June 21, 2017
Only 2 to 3% of banks across the country provide any kind of digital business borrowing access to their small-business, middle-market, and even their commercial clientele. In fact, across the board, small and medium enterprises (SMEs) get short-shifted by financial institutions when it comes to access to enabling technology that would allow them to more conveniently and efficiently manage their business financials. Overall, less than a quarter of small business banking products can be applied for online and less than 9% have a mobile-friendly experience.
All of this is extremely surprising given the average small-business relationship, when properly penetrated by the bank, generates in excess of $4,000 per year in revenue, while a typical retail client only generates about $1,000 in annual revenue.
As financial institutions, we force our business owners to apply for the critical capital they need to run and grow their businesses on our terms and our time, forcing them to engage in a lengthy and complicated process that requires their time and attention during banking hours either at the branch or with a banker. That was business as usual until marketplace lenders entered the scene a few years ago and taught the bank’s clients that they can get the cash they need quickly, simply and conveniently by leveraging technology to provide the data needed to make a decision and fund a deal.
Business owners are looking for the path of least resistance to acquiring the capital they need. It’s no wonder that literally hundreds of billions of dollars were loaned to bank customers last year alone by these non-bank, technology-enabled lenders. And the window of time is quickly closing on banks.
In order to compete in a world where omnichannel access to everything is considered a customer expectation as opposed to a customer convenience, banks need to embrace technology if they intend to survive.
The great news is… There are solutions available right now that would bring banks into the 21st century from a technology perspective. In just three weeks, a bank could be delivering an exponentially better customer application experience in the business and consumer lending space. In just two months’ time, a financial institution could increase the productivity of its small-business front-office sales staff by as much as 50%, and free up back-office teams to review and approve more deals, minimize operational risk, and cut end-to-end time in half. There’s technology available today that can be operational in the bank in a matter of weeks that can cut the cost-per-loan booked in half and make even the smallest loans profitable.
Banks know how to underwrite a loan. They know what metrics are important to their institution, what scoring and pricing model makes sense to them, and they know how to sync their credit policies up with their unique culture. They know what information they want to collect from a client to gauge creditworthiness. And they know what kinds of documentation and due diligence are required to ensure the bank’s credit quality. What they lack is the in-house, or even legacy provider technology needed to do all of that quickly, accurately and cost-effectively.
So why are more banks not taking action now and partnering with a bank-friendly FinTech company to stay competitive? It’s because that same anti-risk philosophy that has helped banks maintain their financial stability is now preventing them from leveraging rapidly changing technology to address changing customer demands and remain relevant in the new technology economy. Fear of change and fear of risk is preventing banks from being able to take advantage of the innovation that is revolutionizing the way people interact with their financial institutions.
First: Banks need to do what banks do best… Weigh risk against reward. They do it extremely well and always have. They know what information to gather to ensure security; they just lack the resources to maximize the data they collect and the technology to make the decisioning process better and faster. That’s what technology is great at.
Second: Banks need to accept the reality that the world now expects to conduct the majority of its business on an electronic device of their choice and at a time that is convenient for them. If it can’t take place on a smartphone, tablet or laptop 24/7, it won’t take place at all. If you don’t do it, your customers will find someone who does… And they’ll pay for that convenience.
Third: Banks need to stop talking about it –and stop thinking about it – and start mandating the adoption of technology. Remove the 18-month normal evaluation and decision processes, the RFIs and RFPs, and do it quickly or guarantee that your financial institution will remain five years behind those bank and non-bank competitors that embrace technology and innovation.
Finally: Banks need to take the risk out of engaging new technology by removing the barriers to testing innovation. Don’t punish leaders who try to engage innovative solutions – rather, incent your leaders to have the courage to advance the bank’s technology footprint without the fear of failed attempts resulting in career-ending consequences.
About Akouba and Plug and Play
Akouba recently graduated from the Silicon Valley based accelerator Plug and Play. Want to be in touch? contact Ashlene Ramadan at firstname.lastname@example.org