is time to consider buying a new lease management system (LMS). But as software solution acquisition is a time-consuming process, requiring a large investment, you should consider these nine important factors before making your purchase.

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Up-to-date and highly configurable. Meeting requirements is crucial in business, as any mistake can cost a lot of money. The chosen LMS should be able to be constantly upgraded, localized and be highly configurable. Also, think about the future: your business needs can change within a year or even less time.

Will the new software be able to keep up?

1

Ease of use. How simple is your preferred LMS for the average user? Ease of use is relevant to any stage of the project: setup, configuration, maintenance, user training and daily business operations.

The easier it will be to train your employees (both front and back office) to use the new software, the more money you will save. Also, the more familiarity the software has for users, the more likely users will be willing to explore all its functions and work with it.

2

Ease of integration. The easyto-integrate LMS will save you a lot of money and time and will ensure data consistency. This is especially valuable if you are using a software where your data is stored already.

3

The support team. You select a software vendor, the project starts and then you realize that you could have asked for a reference before making your commitment. You go to the referee who then says that even though the software met his expectations, the support team was disappointing, slow to react and with high turnover. Would you still be willing to work with such a company? As a LMS vendor, we have had a few customers who came to us mainly because they wanted to change their existing software as they were not happy with their current vendors‘ support level!

4

Ease of implementation. Some LMS projects may take months or even years to implement; from our experience the longest project took 18 months while the shortest one was six weeks. When choosing a vendor, it is very important that both your and your software vendor‘s teams work well together, as software development is never a one-party task. Is the vendor experienced and is it reliable on keeping up with the deadlines? Find this out before starting the project and have one less thing to worry about.

5

Training/help material and access. In every business, the employee turnover or a team growth can be a challenge, especially if there is a long learning curve for business processes. It takes time to train personnel on new applications and if your business grows, your existing employees will have to spend their time teaching their new colleagues of the software use, resulting in more employee time invested. Software vendors that can provide you with quick and easy-tounderstand self-training can save you a lot of money in the long run!

6

Implementation project experience. The bigger your company is, the more complicated the software implementation process can be. Your daily business operations can get affected and a lot of destruction may be caused.

This is where the value of an experienced implementation team comes in. An experienced software provider will be able to advise you more precisely on how much time it will take to perform an analysis, test and go live, so you will be able to plan your team’s work around the process more efficiently

7

Willingness, and patience, to research vendors. You must be prepared to spend the time, months if necessary to accurately determine your requirements, investigate vendors, shortlist them and make your purchase decision. From the original idea to a signed contract, there is a rather big time gap. One of our customers took 14 months from the day they made a decision to buy to the day the actual implementation started

8

Understanding actual procurement costs. It may sound as fiction, but at times the procurement process may cost even more than a software solution itself. Outside consultants may have to be hired and then there is the expensive staff-hours that must be allocated for your team to watch various software demos and communicate with the software companies.

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The takeaway? The better a lease management system fits your unique business needs, the easier the whole implementation process and the cheaper the whole project will be. Choose wisely.

Agneta Venckute is customer relationship manager, Soft4Leasing (www.soft4leasing.com).

canadianequipmentfinance.com | Spring 2019 | CANADIAN EQUIPMENT FINANCE

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Management Strategy

Planning for change

By Jay Mehra

n 2019, the concept of there being “technology companies” and “other” companies is gone. Every company must also be a technology company.

The marriage between development and operations impacts all business verticals, and it requires constant experimentation to navigate the ever-changing business landscape. The key imperative for equipment finance companies—and all companies—is to pivot towards a more agile way of working.

Technology is moving at such a rapid pace of change that there won’t be a point where you’re “done”. Instead, equipment finance companies need to implement practices and processes that support regular change and enable innovative thinking. For example, adopting DevOps, in which development and operations teams are integrated1, can help to shorten work sprints, open feedback loops and ultimately provide more complete and useful technology solutions.

And for companies ready to make this jump, namely ready to plan for regular change, selecting an adaptive technology that incorporates the latest tech trends is a critical step. Here are several of them that we are seeing in the market. They can all be traced back to the desire to meet customer needs more efficiently.

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Applied AI When people hear “artificial intelligence” or AI there is still some associating it as a future technology. But the reality is that it’s already pervasive in our everyday lives.

This is true even for equipment finance companies and certainly for the technology companies that partner with them.

Machine learning (ML), which falls under the umbrella of AI, is one compelling use case. Take credit decisioning, for example. Credit bureaus use ML to derive a credit score and determine a customer’s risk assessment.

How much further can we take that?

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How can we make it local?

We can also more meaningfully continue to mine our own customer data for predictive analytics. We can make our systems smarter, training chatbots to assist in booking leases based on pre-defined parameters. Through robotic process automation or RPA, another derivative AI technology, we can reduce the manual intervention required by our workforces to perform rote tasks by enabling our systems to learn and replicate.

The more we can automate and enrich our processes and technology with AI, the more it levels the playing field for companies of any size to compete. There really are so many practical applications; as a result, the future of AI for leasing companies is very exciting.

Blockchain/DLT Blockchain (or distributed ledger technologies, “DLTs”) have fertile ground in equipment finance given how intrinsic close-knit relationships are to the way our industry itself functions.

Technologies that facilitate transactions and reduce underlying transactional costs and promote efficiency within the overall business model have the potential to disrupt it. In the context, DLTs and the impact they will have on our industry is inevitable; it’s a question of which technology begins to evolve dominance and gains critical mass in terms of adoption.

Leasing companies can get in on the game by leveraging advances already in use in peripheral industries. An increasing array of opportunities are opening up, whether it is cross border payments for international asset purchases or advances in the Internet of Things (IoT) and blockchain for certain types of assets, like agricultural equipment or automobiles.

Smart contracts Smart contracts, which are a blockchainbased set of interaction rules2, aren’t a matter of “if” but of “when” on adoption.

CANADIAN EQUIPMENT FINANCE | Spring 2019 | canadianequipmentfinance.com

As wider audiences are exposed to blockchain technology and some of its derivative uses, smart contracts will follow suit. That said, technology still has quite a way to go to evolve blockchain and related cryptocurrencies, so it will take some time before smart contracts are regular practice.

There is, however, an interim step before smart contracts, which is to more fully adopt digital signatures and contracting. Despite relatively slow adoption in the leasing industry, we have seen this gaining momentum within our customer base over the past two years.

Shared economy The shared economy will continue to gain momentum, and there will be many system implications to accommodate these unique business models. And when we say, “shared economy”, I’m not only talking about collaborative consumption of assets, but also of services and technology platforms i.e. intellectual property.

The way we work is changing, and as a result many asset classes are underutilized and may go unused for large portions of their useful lives. IoT will become more and more meaningful in facilitating deals, particularly as we bridge the gaps for closer connection with the underlying technology manufacturers implement to track assets.

But all of the latest tech trends aside, the most important thing for equipment finance companies is to be thinking about their long-term technology strategy. By consolidating all of your applications and business requirements not just into one product—but onto one platform—you will significantly reduce your cost over time. Unwieldy applications are as equally expensive as they are frustrating, and there is a better way to manage the technology needs of your business.

Jay Mehra is chief technology officer of Odessa (www.odessainc.com), a software company exclusively focused in the leasing industry, and the developer of the LeaseWave software system and Odessa platform.

1 Amazon Web Services (AWS) “What is DevOps?”, web site.

2 BlockchainHub, “Smart Contracts”, web site.

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