Most financial institutions’ digital account opening process is behind the times, and that’s even more true for small business accounts.
Even large banks are admitting their shortcomings when it comes to digital account opening and loan applications, according to The Financial Brand. It doesn’t have to be that way, as the institutions cited in the article point out. Successful institutions use an incubator to build their own products, or they partner with fintechs for their expertise. (Vetter can help! Contact us today to learn more.)
Just because small businesses tend to go with larger financial institutions – 68% – doesn’t mean they wouldn’t prefer a local option that knows the community and spends valuable time helping them. The Financial Brand even pointed to an FIS study that found megabanks have the lowest satisfaction rates among small business owners, yet 20% of their local community banks and credit unions didn’t offer the products and services they need, particularly digital solutions.
“Small business owners do value their relationship with their bank,” Frank Aloi, ath Power founder/CEO, said of community financial institutions in a study ath conducted. “In fact, in the key area of business mobile transfers, six-in-ten would prefer their primary bank to handle such transactions, and over six-in-ten (64%) would prefer to have their business loans be funded by a traditional bank or credit union. The issue, as revealed in ath Power’s study, is that interaction and advice capabilities are lacking, in addition to subpar business digital offerings. To retain their small business clientele, banks need to offer advanced features designed specifically for business users, while also providing adequate in-person business guidance and expertise when needed.”
The Banking Exchange reported on a recent address by Federal Reserve Vice Chairman for Supervision Randal Quarles, who explained that community banks only hold 19% of small business loans of less than $100,000; 20 years ago, that figure was 60%. He added that community financial institutions are losing, particularly among the smallest dollar loans, and the primary reason for denials were low credit scores or insufficient credit history. That’s when they turn to the big banks or nonbank competitors.
The Government Accountability Office found that community banks’ small business lending increased just 5% between 2013 and 2017, following the economic crisis. Some lenders cited lending process changes and regulations. As of June 2017, community banks held more than $292 billion in outstanding business loans with original principal balances of less than $1 million, which represented about 19% of total loans. Large banks held about $390 billion outstanding in small business loans, or about 5% of their total lending. The declining number of community financial institutions also could be a factor.
To help boost small business products and services, community financial institutions must partner to obtain the resources they lack. Small businesses need items like accounts payable and receivable reporting, employee expense tracking and analytics, and convenience. Just 25% of small business banking products can be opened digitally an only 10% can be completed on a smartphone, The Financial Brand reported. Millennial business owners are particularly turned off by the lack of community financial institutions’ digital savvy; 48% are using non-bank alternatives, which is nearly double the percentage of small businesses overall.
Community banks and credit unions must find a business partner to thrive in the digital world – partners that can help them expand their reach, improve the business customer/member experience, and protect their information. But the partnership must also serve the institution by optimizing profitability, ensuring regulatory compliance, and optimizing operational insights. Vetter’s got you covered. Click here to learn how we can help you grow your business services portfolio today.