Digital Wealth Management Is a Golden Opportunity for Growth

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Wealth management is quickly becoming the largest opportunity for banks to both grow and retain customers — an imperative in the face of continued economic uncertainty.

Financial organizations represent trillions of dollars in deposits, but without a dedicated enterprise-level digital wealth platform, they are seeing a flow of dollars to digital-first investment platforms. Community banks face incredible pressure to retain deposits, increase fee-based revenue and stem deposit outflows to investment solutions that invariably try to upsell banking services to these new investors. But using the following key methods can give banks a way to implement investment services themselves — a move that could be a game changer for customer engagement and their bottom line.

Offering a thoughtfully crafted wealth strategy provides banks with myriad benefits — specifically a digital wealth and financial inclusion offering. Traditionally, wealth management services have been geared toward high net worth clients, creating a sizable gap in bank services. A digital wealth solution allows banks to effectively service wealth accounts as low as $500, enabling better service and soliciting more engagement from their broad customer base. Dramatically lowering the entry point to wealth management services gives banks an avenue to share greater access to financial services to their customers than they have been able to historically.

Implementing a digital investment offering means customers don’t have to seek a new relationship outside of the bank; instead, they can deepen their relationship with their current bank through additional lending and savings products. This is crucial in an operating environment where customer retention is paramount.

And the digital approach to investment services allows digitally native customers to use the investment platforms on their own terms. Investing in digital tools and channels also broaden a financial institution’s reach beyond the traditional branch model and hours of operation. Our banking clients report that about 25% of their digital wealth traffic occurs during nights and weekends — times their branch teams are not typically available to provide service.

The increasing focus on noninterest income, coupled with the retained deposit revenue, are the two primary drivers we see increasing interest from banks that want to build a wealth practice. Noninterest income is increasingly important to community banks; wealth management services are one of the best ways to increase this differentiated revenue stream.

So, where should banks even begin when it comes to providing wealth services? There are actually a number of ways to do it. The first option is to create a registered investment adviser, or RIA. Traditionally larger banks have built out this function in-house, using their size and scale to support the increased regulatory burden, compliance costs and additional operational requirements. Banks that choose this route maintain complete control over the client experience while the RIA provides trusted, timely advice to clients. But the start-up costs for building an RIA are quite high, so we often see institutions step into the wealth journey through other partnership or outsourcing models.

Another option is for financial institutions to hire an adviser led third party marketing, or TPM, provider to offer investment services. This alternative typically applies to mid-sized financial organizations looking for an advisory relationship, where the TPM provider handles the compliance and risk issues that may arise. This is an interesting opportunity, albeit one that is almost exclusively focused on the human adviser with minimal digital offerings. Working with advisers forces institutions to focus on their high net-worth customers, leaving a gap in the service model for customers who can’t reach certain account thresholds.

Lastly, financial institutions may choose to leverage a digital platform that offers wealth management as a service or platform. This option, which takes a page from the software as a service model, best works for banks that don’t have an existing wealth management offering or where there is a gap in the existing wealth offering depending on account sizes. Organizations often find this option promotes financial inclusion because it appeals to their entire customer base and enables them to retain client relationships as their business grows. In addition, embedded wealth management platforms typically have a faster implementation period and lower operating costs compared to hiring full-time staff into new roles. By outsourcing the wealth practice, financial institutions enjoy minimal operational or technical requirements with the benefits of a wealth solution.

When considering growth opportunities, financial institutions should consider digital investment services as a top option for speed of deployment and an efficient use of capital. Improving existing client satisfaction with a wider variety of services, appealing to a younger customer base through technology options, retaining client assets and increasing fee-based revenue are some of the significant benefits that digital wealth management brings to banks.

How Strategic Banks Use Micro-innovation to Fuel New Growth

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With digital financial experiences booming and young consumers flocking to app-focused banking, institutions are assessing which of their products and services will prove popular in the future and exploring how to ensure growth continues among a new demographic of consumers.

For the 65 million members of Generation Z in the U.S., “going to the bank” or “writing a check” are quickly becoming tasks from a bygone era. A 2021 survey underlined that 32% of these customers would prefer to do all their banking outside a physical branch, which presents banks with an opportunity for their digital products to take the lead.

If digital banking is the way of the future, why shouldn’t banks drop everything and go all-in? For most banks, that’s not feasible — or economically wise. It’s vital that banks understand the importance of solving problems while adding value for the customer. Former Apple co-founder CEO Steve Jobs explained, “when we created the iTunes music store, we did that because we thought it would be great to be able to buy music electronically, not because we had plans to redefine the music industry.” Solely focusing on innovation isn’t a practical strategy; the aim should be to make small bets that lead to big breakthroughs.

Most banks don’t need to adopt an “innovate or die” mindset toward the future to drive change. Not every bank will launch a groundbreaking app, and not every company can be Apple. Nor should there they be. Instead, leaders can look to micro-innovation: A scalable, stepwise growth model that supports agile technology integration and novel processes without a major overhaul to the bank’s core or existing infrastructure.

Flex and Expand the Core
A traditional full core conversion can take a bank five years or more to complete. The digital world won’t wait that long; it’s important that banks start implementing change now with micro-innovation. Rather than reinventing the essential processes that are working, micro-innovation allows institutions to launch services in a parallel run to test fresh ideas and offer new products. A micro-innovation approach allows core processes and revenue streams to remain intact while your institution welcomes the future.

Our partner, Holyoke, Massachusetts-based PeoplesBank, efficiently launched a compelling financial brand, ZYNLO, operating alongside its traditional offerings. The new digital bank is designed for younger customers and offers features to support financial health with tools like Zyng Roundup, Zyng matching and early access to paychecks. PeoplesBank is looking beyond the traditional realm of innovation and embrace new thinking by partnering with social media influencers to spread brand awareness and increase visibility.

Where to Begin?
The best incremental innovations are those that can be brought to market swiftly at an affordable cost. Consider leveraging your customer data to pluck low-hanging opportunities to serve groups of customers while providing valuable insights to improve their financial journey.

There’s an opportunity to start small by implementing a fresh onboarding experience. New customers are oriented to digital solutions; if it makes sense for your customers, consider building in-app account opening and educational tools to help them seamlessly engage with their financial future from their smartphone.

Get attention by testing out new product types and fine-tuning processes. Automatically rounding up transactions and deposit that change into savings, early access to paychecks with direct deposits, mobile-first initiatives and financial education tools like monthly spending reports are all popular among young consumers.

Ready to go further? By collaborating with a knowledgeable fintech partner, your institution can launch a own digital financial brand and deliver compelling hooks, such as invoice factoring, tax tools, credit builders and financial modeling, that better serve a niche group of individuals with shared financial needs and goals. Niche digital banks market to a wide range of geographically dispersed customers centered around identities (African Americans, LGBTQ), professions (doctors and lawyers), or shared life experiences and passions (individuals who have previously been incarcerated, pet owners, newly married couples).

In a time of economic uncertainty, organizations looking to win the moment should approach the future with a flexible and entrepreneurial mindset. Identify where your institutions wants to be, determine what’s required to get there and take the first steps in parallel to what’s already working. There’s no time like today.

Banking is Changing: Here’s What Directors Should Ask

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One set of attributes for effective bank directors, especially as community banks navigate a changing and uncertain operating environment, are curiosity and inquisitiveness.

Providing meaningful board oversight sometimes comes down to directors asking executives the right questions, according to experts speaking on Sept. 12 during Bank Director’s 2022 Bank Board Training Forum at the JW Marriott Nashville. Inquisitive directors can help challenge the bank’s strategy and prepare it for the future.

“Curiosity is a great attribute of a director,” said Jim McAlpin Jr., a partner at Bryan Cave Leighton Paisner and newly appointed board member of DirectorCorps, Bank Director’s parent company. He encouraged directors to “ask basic questions” about the bank’s strategy and make sure they understand the answer or ask it again. He also provided a number of anecdotes from his long career in working with bank boards where directors should’ve asked more questions, including a $6 billion deal between community banks that wasn’t a success.

But beyond board oversight, incisive — and regular — questioning from directors helps institutions implement their strategy and orient for the future, according to Justin Norwood, vice president of product management at nCino, which creates a cloud-based bank operating platform. Norwood, who describes himself as a futurist, gave directors a set of questions they should ask executives as they formulate and execute their bank’s strategy.

1. What points of friction are we removing from the customer experience this quarter, this year and next year?
“It’s OK to be obsessive about this question,” he said, adding that this is maybe the most important question directors can ask. That’s because many technology companies, whether they’re focused on consumer financials or otherwise, ask this question “obsessively.” They are competing for wallet share and they often establish customer expectations for digital experiences.

Norwood commended banks for transforming the middle and back office for employees, along with improving the retail banking experience. But the work isn’t over: Norwood cited small business banking as the next frontier where community banks can anticipate customer needs and provide guidance over digital channels.

2. How do we define community for our bank if we’re not confined to geography?
Community banking has traditionally been defined by geography and physical branch locations, but digital delivery channels and technology have allowed banks to be creative about the customer segments and cohorts they target. Norwood cited two companies that serve customers with distinct needs well: Silicon Valley Bank, the bank unit of Santa Clara, California-based SVB Financial, which focuses on early stage venture-backed companies and Greenlight, a personal finance fintech for kids. Boards should ask executives about their definition of community, and how the institution meets those segments’ financial needs.

3. How are we leveraging artificial intelligence to capture new customers and optimize risk? Can we explain our efforts to regulators?
Norwood said that artificial intelligence has a potential annual value of $1 trillion for the global banking industry, citing a study from the McKinsey & Co. consulting group. Community banks should capture some of those benefits, without recreating the wheel. Instead of trying to hire Stanford University-educated technologists to innovate in-house, Norwood recommends that banks hire business leaders open to AI opportunities that can enhance customer relationships.

4. How are we participating in the regulatory process around decentralized finance?
Decentralized finance, or defi, is a financial technology that uses secure distributed ledgers, or blockchains, to record transactions outside of the regulated and incumbent financial services space. Some of the defi industry focused on cryptocurrency transactions has encountered financial instability and liquidity runs this summer, leading to a crisis that’s been called “crypto winter” by the media. Some banks have even been ensnared by crypto partners that have gone into bankruptcy, leading to confusion around customer deposit coverage.

Increasingly, banks have partnerships with companies that work in the digital assets space, or their customers have opened accounts at those companies. Norwood said bank directors should understand how, if at all, their institution interacts with this space, and the potential risks the crypto and blockchain world pose.

3 Considerations for Your Next Strategic Planning Session

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Modernizing a bank’s technology has the potential to improve efficiency, reduce errors and free up resources for further investment. Still, with all those benefits, many banks are still woefully behind where they need to be to compete in today’s digital environment.

According to Cornerstone Advisors’ What’s Going On In Banking 2022 research, just 11% of banks will have launched a digital transformation strategy by the end of 2022. So what’s the holdup? For one thing, transformation is hamstrung by the industry structure that has evolved with banking vendors. Stories of missed deadlines, releases with dingbat issues, integrations that stop working and too few knowledgeable professionals to assist in system implementation and support are commonplace.

A large part of a bank’s future depends on how it hires and develops technical talent, manages fintech partnerships and scrutinizes and optimizes its technology contracts. Here are three key truths for bank officers and directors to consider in advance of their next strategic planning session:

1. There is no university diploma that can be obtained for many areas of the bank.
Our research finds that 63% of financial institution executives cited the ability to attract qualified talent as a top concern this year — up dramatically from just 19% in 2021. But even in the face of an industry shift to digital-first delivery and a need to better automate processes and leverage strong data intelligence, most banks have neither invested enough, nor sufficiently developed, their IT team for the next decade.

Every financial institution has a unique combination of line of business processes, regulatory challenges, and vendors and systems; the  expertise to manage these areas can only be developed internally. Identifying existing skill sets across the organization will be critical, as will providing education and training to employees to help the organization grow.

A good place for directors and executives to start is by developing a clear and comprehensive list of the jobs, skills and knowledge the bank needs to develop across four key areas of the bank: payments, commercial credit, digital marketing and data analytics.

2. Financial institutions and fintechs are on different sides of table.
Over the past decade, there have been profound changes in the relationship between financial technology and financial institutions. “Banking as usual” no longer exists; as much as banks and fintechs want to work at the same table together, they have very different needs, different areas of dissatisfaction with the relationship and are sitting on different sides of that table.

A fintech can create viable software or a platform for the bank to build upon, but the bank needs to have the internal talent to leverage it (see No. 1). A culture of disciplined execution and accountability that ensures the fintech solution will be deployed in a high performance, referenceable way will go a long away in strengthening the partnership.

3. Training and system utilization reviews need to find their way into vendor contracts.
When it comes to software solutions, banks are looking at multimillion-dollar contracts and allocating tens of thousands of dollars in training on top of that. This is not the time to be penny-wise and pound-foolish.

Every organization needs to build a tightly integrated “change team” that can extend, integrate, lightly customize and monitor a growing stack of new, primarily cloud-based, platform solutions. For CFOs and the finance department, this means a punctuated investment in the raw talent to make the bank more self-sufficient from a tech perspective (see No. 1 and 2 above).

One way to launch this effort is with an inventory for executive management that details how many users have gone through which modules of training. This tool can be vitally important, involves only minor add-on costs and can and should be embedded in every vendor contract.

Many financial institutions subject themselves to unfavorable technology contract terms by entering negotiations with too little knowledge of market pricing, letting contracts auto-renew and failing to prioritize contracts that need the most attention. If managed properly, vendor contracts represent a huge opportunity for savings.

The Nuts and Bolts on Executive Sessions

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A board’s success can depend on the strength of the independent directors. But as boards become more centralized around the CEO’s carefully choreographed meetings, there’s greater potential for kabuki-style processes, with all decisions eventually funneling through one member of management. Executive sessions may be instrumental to the strength of independent directors and should be a part of the board’s meeting schedule.

Most boards believe they hold management accountable. Nearly three-in-four (74%) of the directors, chairs and chief executives surveyed by Bank Director in 2021 said their board had several directors willing to ask difficult, challenging questions. Another 72% felt free to exercise their own independent judgement if they disagreed with a board decision. Yet, in Bank Director’s 2022 Governance Best Practices Survey a year later, 24% believe that holding management accountable would improve the governance process.  

Executive sessions can be a powerful tool in the toolbox for independent directors to hold management accountable and allow room for directors to gain a stronger understanding of certain concepts before coming to a decision. 

“Whoever is chairman controls the agenda,” says James McAlpin Jr., a partner at the law firm Bryan Cave Leighton Paisner LLP, which has sponsored Bank Director’s annual Governance Best Practices Survey. Sometimes, the CEO retains the chair title and directs the agenda. Sometimes, an independent director retains the chair title. Boards have to decide which model works best for them, while ensuring independent directors have a voice. Executive sessions help ensure that directors can discuss scenarios when the chairs “may not raise the matters themselves,” he adds.

By addressing such topics in open forums, directors can determine if they’re viewing certain issues as other members do or if there’s a lack of cohesion on strategies. Discrepancies in opinions or doubts on a strategy may not come to the surface if the issue isn’t brought up during the normal process of a board meeting. 

Executive sessions occur when a group of directors call for time to discuss an item or topic, without the presence of specific individuals. There’s no hard-fast rule, although they generally involve independent directors without the presence of executives. This typically would exclude the CEO, if he or she sits on the board. But it could include a group of directors that do not participate in a certain committee, for instance, but who can provide broader input. Or it could include the CEO but exclude everyone else in the room who doesn’t sit on the board. 

Since executive sessions aren’t transcribed, they allow for a free flow of conversation. This gives the directors a chance to express their feelings on certain topics, bring up concerns or even ask questions of a sensitive nature. While it may seem as if such sessions would be awkward to call, since the CEO or other executives may wonder why such conversation needs to take place, there’s a tactic to counteract this potential. 

“It’s recommended to have them on regularly scheduled basis,” says Charles Elson, the founding director of the Weinberg Center for Corporate Governance at the University of Delaware. By building them into the agenda, he adds, they don’t become an unusual, uncomfortable situation since everyone knows when potential leadership issues will be discussed. Among directors and CEOs surveyed by Bank Director in 2021, 38% said the board held an executive session at the end of every board meeting, while 16% held them quarterly and 24% called one whenever independent directors wanted one.

For companies listed on the New York Stock Exchange (NYSE) or Nasdaq, it’s less of a social concern and more of a proper practice. Both exchanges require companies to incorporate executive sessions of the independent directors on a regular basis. Nasdaq defines that as at least twice a year (if not more), while the NYSE leaves the definition more open-ended. Such executive sessions provide an outlet for directors at community and private banks as well, serving as a valuable way to address concerns without worrying about hurting others’ feelings or working relationships.

Historically, executive sessions have been a tool of senates and parliaments, but they began to make their way to the boardroom at a greater rate in the mid-1990s. Directors needed a way to speak on certain topics off the record; this resulted in having small meetings with one or two directors over lunch or on the way to the parking lot. Instead, executive sessions formalize these conversations, encouraging directors to speak as a group. This can not only lead to a greater awareness of a certain type of thinking among directors but can also provide stronger conclusions, questions and coordinated insights for management or the board at large.

“It’s not so much hiding [issues] but addressing them in an appropriate way,” says Chip MacDonald, a financial services lawyer at the law firm Jones Day. “Whether it’s a committee function or whole board function, if you have full-time employees or officers on the board, you may want to exclude them.”

McAlpin, who works with boards at community and family banks, has often suggested that a board move to executive session when discussing certain topics that require more room for debate or discussion. 

“They provide particularly strong value when there’s an issue that’s difficult to discuss in front of the CEO or chair,” he says. “It’s better to have the discussion than not and if you do it on a regular basis, it provides open time for people to just share notes.”

The areas of discussion that are addressed during a session can run the gamut, from strategy, managerial issues, regulatory concerns or an investigation. The reason for the session will determine the people that may be present during the conversation.

The discussions are off the record, but this isn’t meant to imply that there’s nefarious conversations happening. In some cases, it might provide an open forum for direction on a new strategy. Or it may even allow for “due process,” says MacDonald. 

For instance, say there’s an accusation made against a certain member of the management team. While it’s important to scrutinize, a board may not want to make it publicly known until they have a chance to investigate the impropriety. Why? First, the board has to make sure that the accusation has validity before divulging it in a board meeting transcription. Second, the board must ensure it has a plan in place to address the issue. The closed-door executive session provides room for directors to plan.

But executive sessions also offer a way to address regular aspects of the oversight role. For instance, when discussing pay potential of top executives, the compensation committee will meet without any executives around to determine pay. This will be presented to the full board. If directors want to discuss the committee’s findings without offending certain individuals on the board — like the CEO — then an executive session would be prudent in such cases. 

The same tools can address potential strategies presented to the board. Or, in the case of a regulatory concern, the directors may want to discuss with fewer people so they have a clear understanding of the problem before coming to a decision. 

For an executive session to take place, there’s no specific quorum required, and there are no rules around whether executives should stay or go. In some organizations, a specific independent director runs all executive sessions; in others, any director can call one at any time. In both cases, the directors that seek an executive session or the director that handles executive sessions — often a lead independent director — can determine who stays and who goes. 

There’s also no requirement that the directors inform the CEO, or anyone else not in on the conversation, about what occurred during the session. But experts advise that it’s often good practice to have one director speak with the CEO after the conversation to provide a high-level recap of the talk. This doesn’t need to occur — and probably shouldn’t if directly addressing CEO wrongdoing. The regular communication with a CEO, however, can ease the potential of imaginations running wild. 

“It’s probably never a comfortable moment,” says McAlpin. “They may always wonder what is discussed in the room; best practice, have the lead outside director give an overview of what was discussed.”

The session cannot come to a decision that’s final or binding. Instead, it may provide a game plan in addressing an issue with the full board. Once the game plan is set, the directors can bring it to the full board for a vote. 

Executive sessions ensure that the directors’ game plan has the input of everyone involved. With that insight, then the board can operate with a full and robust voice. Failing to do so, would “be a breach of duty,” says MacDonald.

How HR Can Combat the Great Resignation

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Human resource executives continue to confront and address the ever-shifting priorities that are critical to helping companies maneuver current trends in the workplace.

The coronavirus pandemic, coupled with rising inflation, has disrupted the American workforce. In response, human resource professionals are responding intentionally and thoughtfully to tackle the rising challenges head on. But according to a Human Resource Executive’s survey published in January 2022, 86% report feeling more stressed as they continue to focus on remaining effective business partners. The following are some of the most pertinent talent and employment issues facing banks today and how they impact human resource divisions.

Pay Transparency Laws
An increasing number of states and municipalities require employers to disclose salary ranges to current or prospective employees, a trend that could spread nationwide as prospective employees seek pay transparency and equity at the interview and hiring stage. This requires HR executives to ensure that pay transparency laws are enforced, while demonstrating that salary expectations are commensurate with what the market will bear. Additionally, remote work further complicates the issue, as companies regularly recruit across state lines.

Aside from legal issues, employees today want to know how their current pay range is formulated and which promotional opportunities are available for their career path. Human resource professionals should be prepared for these conversations during onboarding. Without a proactive and well-thought-out message coming from management, employees may assume the worst and — at the very least — begin to explore what the market might pay them for their skills.

Explainable Salary Ranges
Wages are increasing faster than they have in the past 20 years. It is critical that HR professionals educate all internal stakeholders on the methodology they use to develop salary ranges. Typically, HR managers at community banks purchase a mere two or three third-party salary surveys that are used to formulate expected pay ranges for all positions in the company.

In contrast, a documented and communicated compensation methodology can decrease concerns about pay disparity and discrimination. Due to inflation, companies may want to analyze base pay levels semi-annually this year, as opposed to the end-of-year norm, to retain talent.

Reexamining Variable Pay
Strategic HR teams are often involved in crafting departmental scorecards that align performance with board priorities. Something I often say is, “The right bonus program, with the right incentives for the right people, can drive performance.”

Creating a stretch goal structure or modifying who is eligible to participate in an annual bonus program based on corporate results can alter the dynamics of a bank’s compensation strategy and overall financial performance, which is why this topic should be a conversation between the chief human resource officer and CFO. Banks can bolster their talent acquisition strategies by regularly reexamining their incentive payouts and targets to ensure they are delivering a positive return on investment and are competitive.

Embracing a Changing Work Culture
Many financial institutions are enhancing their benefits to demonstrate they truly value their employees. That ranges from shorter vesting periods for paid time off to pet insurance. However, one of the most desirable benefits is a hybrid/remote work arrangement. Banks that refuse to embrace this new model — where it makes sense — need to be prepared to pay more in order to get the attention of top candidates.

However, those benefits cannot be considered in a vacuum. Executives and their HR teams should consider work expectations and their impact on corporate culture as well. In the past, some firms expected employees to work long hours and on weekends in the office in order to advance. But studies are showing a different outcome: burnout. The expectation that employees will forgo a work/life balance for their career is no longer the norm. A culture of self-care for all employees will go much further in promoting a productive and purposeful workforce.

2022 is already proving to be one of the most taxing for HR teams in terms of talent acquisition, management and retention. Banks will continue to face challenges as inflation, salary expectations and work culture changes. But there are proven ways to produce an effective corporate strategy that builds and supports a healthy organization, and generates a good return for investors. Remaining agile, promoting a culture of self-care and paying competitive to market rates will remain fundamental to the success of high-performing banks.

Harness the Power of Tech to Win Business Banking

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The process for opening a consumer account at most financial institutions is pretty standard. It’s not uncommon for banks to provide a fully digital account opening experience for retail customers, while falling back on manual and fragmented processes for business accounts.

Common elements in business account opening include contact forms, days of back-and-forth communication or trips to a branch, sending documents via secure email systems that require someone to set up a whole new account and a highly manual document review process once the bank finally receives those files. This can take anywhere from days to multiple weeks for complex accounts.

Until very recently, the greatest competitor for banks in acquiring and growing business accounts was other banks. But in recent years, digital business banks have quickly emerged as a more formidable competitor. And these digital business banks empower users to open business accounts in minutes.

We researched some of the top digital business banks to learn more about how these companies are winning the business of small businesses. We discovered there are three key ways digital banks are rapidly growing by acquiring business accounts:

1. Seamless, intuitive user experiences. Business clients can instantly open accounts from a digital bank website. There’s no need to travel to a branch or pick up a phone; all documents can be submitted online.
2. Leveraging third-party technology. Digital banks aren’t building their own internal tech stacks from the ground up. They’re using best-in-class workflow tools to construct a client onboarding journey that is streamlined from end to end.
3. Modern aesthetics. Digital business banks use design and aesthetics to their advantage by featuring bright and engaging colors, clean user interfaces and exceptional branding.

The result? Digital banks are pushing their more traditional counterparts to grow and innovate in ways never before experienced in financial services.

Understanding what small businesses need from your bank
A business account is a must-have for any small business. But a flashy brand and a great user experience aren’t key to opening an account. Small businesses are really looking for the right tools to help them run their business.

While digital banks offer a seamless online experience, community banks shouldn’t sell themselves short. Traditional banks have robust product offerings and the unique ability to deal with more complex needs, which many businesses require. Some of the ways businesses need their financial institutions to help include:

  • Banking and accounting administration.
  • Financing, especially when it comes to invoices and loan repayment.
  • Rewards programs based on their unique needs.
  • Payments, specifically accepting more forms of payment without fees.

It’s important to keep in mind that your bank can’t be all things to all clients. Your expertise in your particular geography, industry or offerings plays a huge role in defining your niche in business banking. It’s what a lot of fintechs — including most digital banks — do: identify a specific niche audience and need, solve the need with technology, and let it go viral.

While digital banks might snap up basic small and medium businesses, the bar to compete in the greater market is not as high as perceived — especially when it comes to differentiated, high-risk complex entities. But it requires a shift in thinking, and the overlaying the right tech on top of the power of a community based financial institution.

It’s important that community bank executives adopt a smart, agile approach when choosing technology partners. To avoid vendor lock-in, explore technologies with integration layers that can seamlessly plug new software into your bank’s core, loan origination system, digital banking treasury management system and all other platforms and services. This means your bank can adopt whatever new tech is best for your business, without letting legacy vendors effectively dictate what you can or can’t do.

Your level of success in winning at digital banking comes down to keeping the client in focus and providing the best experiences for their ongoing needs with the right technology. While the account itself might be a commodity, the journeys, services and offerings your bank provides to small businesses are critical to growing and nurturing your client base.

Completing the Credit Score Picture

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Traditional credit scores may be a proven component of a bank’s lending operations, but the unprecedented nature of the coronavirus pandemic has their many shortcomings.

Credit scores, it turns out, aren’t very effective at reacting to historically unprecedented events. The Federal Reserve Bank of New York even went so far as to claim that credit scores may have actually gotten “less reliable” during the pandemic.

Evidence of this is perhaps best illustrated by the fact that Americans’ credit scores, for the most part,  improved during the pandemic. This should be good news for bankers looking to grow their lending portfolios. The challenge, however, is that the reasons driving this increases should merit more scrutiny if bankers are accurately evaluate borrowers to make more informed loan decisions in a post-pandemic economy.

For greater context, the consumers experiencing the greatest increases in credit score were those with the lowest credit scores — below 600 — prior to the pandemic. As credit card utilization dropped during the pandemic, so too did credit card debt loads for many consumers, bolstering their credit scores. In some instances, government-backed stimulus measures, including eviction and foreclosure moratoriums to student loan payment deferrals, have also helped boost scores. With many of these programs expiring or set to retire, some of the gains made in score are likely to be lost.

How can a bank loan officer accurately interpret a borrower’s credit score? Is this someone whose credit score benefitted from federal relief programs but may have struggled to pay rent or bills on time prior to the pandemic and may not once these program expire? Compared to a business owner whose income and ability to remain current on their bills was negatively affected during the pandemic, but was a safe credit risk before?

There are also an increasing number of factors and valuable data points that are simply excluded from traditional credit scores: rent rolls, utility bills and mobile phone payment data, which are all excellent indicators of a consumer’s likelihood to pay over time. And as more consumers utilize buy now, pay later (BNPL) programs instead of credit cards, that payment data too often falls outside of the scope of traditional credit scoring, yet can provide quantitative evidence of a borrower’s payment behavior and ability.

So should bankers abandon credit scores? Absolutely not; they are a historically proven, foundational resource for lenders. But increasingly, there is a need for bankers to augment the credit score and expand the scope of borrower data they can use to better evaluate the disjointed, inaccurate credit profiles for many borrowers today. Leveraging borrower-permissioned data — like rent payments, mobile phone payments, paycheck and income verification or bank statements —creates a more accurate, up-to-date picture of a borrower’s credit. Doing so can help banks more safely lend to all borrowers — especially to “near prime” borrowers — without taking undue risk. In many cases, the overlay of these additional data sources can even help move a “near prime” borrower into “prime” status.

While the pandemic’s impact will continue reverberating for some time, bankers looking to acquire new customers, protect existing customer relationships and grow their loan portfolios will need the right and complete information at their disposal in an increasingly complex lending environment. Institutions that expand their thinking beyond traditional credit scoring will be best positioned to effectively grow loans and relationships in a risk-responsible way.

Commercial Lending Automation in 2022

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To compete today, banks need to proactively meet the needs of their commercial clients. That not only requires building strong relationships but also improving the digital experience by automating the commercial lending process. Joe Ehrhardt, CEO and founder of Teslar Software, shares how bank leaders should think through enhancing lending processes and how they should consider selecting the best tools to meet their strategic goals.

  • Shifting Client Expectations
  • Processes Banks Should Automate Next
  • Specific Technologies to Adopt
  • Selecting Providers