Dave Lewis is the CEO and Founder of Ranqx, a cloud-based digital lending platform that automates the SME lending process for banks based in New Zealand. We caught up with him to find out more about the function of community banks within an increasingly global, digital economy.
How are community banks fairing in the current climate?
Community banks benefit from greater customer loyalty than many of their larger peers. This form of institution currently makes up the majority of the 5,000, or so Federal Deposit Insurance Corporation (FDIC) insured financial institutions. During the pandemic, when social distancing measures were in place, this form of bank played an integral role in helping customers access financial services.
Community banks invest dollars back into the community, creating jobs and helping with the local economy. At the heart of what they do is relationship banking, it’s how they conduct business and must be the essence of what we carry forward. However, the future relevancy of community banks will hinge on how effectively they can infuse technology, which enhances customer experience whilst driving efficiency.
Unfortunately, there’s an obvious achilles heel with community banks. These institutions lack the resources to deploy efficient digital solutions at a pace. So, the question is how can they effectively manage the adoption of digital transformation whilst attracting and retaining local customers. If they can find a solution to this, then they will be successful.
Which sectors of industry are most reliant on their services, and are these needs being met?
On account of being local, community banks prioritise channeling loans to the neighbourhoods where their depositors live and work, which in turn, helps local businesses and communities to thrive. Because of this, community banks genuinely benefit the local communities they operate within, right across the spectrum.
I recently came across an interesting sector insight, which I’d like to share with your audience that highlights the immense appeal of community banks. According to the Federal Reserve’s Small Business Credit Survey: Report on Employer Firms, community banks remain the lending partner of choice for small businesses, despite competition from larger, more developed peers.
However, it’s a different story in terms of digital lending. Right now, only 37% of community banks offer any form of the consumer loan application. It’s a similar situation in terms of small-to-medium sized business (SMB) lending, which on the whole, is significantly less advanced than it should be. This is concerning, particularly as the World Bank estimates that the world’s micro, small and medium-sized enterprises need an additional $5.2 trillion to reach existing unmet finance needs.
In light of the need, why aren’t community banks racing to claim this domain? The question for community banks looking to improve performance in this area is simple – what has caused such a big gap?
Recent Deloitte research has identified that not one traditional US bank has the online capabilities to provide a straight-through small business loan application for either unsecured or secured loans with an instant decision or offer to the customer. Moving forward, community banks have a genuine opportunity to win this race to an unmet need.
Ultimately, digital lending offers financial institutions a number of opportunities to improve productivity, close more loans and increase revenue per loan with cheaper, faster, and automated services. What’s more, customers are coming to expect these services, with fintechs and non-bank alternative lenders ready to offer them. Despite this, most banks are not there yet and that quickly needs to change.
Has the community banking space managed to keep up with the latest banking technologies - or is there catching up to do?
I believe that community banks have a lot of catching up to do. Whilst Covid has accelerated a raft of digital transformation, the community banking sector still appears to be ‘glacial’ in its response to many societal and business changes.
What’s more, community banks face stiff competition from more nimble fintech startups, who are chipping away at their bottom line. As always, they also need to take on the big banks, which have the resources to deploy billions of dollars into digital innovation and transformation.
It’s now a necessity for all banks to adopt some of the principles of the fintech movement. Sadly, many community banks don’t have the resources to keep up with this pace, and the majority will require a partnership with an innovative fintech provider to remain relevant and efficient.
What role could community banks play in the future of finance, that other fintechs and banks struggle to service?
Remaining relevant to local community stakeholders by infusing customer-centric digital solutions that remove friction for customers is key. Take the SMB lending space where community banks have a high current market share, but are anchored within the legacy manual processing model of bricks-and-mortar branches and paper-based origination and underwriting processes.
Adopting fintech solutions, which leverage real-time data and cloud-based software-as-a-service (SaaS) solutions could allow community banks to ‘get out of the way of the customer’ , whilst efficiently growing their SMB loan books. By contrast, big banks are likely to be slow and cumbersome in building their own solution in this space. As such, I believe community banks are perfectly poised to dominate the field of technology-forward solutions in SMB lending within their localised communities.
How can community banks best fulfill their current role in terms of customer demands?
While community banks can never compete with the budgets of the big banks, they have an advantage due to having fewer legacy systems and a smaller management structure, which in turn can make them nimbler.
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.
Effective and market-leading community banking should ‘get out of the way of the customer’ and fade into the background, so it is fast, easy, and pain-free. Any time a community bank can keep the customer focused on their non-banking problems and working towards their personal or professional goals they are doing their job.