Implementing new branch technologies, such as in-branch iPads for forms and signatures, could soon be a leading strategy for community banks looking to improve their commercial lending lines of business.
According to a new Aite Group report, 39% of community banks say they're "likely" or "extremely likely" to invest in these types of technologies over the next two years to help improve their loan delivery and decision processes.
The report, "Commercial Loan Processing Solutions and Analytics: U.S. Community Banks Weigh In," looks at community banks' commercial lending strategies and is based on a survey with 100 community banks, each with less than $5 billion in assets, online from May through July, a sample size Aite Group said has a margin of error of eight points.
The Boston-based think firm said community banks also responded as "likely" or "extremely likely" to invest in the following technologies over the next two years: loan origination systems for commercial and small business loans (27%), cloud computing (26%) and loan servicing and collections systems (14%).
Aite Group said demand from small business loan customers, on which community banks rely to leverage their business banking platforms, has decreased since 2008. The firm found most community banks are zeroing in on the loan servicing and collection process as they strive to gain efficiency in the commercial loan application process.
"Lending to small businesses provides considerable payback in terms of customer loyalty and increased revenue from all manner of fee-based services," said Christine Pratt, an Aite Group senior analyst and co-author of the report.
Failing to provide services to small businesses will result in painful losses for community banks, Pratt said.
She said the three areas in which small businesses expect community banks to step up their game are loan products, loan application processes and loan servicing.
"Many community banks have recognized the technological challenges and opportunities in these areas, and are committed to investing for successful growth," Pratt said.
Aite Group said increasing competition is a notable challenge for community banks in the commercial lending space. Large retailers, credit card providers offering microloans and other small lenders with government-funded products are all vying for small business customers, the firm said.
However, community banks have opportunities to grow their small business customer loan portfolios, Aite Group said. Based on the survey, 38% of community banks currently have loans outstanding to just 25% or fewer of their small business customers. Those that provide more than 50% of their small business customers with loans will be better positioned for profitable growth and attracting these customers and improving their experiences is key, the firm said.
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Natasha Chilingerian
Natasha Chilingerian has been immersed in the credit union industry for over a decade. She first joined CU Times in 2011 as a freelance writer, and following a two-year hiatus from 2013-2015, during which time she served as a communications specialist for Xceed Financial Credit Union (now Kinecta Federal Credit Union), she re-joined the CU Times team full-time as managing editor. She was promoted to executive editor in 2019. In the earlier days of her career, Chilingerian focused on news and lifestyle journalism, serving as a writer and editor for numerous regional publications in Oregon, Louisiana, South Carolina and the San Francisco Bay Area. In addition, she holds experience in marketing copywriting for companies in the finance and technology space. At CU Times, she covers People and Community news, cybersecurity, fintech partnerships, marketing, workplace culture, leadership, DEI, branch strategies, digital banking and more. She currently works remotely and splits her time between Southern California and Portland, Ore.
