Beyond Spreadsheets: Digitizing Construction Lending



Many banks rely on spreadsheets and personal contact to oversee and manage construction loans—methods that are ineffective today. How can financial institutions improve this process? In this video, Built CEO Chase Gilbert explains how upgrading technology and making the process digital creates efficiencies for both bank and borrower, and allows for better risk management capabilities.

  • Why Digitize Construction Lending
  • Efficiency Gains and Other Benefits
  • Confronting Common Obstacles

How To Make Construction Lending Less Risky


lending-8-14-18.pngWhen compared to the world economy as a whole, the construction industry lacks luster, at least in terms of its embrace (or lack thereof) of digital innovation. According to a 2017 report by the McKinsey Global Institute (MGI), the construction sector has grown by just one percent over the past two decades, while global economic growth has increased at nearly three times that rate. Construction was also the second-least digitized economic sector on MGI’s Digital Index, indicating a serious need for digitization, which could help boost the industry’s growth rate.

Another MGI report found a significant performance gap between industry members that leveraged digitization compared to those who don’t, “with the U.S. economy reaching only 18 percent of its digital potential.” The current lack of technology in the construction industry presents a clear opportunity for industry players establish industry leadership.

A Perfect Storm: Industry Growth Meets Digitization in a Burgeoning Economy
Despite political agitation and a series of natural disasters, 2017 proved to be a strong year for the housing market. Housing showed steady growth in spite of these external factors and a 10.5-percent decline between November 2015 and November 2016. Experts at Zillow believe the housing shortage will continue to drive housing market trends throughout 2018, swelling consumer demand for remodels and new construction.

Fueled by stable interest rates, a strong economy, and inventory shortages, the construction industry stands to enter a period of significant growth in 2018. As predicted by Dodge Data & Analytics, the industry could see a three percent increase with new construction starts in 2018 reaching an estimated $765 billion.

If the industry fails to digitize, it will likely struggle to keep pace with market demands. Currently, large construction projects take 20 percent longer than expected to reach completion and are up to 80 percent over budget. Not only do significant delays and expense oversights like these inhibit those working directly in the industry, such as contractors, sub-contractors, builders, and developers, but also those financing the projects. Missing project completion targets and budget goals makes improperly monitored construction lending a risky business. MGI lists improved “digital collaboration and mobility” as essential to the construction industry’s ability to meet its potential future growth.

Relieve Strain on Lender Resources with Digitization
Oldcastle Business Intelligence estimated in their 2018 Construction Forecast Report that construction, as a whole, would grow by 6 percent in 2018. This year is projected to see significant growth in single-family housing starts, estimated to increase 9 percent, with a predominant focus on Southern and Western regions. As housing and construction demands continue to climb, financial institutions stand to corner a substantial chunk of the growing market and increase revenue.

Historically, lenders have shied away from construction lending, viewing construction loan portfolios as administratively taxing and risky from both regulatory and credit decision perspectives. By bringing the construction loan administration process online through collaborative, cloud-based software, financial institutions can become industry leaders while relieving the burden on their lenders, mitigating risk, and improving the experience for everyone involved.

Reduce Risk with Construction Lending Software
The digitization of construction lending translates to less risk all around. Construction lending software streamlines the facilitation of compliance and regulatory timelines, reducing potential fines and penalties for non-compliance or loan file exceptions. In addition to the risks imposed on the industry by staunch government regulations, lenders also understand the high credit risk involved with traditional construction loans (and their many moving parts) due to their multifaceted, unpredictable nature.

Overseeing construction portfolios requires constant vigilance in tracking and monitoring cost estimates, advances, material purchases, labor costs, construction plans, and timelines, all while ensuring proper paperwork is filed and maintained for every transaction and correspondence.

Bringing the construction loan management process online gives lenders the ability to monitor their entire construction portfolio from one location. Real-time monitoring and alerts automatically highlight areas of concern, excessive advances, stale loans, maturities and overfunded projects. Digital oversight also allows lenders to foresee and correct potential problems with budget and timelines.

Increase Efficiencies Through Digitization
Financial institutions that implement a digital solution for construction loan administration drastically improve efficiencies, eliminating former portfolio limitations. By increasing efficiency, lenders can invest more time in bringing in additional business, approving more loans, and better serving existing clients.

Improve User Experience with Digital Lending
In addition to risk mitigation and efficiency gains, construction lending software also drastically improves the overall user experience in the construction loan administration process by providing a singular platform for communication throughout the life of each loan. Bringing the process online allows lenders, borrowers, builders, inspectors, and appraisers to collaborate and communicate in one place, preventing missed phone calls and the inevitable tangle of email correspondence.

ChoiceOne and Autobooks Bring Rural Customers into the Digital Age


sba-6-20-18.pngAdom Greenland works with a lawn care specialist who was running his business in a way reminiscent of a bygone era. He’d leave a carbon copy invoice on the counter when he finished his work, Greenland would cut a check and some three weeks later, the small-business owner would finally be compensated for the work he had done weeks prior.

That arrangement is one that still exists in many rural areas, but Greenland, the chief operating officer at $642 million asset ChoiceOne Bank, headquartered in Sparta, Michigan, saw an opportunity to help rural customers like his lawn care specialist usher themselves into the 21st century by partnering with Autobooks.

ChoiceOne found itself in a position that many banks in the country have found themselves in at some juncture in the last several years: recognizing the need to make a move to remain competitive with booming fintech firms popping up all over the place. Located in a largely rural area in western Michigan—Grand Rapids, with about 200,000 residents, is the largest city in its area—the bank has been a fixture for its rural community but is slowly moving into urban markets, Greenland says. Its specialties include agricultural and small business borrowers that are comfortable with antiquated practices that often aren’t driven by technology. But in an increasingly digital world, Greenland says the move was made to make both the bank and its commercial customers competitive by improving its existing core banking platform to digitize treasury services for commercial customers.

ChoiceOne chose Autobooks to digitize its small business accounting and deposit process in 2017, a journey the bank began three years ago after realizing that the technology wave rolling over the banking industry was going to be essential for the bank’s future. But identifying potential partners and wading into the due diligence process was at times frustrating, Greenland says. “Everything was either, you had to pay a quarter-million dollars and then had to hope to sell it to somebody, or it was just 10-year-old technologies that weren’t significantly better than what we already had.”

Autobooks, through an array of application programming interfaces, or APIs, essentially automates much of the bank’s existing treasury services such as invoicing, accounting and check cashing processes. The system sits on top of the bank’s existing banking platform from Jack Henry, but works with FIS and Fiserv core systems as well.

With just 12 branches in a predominantly rural market, Greenland says this has become a game changer for the bank and its customers.

“My sprinkler guy could have been doing this a long time ago, but this will accelerate the adoption of technology [by] my rural customers,” Greenland says. “It’s bringing my customers to the next century in a really safe and easy way.”

The partnership between Autobooks and ChoiceOne generates revenue for both companies through fees. It is a similar arrangement to that of Square, QuickBooks or PayPal, the competitors Greenland is trying to outmaneuver while integrating similar accounting, invoicing and payments functionalities.

So far, the partnership has been able to reduce the receivables time by about two weeks, and automates many time-consuming tasks like recurring invoicing, fee processing and automatic payments. It also cuts expenses for the bank’s customers that have been using multiple third-party providers for similar services, which has driven loyalty for the bank. ChoiceOne hasn’t generated significant revenue from the partnership—Greenland says it’s at essentially a breakeven point—but the loyalty boost has been the biggest benefit, an attribute that’s becoming increasingly important as competition for deposits rises.

And the results are visible for small businesses, like Greenland’s sprinkler technician. “For that kind of business, this thing is absolutely revolutionary.”

Realign Your Bank’s Operating Model Before It’s Too Late


core-6-19-18.pngThe banking industry and its underlying operating model is facing pressure from multiple angles. The advent of new technologies including blockchain and artificial intelligence have started and will continue to impact the business models of banks.

Meanwhile, new market entrants with disruptive business models including fintech startups and large tech companies have put pressure on incumbent banks and their strategies. A loss of trust from customers has also left traditional banks vulnerable, creating an environment focused on the retention and acquisition of new clients.

In response to looming industry challenges, banks have begun to review and adapt their business models. Many banks have already adjusted to the influence of technology, or are in the process of doing so. Unfortunately, corresponding changes to the underlying operating models often lag behind technology changes, creating a strong need to re-align this part of the bank’s core functions.

So what does “re-align” mean from an IT architecture point of view?

Impact on System
In order to keep up with the fast-paced digital innovation, investments have largely focused on end-user applications. This helped banks to be seen as innovative and more digital friendly. However, in many cases these actions led to operational inefficiencies and there are several reasons why we see this.

One is a lack of integration between applications, resulting in siloed data flow. More often, though, the reason is the legacy core, which does not allow seamless integration of tools from front to back of an organization. Further, M&A activity has led many banks to have several core legacy systems, and often these systems don’t integrate well or exist with multiple back-end systems that cater to a specific set of products. This complicates the creation of a holistic view of information for both the client and financial advisor.

There are two ways of addressing the above-mentioned challenges to remain successful in the long-run:

  1. Microservice driven architecture
  2. Core Banking System modernization

Microservice-driven architecture
Establishing an ecosystem of software partners is important to be able to excel amid rapid innovation. Banks can’t do all the application development in house as in the past. Therefore, a microservice-driven architecture or a set of independent, yet cohesive applications that perform singular business functions for the bank.

The innovation cycles of core banking systems are less frequent than innovation cycles for client- and advisor-facing applications. To guarantee seamless integration of the two, build up your architecture so it fully supports APIs, or application programming interfaces. The API concept is nothing new; however, to fully support APIs, the use of standardized interfaces will enable seamless integration and save both time and money. This can be done through a layer that accommodates new solutions and complies with recent market directives such as PSD2 in Europe.

core-banking-graphic.png

Core Banking System Modernization
Banks are spending a significant amount of their IT budget on running the existing IT systems, and this allows only specific parts go into modernization.

A simple upgrade of your core banking system version most likely won’t have the desired impact in truly digitizing processes from front to back. Thus, banks should consider replacing their legacy core banking system(s) to build the base layer of future innovation. This can offer new opportunities to consolidate multiple legacy systems, which can reduce operational expenditures while mitigating operational risks. In addition, a core banking replacement allows for the business to scale much easier as it grows.

A modern core banking system is designed and built in a modular way, allowing flexiblity to decide whether a specific module will be part of the existing core or if external solutions will be interfaced instead, resulting in a hybrid model with best-of-breed applications in an all-in-one core banking system.

Investing In Your Core Can Save You
Core banking system modernization and adoption of the microservice-driven architecture are major investments in re-aligning a bank’s operating model. However, given the rapid technological innovation cycles, investments will pay off in improved operational efficiency and lower costs.

Most importantly, re-aligning the operating model will increase the innovation capabilities, ultimately resulting in a positive influence on the top line through better client experiences.

Winners Announced for Bank Director’s 2018 Best of FinXTech Awards


awards-5-10-18.pngThe cultural and philosophical divides between banks and fintech companies is still very apparent, but the two groups have generally come to agree that it’s far more lucrative to establish positive relationships that benefit each, as well as their customers, than face off on opposite ends of the business landscape.

The benefits of collaboration in the fintech space, which manifest themselves in the form of improved efficiency and profitability, has led to a growing number of partnerships between banks and fintech firms. This year Bank Director and FinXTech selected 10 finalists in three categories—Best of FinXTech Partnership, Startup Innovation and Innovative Solution of the year—for its annual Best of FinXTech awards. The three category winners highlight some of the most transformative and successful partnerships between banks and fintechs that have improved operations, experience and profitability for both.

The awards were presented at Bank Director’s FinXTech Annual Summit, held May 10-11 at the Phoenician resort in Scottsdale, Arizona.

Startup Innovation:

Radius Bank and Alloy

Radius, an $1.1 billion asset bank headquartered in Boston, has been on a dedicated track to become an online-only retail bank since Mike Butler took over as CEO about 10 years ago. But Butler and his executive team knew that Radius’ customer acquisition and onboarding process was inefficient. The demand was there, but the bank’s internal onboarding processes couldn’t keep up, and the attrition rate was high.

Overhauling that process led Radius to Brooklyn, New York-based Alloy, a firm still in its relative infancy. Butler and the Radius board of directors knew that this was a risky play because Alloy was still a young startup company and they would be entrusting it to digitize its customer onboarding process, a critical move that aimed to make the process more efficient and reduce drop-offs. The bank had to bring together several departments, from data to marketing, and get them all on the same page.

It had to be just right to make their model succeed—and so far it has worked. The bank has reduced its technology cost to open an account by 50 percent, and seen a 30 percent increase in its application conversion rate. Radius also has seen a steep downward trend in fraudulent account openings, an issue that’s become increasingly prevalent with online banking.

But even with significant technology investments and improvements, there was still considerable human productivity invested in some of the bank’s core functions. Some 30 to 40 of every 100 incoming retail account applications were being tapped for manual review. With some 1,000 applications coming in each week on average, the calculus there is pretty clear about the expense the bank faced with reviewing those applications. Alloy’s technology automates much of the review process using decision engines, and has reduced that manual review by 98 percent.

Alloy’s technology automates most of the process and has reduced dropped applications on the consumer side and the human capital expense for the bank. Now, just three or four of every 100 applications on average are pinged for manual review.

Most Innovative Solution of the Year:

CBW Bank and Yantra Financial Technologies

Who would have thought a former Lehman Brothers executive and her husband with a technology pedigree that includes a stop at Google would somehow elevate a tiny bank and fintech firm in rural Kansas to national prominence?

While maybe not a possibility completely in the left-field bleachers, the partnership between CBW Bank and Yantra Financial Technologies has drawn significant attention from both the banking industry and the tech world. Suresh Ramamurthi, the CEO of Yantra and chief technology officer for the bank, and his wife, Suchitra Padmanabhan, the president and CEO of CBW, together turned the near-failing bank around after they purchased it in 2009, mostly with personal savings.

The bank, with just $33 million in assets, has maintained is rural core deposit base in the tiny town of Weir, but also launched a revolutionary global marketplace for some 500 application programming interfaces, or APIs, that enable tech firms and other companies, like those in the health care space, to experiment with finding efficiencies and maintain compliance at the same time.

Using Ramamurthi’s technological expertise, the bank developed the APIs whose application can range from developing new products that are compliant with regulatory requirements to helping the institution or fintech scale up their operations, or simply improving the bank’s core operating system.

The APIs were also applied to CBW’s own digital banking platform, which has drawn nationwide clients, including popular fintech firms like Moven and Simple, as well as companies in the health care industry.

The bank then published the APIs publicly, working with Yantra in the Y-Labs Marketplace. Common APIs results in streamlined interoperability, like a payments solution, for example, between multiple businesses in multiple industries. More than 100 companies have signed up with the Marketplace to use the APIs, including other fintechs and companies outside of financial services.

It has also allowed the bank to enhance its own digital offerings, which Ramamurthi says will result in a new app later this year that will reshape how mobile banking works.

Best of FinXTech Partnership:

Citizens Financial Group and Fundation

For two decades, Citizens Financial made business banking loans using a manual process that was heavy on the paper. But this is an extremely inefficient way of doing business and the bank’s leaders wanted a faster and less costly way of underwriting loans, particularly with new fintech marketplace lenders coming into the market—whose technology gave them a big competitive advantage.

Providence, Rhode Island-based Citizens, one of the country’s top-20 banks at $152 billion in assets, worked with Fundation, a Reston, Virginia-based credit solution provider, to reinvent how it makes small business loans, rolling out in March a new credit delivery process for small-business loans and lines of credit up to $150,000.

“This is the future,” says Jack Murphy, president of Business Banking at Citizens. The new system has automated nearly all of the decision-making for the bank, which Murphy says makes it easier on both bankers and customers alike. Bankers aren’t spending hours reviewing applications, and customers can complete the application on their own time, even in the car, Murphy jokes. The bank still controls the credit policy, which ultimately determines if a manual review is necessary.

But the partnership didn’t come about overnight, and took many months of due diligence and conventional vetting before it was finalized. The bank took a deliberate approach to ensure it was making a good decision.

“There’s not a bank today that’s not thinking about fintech and what are the right ways to go about executing a strategy around digital technology,” Murphy says.

Finalists

The following partnerships were also recognized among finalists for the three top awards:

  • MVB Financial Corp. and BillGO
  • TCF Bank and D3 Banking Technology
  • U.S. Bank and SpringFour, Inc.
  • USAA and Clinc
  • Seacoast Bank and SmartBiz Loans
  • ChoiceOne Bank and Autobooks
  • Pinnacle Financial Partners and Built

FinXTech Annual Summit: Exploring the Power of Collaboration


fintech-5-9-18.pngBanks are increasingly becoming technology companies—not in the eyes of investors, perhaps—but certainly in terms of meeting the expectations of their customers in a rapidly digitizing consumer marketplace. Banks have been heavy users of technology for decades, but the role of technology in virtually every corner of the bank, from operations to distribution, to product design, lending and compliance, is taking on a greater strategic importance.

It was only a few years ago that an emerging fintech sector was viewed by many bankers as a competitive threat, particularly marketplace lenders like Lending Club and SoFi, or new payments options offered by the likes of Apple Pay and Venmo, PayPal’s successful P2P product. While those competitive threats still exist, the focus of most banks today is working with fintech companies in collaborative relationships that benefit both sides. Banks are facing enormous pressure from changing consumer demographics and preferences to develop new products and services that go well beyond what they have traditionally created on their own. The new ideas include more than just new applications that enhance or expand an institution’s mobile banking capability, an area that continues to receive a lot attention. With developments in artificial intelligence (AI) and machine learning, banks are able to bring greater efficiencies and effectiveness to such disparate activities as regulatory compliance and accounts payable.

There are challenges to a partnership approach, however, beginning with the necessity to fully vet the potential fintech partner in a thorough due diligence process. Banks are conservative by nature, while many of the fintech companies developing the systems and applications that enable banks to stay abreast of the rapidly evolving digital economy are quite young and culturally different. Banks that want to work with fintech companies will have to do the necessary due diligence while also bridging the culture gap.

The benefits, and challenges, of working collaboratively with fintech companies will be the focus of Bank Director’s FinXTech Annual Summit, which will take place May 10-11 at The Phoenician resort in Scottsdale, Arizona. The agenda kicks off with back-to-back peer exchange discussions on the dynamics of fintech partnerships and changes in consumer behavior, then provides both general session presentations and case study sessions that examine such topics as innovation, AI, automation in commercial lending, vendor contract management, the digital robotic workforce and the future of the branch in an increasingly digitized world.

Also occurring at the Summit will be the announcement of Bank Director’s 2018 Best of FinXTech Awards, which will be given to banks and their fintech partners for projects where they worked together in a collaborative relationship. From a list 10 finalists, awards will be given a bank and its fintech partner in each of the following award categories: Startup Innovation, Innovative Solution of the Year and Best of FinXTech Partnership.

Unlocking Data Through Digitization


digitization-5-7-18.pngIt’s no secret that no matter the business, access to the right data at the right time can provide valuable insights into the current state of that business and potentially an entire industry and its future.

Accurate, real-time data serves as benchmark against past performance while also providing a roadmap for future trends. Access to the right information could be the key to preventing small issues from becoming multi-billion or even trillion-dollar problems.

During the global financial crisis, the International Monetary Fund estimated that banks and other financial institutions faced aggregate losses of $4.05 trillion, $2.7 trillion of which came from loans and assets originating in the United States, according to The New York Times. Additional news outlets, including the Wall Street Journal, have reported total global losses as large as $15 trillion from the crisis. Imagine if just a fraction of these losses could have been avoided with timely access to critical data insights.

Within an industry that has remained confined to spreadsheets and paper files, the real value in digitization is the data modern technology can unlock. Too many decisions in the construction lending industry are being made with outdated information and in some cases, purely by instinct. With so much data available to us, why isn’t every decision data-driven?

Software Can Help Streamline Processes
The traditional construction lending administration process requires loan administrators to manually gather data from various spreadsheets and paper files when assembling reports. 

This manual and time consuming process costs credit departments days, and sometimes weeks of valuable time, and as a result, many financial institutions only review comprehensive portfolio data when it is deemed absolutely necessary. Put aside for a moment the high percentage of human errors found in everyday spreadsheet reporting, this lack of oversight leaves lenders vulnerable to compliance issues and unexpected risk, which can easily be avoided with proper reporting and analytics platforms.

Mitigate Risk with Data
Despite the earning potential of construction portfolios, lenders and credit management departments typically avoid construction loans because they are often considered the riskiest loans within a bank’s portfolio, garnering significant attention from regulatory agencies to ensure risk is being managed properly. Construction lending software allows financial institutions to leverage the growing construction market without absorbing the additional risk. Digitization provides financial institutions complete reporting capabilities and unprecedented portfolio insights, giving lenders the ability to readily access complete reports about an array of issues including rate and fee variances, inactive or stale loan accounts, matured loans, liens and insurance lapses, among others.

Up to date and readily available reporting and portfolio insights allow lenders to quickly identify potential issues, significantly reducing the inherent risks associated with the complex nature of construction lending.

Satisfy Auditors and Examiners
Limited inventory, especially in entry-level housing, and increased demands within the housing market have resulted in a continuation of the national housing shortage in 2018. With an influx in first-time homebuyers expected this year, experts have predicted significant growth in the construction industry, including a 9-percent increase in single-family housing starts. 

As a result, examiners will be paying closer attention to swiftly growing construction portfolios in order to ensure regulatory compliance. Construction loan automation software allows lenders to better prepare for compliance exams with easily accessible reports that provide examiners the information they require with little interruption to a credit management department’s daily workflow.

Drive Your Decisions with Data
Through digitization, financial institutions have the ability to quickly and easily pull both global and granular reports from their entire construction portfolio, allowing lenders to use reporting capabilities to create insightful metrics that can be applied to performance tracking, accounting strategies, and strategic planning. In construction lending, reporting of this caliber allows lenders to make data-driven decisions by identifying, measuring, and tracking effective solutions, while eliminating or improving failed strategies.

Digitization Inside and Out of the Boardroom


digitization-4-16-18.pngAs global businesses and markets are caught in a seemingly perpetual cycle of disruption and adjustment, company leadership and directors are tasked with finding new, innovative ways of communicating and working with shareholders in an increasingly complex and fragmented landscape. This is even more important given the massive technological advancements within the last decade, which have not only shifted the ways in which companies operate, but the means in which businesses and investors convey and share information.

Recent advancements in technology have transformed everyday business processes through digitization, which, in turn, has made cybersecurity a top priority. Moreover, they have made the world a much more connected place, facilitating business at a faster pace than ever before. To help company leadership adjust, new technologies have been developed to help directors and leadership teams improve collaboration and workflow.

Digitization
Today’s boards are going paperless, and the reality has become indisputable: directors are turning away from printed documents in favor of digital information that is easy to share and accessible on mobile platforms, like board portals.

Through digitization, directors are now accustomed to heightened levels of speed and efficiency across all business processes. With board portals, corporate secretaries and meeting managers are able to streamline board book creation and tighten information security. The benefits to this technology are clear: easy access to digital meeting information with user-friendly tools for assigning tasks, approvals, consent votes and secure messaging.

We have also observed a growing trend driving increased global demand for board portal solutions: the need to collaborate and share confidential information and documents across internal and external teams in a highly secured environment. The C-suite executives who already use our board portal tools for director-level collaboration are now expanding that capability across their organizations, all through a single sign-on service.

Cybersecurity
As businesses shift to digital platforms, data security plays a much bigger role. Companies must closely scrutinize how sensitive information is handled due to the risk of breaches. Cyberattacks are common and can result in significant financial and reputational damage; cybercrime damage costs are expected to total $6 trillion annually by 2021, according to CSO. This makes it especially important for boards and company leadership to take a strategic approach to data protection. Information is being shared in more rapid and innovative formats, and the methods in which boards communicate with shareholders will need to prioritize safety along with accessibility.

Protecting sensitive information should be at the top of a company’s concerns. This is why solutions should comply with strict encryption standards, multi-factor authentication and a completely cloud-less data storage system. Companies can also leverage machine learning and artificial intelligence (AI) to navigate and secure large volumes of data. These technologies can monitor and detect network anomalies that signal potential attacks and prevent further access before data is compromised.

Globalization
Due to the digitization of communication channels, we are now able to connect and do business in seconds with people halfway across the world. As technology brings us closer together, it breaks barriers to information accessibility. This ease of information exchange has impacted investing by virtually removing any impediments that once stood in the way of certain markets.

Increased ease of access to information around the world means companies, and particularly company leadership, should ensure key information is digestible for all stakeholders. That’s why being equipped with full translation services for common languages can be advantageous.

Moreover, as globalization continues to facilitate business and investing opportunities, shareholder bases are broader and more diverse than ever before. With the rise of passive investing, companies lack a level of transparency that allows them to know who their stakeholders are. For this reason, it is necessary to take advantage of tools and technologies that provide actionable insights into passive investment data and provide a more comprehensive picture of shareholders.

Looking Ahead
As technology continues to augment the ways in which companies operate, boards need to keep pace, ensuring they are communicating with their shareholders in the most efficient and preferred methods possible.

Small Business Lending: A Case for Digital Improvement


lending-1-3-18.pngIn a world where we can summon a car to pick us up in five minutes, and pizzas are delivered by drones, banks are being challenged by small business owners to create a secure digital environment to meet all of their customers’ banking needs—including applying for a loan—at their convenience.

Banks today have a great opportunity for digital improvement in the area of lending. For example, in traditional small business lending, the administrative and overhead costs to underwrite a $50,000 loan and a $1 million loan are essentially the same. With the aid of technology, underwriting costs are greatly reduced through a more efficient process.

In addition to reducing the cost to generate a loan, another direct benefit is the reduction in time for both the borrower and bank staff. Banks that implement technology that allows new and existing customers to apply for a small business loan online can reduce end-to-end time for both the borrower and the lender. The borrower can apply for the loan, upload documents and receive all closing documents digitally. If the online borrower has questions, the customer is assigned to a lender who can provide help through the process via phone, email or even in person, if needed. As an added benefit, the banker can focus on the customer in front of him and can start an application in the branch for the borrower, who then can finish the application in their home or office.

We now live in an era where user experience is at the front and center of everything a company does, and a painful process or poor user experience means that a prospective borrower may go elsewhere to apply for a loan. Banks that embrace digital lending technology today can differentiate themselves by delivering exceptional customer service. In addition to reducing costs and streamlining the process, lenders and borrowers can see several additional advantages to a digital experience.

Borrowers complete the application in less time.
Technology is transforming the way banks can accept applications, and can provide borrowers with a secure application that can be completed anywhere on any device, including with their banker in a branch or online.

Documents are managed securely.
Digital lending technology is advantageous because it also enables the borrower to deliver important documents to the lender quickly and securely. Instead of the lender waiting for physical copies, borrowers can upload documents to a secure portal, helping to shorten the process.

A more efficient process increases customer satisfaction.
Paper-based applications take a lot of time to fill out, and can create frustration for the borrower and the lender if a section is missed. The more efficient the lending process is, the greater the borrower satisfaction rate will be—allowing your team to build better and larger relationships.

From slim interest rate margins to competitive alternative lenders, many financial institutions are facing pressure to find a way to make lending profitable again. Leveraging technology to streamline the loan process and improve the borrower experience will lead to increased profitability for financial institutions, which is possible today with the help of technology.

Innovation Spotlight: Howard Bank


innovation-10-3-17.pngScully-Mary-Ann.pngMary Ann Scully, CEO and chairman
As a lifelong banker with over 30 years of varied executive experiences, Mary Ann Scully headed the organizing team for Howard Bank of Baltimore, Maryland, and currently serves as a board member of the Baltimore Federal Reserve and a community advisory board member for the Federal Deposit Insurance Corp. Under her leadership, Howard Bank recently announced its fifth acquisition in five years, which will make it a $2.1 billion asset institution. It has maintained a commitment to high touch service throughout each integration.

When you started at Howard Bank, what did you want to do differently with innovation?
We have always viewed our differentiation as high touch expertise and advice. Therefore, we tried not to be leading edge from an innovation perspective. However, we also recognized that to attract small and medium-sized businesses that we should not and would not ask our customers to make a choice between competitive products and delivery available at larger banks and our high touch advice. So we have always had to be competitive and with a more sophisticated customer base, the bar was set higher.

Over the years, how has your digitization strategy changed?
We opened the doors in 2004 with online banking, online check images, hand scan safe deposit boxes—not your typical start-up community bank mix. Over time, we have become more and more committed to being leading edge in the utilization of information to inform our decisions, optimize our processes and advise our customers. Our recent project with [commercial lending platform] nCino is an example of this commitment. Our commitment to a new universal banker branch model is another.

You were once quoted as saying, “Thriving is different than survival and relevance is more than profitability.” What does it take for a bank to thrive AND stay relevant in this competitive environment?
It requires, first, great clarity of strategy: “What do you want to do, how and when, for whom?” And that requires being able to articulate the more painful, “What do you not want to do or whom are you not targeting?” The second requirement is a long-term vision because relevance requires constant investment in the business—in people and technology. It also requires access to capital, both financial and human, to facilitate those investments.

Finally, it requires flexibility because the world changes at a faster rate than ever before and it is important to be able to reallocate resources to what our customers feel is relevant for them. Our high growth trajectory requires a mindset throughout the organization that acknowledges the need for change. For example, we have attracted five teams from other banks in five years. We’ve done five acquisitions in five years, the most recent and largest just announced in August. We’ve accomplished seven capital raises in 13 years, the most recent and largest in January of this year.

After being involved in several M&A deals, what lessons have you learned about integrating technology platforms to ensure business continuity?
First, we always remember to view integration from a customer’s perspective. There is always disruption involved in a merger, some sense of “I did not ask for this,” and flowery promises do not alleviate the skepticism even when an in-market merger is perceived by a community as being positive. So we plan, plan and plan to ensure that customers never lose functionality and if possible, gain something in the process. This means being willing internally to change the “host” systems as well as the acquired bank systems. It means viewing integrations as an opportunity, not a necessary evil, to take the best of both and occasionally the best-of-breed, not just as a way to save costs and slam things together but as a way to enhance the combined systems. We have a cross-functional team who has worked together on each transaction, some who started on the acquired side who are now sitting as an acquirer and their experience and perspective are invaluable. That team always has representatives from each bank for each function. Conversions are not for amateurs or the faint of heart so constant communication between providers and users is also important for successful platform integration.