Ranqx CEO Dave Lewis on the role of community banks

Community banks benefit from greater customer loyalty than many of their larger peers. This form of institution currently makes up the majority of the 5,000 or so Federal Deposit Insurance Corporation (FDIC) insured financial institutions. During the pandemic, when social distancing measures were in place, this form of banking played an integral role in helping customers access financial services.

Community banks invest dollars back into the community, create jobs and help the local economy. At the heart of what they do is relationship banking, it is how they do business and must be the essence of what we continue to do. However, the future relevance of community banks will depend on how effectively they can infuse technology, which improves the customer experience while increasing efficiency.

Unfortunately, there is an obvious Achilles heel with community banks. These institutions lack the resources to implement effective digital solutions at a pace. So the question is how they can effectively manage the implementation of digital transformation, while attracting and retaining local customers. If they can find a solution to this, they will succeed.

Which industry sectors are most dependent on your services, and are these needs being met?

By virtue of being local, community banks prioritize channeling loans to the neighborhoods where their depositors live and work, which in turn helps local businesses and communities thrive. Because of this, community banks truly benefit the communities they operate within, across the spectrum.

I recently came across an interesting sector insight that I’d like to share with your audience that highlights the huge appeal of community banks. according to Federal Reserve’s Small Business Credit Survey: Report on Employer Firmscommunity banks remain the lending partner of choice for small businesses, despite competition from larger, more developed peers.

However, it is a different story when it comes to digital lending. Right now, only 37% of community banks offer any form of consumer loan application. It is a similar situation when it comes to lending to small to medium-sized enterprises (SMEs), which on the whole is significantly less advanced than it should be. This is worrying, especially as the World Bank estimates that the world’s micro, small and medium-sized enterprises need an additional $5.2 trillion to meet existing unmet financing needs.

In light of the need, why aren’t community banks racing to claim this domain? The question for community banks looking to improve performance in this area is simple – what has caused such a large gap?

Recent Deloitte research has identified that no traditional US bank has the online capabilities to provide a right through small business loan application for either unsecured or secured loans with an immediate decision or offer to the customer. Going forward, community banks have a real opportunity to win this race to unmet need.

Ultimately, digital lending provides financial institutions with a number of opportunities to improve productivity, close more loans and increase revenue per loan with cheaper, faster and automated services. In addition, customers are coming to expect these services, with fintechs and non-bank alternative lenders ready to offer them. Despite this, most banks are not there yet, and that needs to change quickly.

Has the community banking space managed to keep pace with the latest banking technologies – or is it catching up?

I think that the community banks have a lot of catching up to do. While Covid has accelerated a range of digital transformation, the community banking sector still appears to be ‘glacial’ in its response to many societal and business changes.

In addition, community banks face stiff competition from more nimble fintech startups, which are eroding their bottom lines. As always, they must also address the big banks, which have the resources to spend billions of dollars on digital innovation and transformation.

It is now a necessity for all banks to adopt some of the principles of the fintech movement. Unfortunately, many community banks do not have the resources to keep up with this pace, and the majority will require a partnership with an innovative fintech provider to remain relevant and effective.

What role can community banks play in the future of finance, which other fintechs and banks are struggling to serve?

Staying relevant to local community stakeholders by adding customer-centric digital solutions that remove friction for customers is key. Take the SME lending space where community banks have a high current market share but are entrenched in the legacy manual processing model of brick-and-mortar branches and paper-based origination and underwriting processes.

By adopting fintech solutions, which leverage real-time data and cloud-based software-as-a-service (SaaS) solutions, community banks can “go out of the way for the customer’ , while effectively expanding their SME loan books. In contrast, large banks will probably be slow and cumbersome to build their own solution in this area. As such, I believe that community banks are perfectly positioned to dominate the field for technology-forward solutions in SME lending in their communities.

How can community banks best fulfill their current role in customer demands?

While community banks can never compete with the budgets of the big banks, they have an advantage in that they have fewer legacy systems and a smaller governance structure, which in turn can make them more nimble.

Community banks need to be smart about where they spend their resources and technology investments, choosing only projects that keep customers happy while reducing costs for the bank.

Efficient and market-leading community banking should “go out of the way for the customer” and disappear into the background, so it’s quick, easy and painless. Anytime a community bank can keep the customer focused on their non-banking concerns and working towards their personal or professional goals, they are doing their job.