Dave Lewis, Founder and CEO of Ranqx, discusses the role of community banks in today’s digital economy amidst the expansion of financial technology
Cloud-based lenders automating small business loan origination for New Zealand banks are what Dave Lewis built at Ranqx. We engaged him to know more about the place that community banks play in a globalized digital world.
How are they doing amid this wave?
Compared to their larger peers, community banks have higher customer loyalty. Presently, these types of financial institutions account for most (about 5,000) federal deposit insurance corporation (FDIC)-insured ones. This kind of bank played a crucial role in giving its customers access to financial services when COVID-19 made people opt for social distancing.
Community banks invest back into the society creating jobs and supporting local economy. At heart is relationship banking; it’s how they do business and we must continue in that vein. But if they are to remain relevant in future, can community banks successfully blend technology with an enhanced customer experience and efficiency?
However, there is one obvious weak spot among community banks. They have no adequate means for rapid deployment of efficient digital tools. Can they successfully navigate this adoption while at the same time drawing and keeping patrons from within locality? This will make them successful.
Which industries need them most and are their needs being catered for?
Community banks therefore channel loans into neighborhoods where their depositors live or work hence helping local businesses thrive. In essence, community banks genuinely benefit the entire spectrum of local communities within which they operate.
There was an interesting industry insight I discovered recently I would like to share with your audience that shows how appealing these institutions can be. According to “Federal Reserve’s Small Business Credit Survey: Report on Employer Firms,” despite challenges posed by larger well-established firms, small businesses consider community banks as their preferred lending partner.
But things change when we come to digital lending. Only 37% of community banks in the US currently offer any form of consumer loan application. It is no different when it comes to small-to-medium sized business (SMB) lending which is largely still not at a stage of development that it should be. This is worrying given the $5.2 trillion required by micro, small and medium-sized enterprises globally according to the World Bank to meet their existing unmet finance needs.
Given this need, why aren’t community banks rushing into this space? For community banks that want to improve their standing in this field, what are the major reasons for such a great discrepancy?
Recent Deloitte research has found that not one traditional US bank can offer an online straight-through process for small business loan applications that either have instant decisions or offers for both unsecured and secured loans. To go forward, community banks have an actual opportunity here to stake a claim on an unserved market.
Digital lending, ultimately, gives financial institutions a range of opportunities to boost productivity and close more loans even as they earn more revenue per loan through cheaper, faster services that are automated. Of course this is expected by customers with fintechs and non-bank alternative lenders already positioning themselves to provide these. However, most banks haven’t reached there yet and that needs to change fast.
Has the community banking space managed to keep up with the latest banking technologies – or is there catching up to do?
Community banks will have a lot of catching up to do. While Covid may have accelerated a plethora of digital transformation, community banking still seems ‘frozen’ vis-à-vis numerous societal and business changes.
Additionally, nimble fintech start-ups increasingly threaten community banks’ earnings lines. Concurrently, they must contend with the likes of big banks who can pour billions into digital innovation and transformation.
Now all banks need towalk in some of the steps footprints left by fintech. Unfortunately for many of them in this pace are their own resources so they will require partnering with innovative fintech providers if they wish to stay relevant and efficient majority wise.
What role could community banks play in the future of finance, that other fintechs and banks struggle to service?
The secret here is keeping local people in mind by integrating customer oriented digital solutions which eliminate any unnecessary hurdles for customers Take small business lending from where community banks enjoy significant market share but are held back by legacy manual processing models based on brick-and-mortar branches as well as paper-driven origination and underwriting systems.
By adopting real-time data based fintech solutions including cloud-based software-as-a-service (SaaS) offerings can make it possible for these institutions ‘get out of the way of the customer,’ and simultaneously increase their SMB loan books effectively. On contrast building their own solution would be slow and cumbersome for large corporations such as big banks. I believe therefore that community banks are well placed to dominate the field of technology-forward solutions in SMB lending within their localized communities.
How can community banks best fulfill their current role in terms of customer demands?
While never be able to match up with big banks’ budgets, community banks possess the advantage of fewer legacy systems and a smaller management structure, which makes them more nimble.
Community banks will have to be smart about where they deploy their resources and tech investments, only picking projects that make their customers happy, whilst cutting costs for the bank.
The most successful community banking should fade away and stop interfering with the customer, so it is quick painless It’s called effective community banking, but it means that when any customer visits a community bank he should not even think of financial problems.