As community and regional banks continue to strategize ways to grow and compete with not just the bank down the street but also large national institutions and fintechs, one area that remains largely untapped is commercial lending. This area presents a significant opportunity for community and regional institutions to better serve their business customers while positively contributing to their bottom lines if approached in the right way.
With 2020 looming just around the corner, savvy bankers are evaluating strategies and tactics now that can help them grow their portfolios and make lending more successful next year. To most effectively form these plans, banks should consider the trends that are expected to have the greatest impact on the commercial lending space in the coming years.
The great migration: moving to a single platform
Commercial lending is often the last manual, paper-based process left in a bank. This is because many institutions still maintain multiple clunky and disparate systems that don’t talk to one another, creating inefficiencies, a lack of transparency and a poor user experience. In 2020, we will begin to see the demise of multi-platform lending systems in favor of a single, centralized platform approach that accommodates all financial institution clients – consumers, small businesses and commercial customers alike.
This move to a single platform will especially help banks better serve small businesses, a historically underserved segment. Traditionally in this sector, underwriting lines have been blurred between personal and business assets and liabilities and expenditures, creating a frustrating experience for business borrowers and lost revenue opportunities for banks. Small businesses grow to become big businesses, so when a bank can’t or won’t provide a small business owner with financing, the bank risks bypassing a relationship with a potentially long-term, highly profitable borrower.
A single system will also enable banks to better serve borrowers throughout the entire lifespan of the relationship, from online applications and loan origination through portfolio monitoring and renewals. Too often, bankers view borrower relationships as linear, a process with a definite beginning and end. Such an outlook provides little forward potential or sustainable growth opportunities for these relationships.
An uptick in technology partnerships
Many community and regional banks will start to benefit from an increased volume of vendor collaborations and partnerships in 2020. Vendors are realizing that they don’t have to build everything independently; in fact, that strategy becomes self-defeating. Technology providers are more commonly building their own specialties and then partnering with other organizations that have complementary skill sets. For example, a loan origination developer might seek integration with a documentation provider. A financial spreading provider might join forces with a collateral management system.
While this has the potential to introduce integration challenges, it can be made possible through APIs. Large loan origination systems are beginning to look more like the International Space Station, where disparate systems can connect through universal ports to share data and enhance the overall experience. However, banks must carefully vet their technology providers and select partners that have the modern, open technology necessary to make this integration as seamless as possible. The slow migration from data silos to integration will have profound impacts on the way financial institutions interact with their commercial customers as well as their technology providers.
The dominance of the user experience (including bank employees)
The user experience will continue to be one of, if not the most, critical factor when it comes to commercial lending. Business owners expect all interactions to be instant and digitally optimized, so institutions must be able to deliver a modern, intuitive lending experience to compete. This doesn’t just apply to borrowers but bank employees as well.
The industry is experiencing a talent dilemma. Between record low unemployment rates, unprecedented competition and tight budget restraints, community and regional institutions simply can’t afford to offer poor employee experiences. As a result, banks will begin to prioritize simplifying and streamlining interfaces. They should be easy to understand and enjoyable to use while providing a wealth of meaningful data right below the surface, allowing lenders to quickly access relevant information at the right times.
This “drill-down” technology improves the experience for a wide audience. For instance, the executive prefers dashboards; the lender needs underlying performance data; the operator wants to see tasks and workflows; the regulator is interested in compliance data. If built effectively, a singular interface can better serve each of these roles and improve the overall employee experience, ultimately boosting recruiting and retention.
Spotlight on implementation and training
Implementation and training, an area that is often overlooked, will gain more attention in 2020. Bankers are realizing that difficult and friction-filled technology training and implementation are more likely to result in a system being used ineffectively or below its full capacity. The most effective lending platforms are those built to accommodate easy, quick onboarding. These platforms often incorporate tools to boost efficiencies such as online assistance, instant chat support and workflow protocols. Better, more expedited training and implementation can help ensure lenders are using their tools to the maximum potential.
Lending will continue to be a significant area of opportunity into 2020 and beyond for community and regional institutions looking to compete. However, they must take note of the trends and activities occurring in the lending space and form their strategies accordingly. By migrating to a single platform, taking advantage of smart technology partnerships, prioritizing the user experience and focusing on training, banks will be well-positioned to boost their portfolios next year.
Pat True is the senior risk analyst for ProfitStars Lending Solutions