In financial services, it pays to embrace digital. And post-COVID, it pays even more. Just ask Pittsburgh-based First National Bank (FNB) Corporation. In January, its bankers had 21 appointments booked. Then COVID hit. The bank quickly adopted an online tool that enabled customers to make appointments virtually. By April, the number of appointments had skyrocketed to 2,700—a leap only made possible by swift digital adoption.
But it’s not just financial services, of course. The coronavirus pandemic has accelerated what some have called the “uberization” of business: fast, easy, and personalized access to products and services from the touch of a smartphone. This year has seen tremendous upticks across even the least digitized sectors, from health (telemedicine is up 33% this year) to education (4.5B invested in global edtech in 2020, the second-largest half-year ever). In our newly contactless world, the only way for businesses to survive is to create opportunities for customers to engage virtually—or risk losing them to competitors who beat them to it.
Measuring the shift in small business behavior
This is especially true for community banks, whose historic focus on in-person services is now the opposite of what customers need—particularly when it comes to the small businesses that make up 99.9 percent of all U.S. businesses. They’re vital to our local communities, our national economy, and they desperately need funding. A survey of nearly 6M small businesses reports that 42% of small-business owners anticipate not having enough revenue to survive the fourth quarter this year. They need capital now to recover, and help keep communities healthy and vibrant.
Yes, there are $134B of PPP funds and additional Small Business Administration Economic Injury Disaster Loans. But that’s not much compared to the $660B originally allotted. Sooner or later, the current health crisis will subside, and small businesses will need to resume normal operations: recruiting and hiring employees, stocking shelves, marketing products and services, ordering equipment. It’s only a matter of time before the economic engine starts turning again. And in many ways, it already has.
It’s not like capital isn’t being made available now. Alternative lenders are leveraging their technical expertise to put money into the hands of these businesses—at a premium rate. While community banks may have typically avoided loans like these historically, alternative lenders are capitalizing on the opportunity to gain market share. And for most small business owners, price (i.e., interest rate) isn’t the issue—it’s speed. They’re willing to pay a premium for getting their funding quickly and easily. And it’s time for your institution to get on board with what alternative lenders have long-known.
Digitizing small business lending processes brings a host of advantages:
- Adapt your underwriting criteria to the lending landscape. Legacy underwriting criteria is largely irrelevant in a post-COVID world. Digital allows you to move away from P&L sheets and tax returns, and toward real-time cash flow and recent monthly performance.
- Evaluate more loan applications at a lower cost. Processing an SMB loan application can cost $3-5k on average—when including the cost of funds, loss rate, time spent by the banker, etc. Digitization allows you to automate more aspects of the loan application process, dramatically reducing that cost while freeing up your bankers to focus on bigger deals and more lucrative relationships.
- Generate a greater ROI on the loans you do approve. Not only can you generate higher profits by saving money upfront, but you’re also able to charge a higher interest rate as a result of the speed and convenience that you’re providing.
For community banks, now is the time to embrace digital small business lending. Yes, many have done their part to help—waiving fees, deferring payments, and so forth. But small businesses need more sustainable solutions for the long-term. What’s more, banks need new and lasting revenue streams—ones that better align with what businesses in a post-COVID world truly want and need.