Making the Move to Digital
For a lot (if not most) small community banks, digital product offerings aren’t usually the focus. Most smaller banks are community focused, existing as a place where people can come in and sit down with a banker and get their questions answered.
Unfortunately, as a result of the COVID-19 pandemic, a good portion of the public are wanting less contact with bankers. They want to be able to open accounts, deposit checks, apply for loans, and everything else digitally — from the comfort of their own homes.
Are there going to be people that prefer to come into the branch? Of course. But now they’re building the ability to open accounts remotely, in three minutes, with just as much security as you’d have when speaking to a banker. Which begins to beg the question, if they can do that with opening accounts, why not with consumer loans and mortgage loans?
New Offerings vs. The Standards
When it comes to placing more focus on newer offerings, it’s not a switch that can be flipped overnight. It all comes down to the risk profile.
Generally, banks look at risk in a very black and white way. While that has worked for a long time, more and more institutions are starting to have conversations around what it means to broaden their scope when it comes to analyzing risk.
So rather than trying to turn the whole ship at once, it's all about trying out pilot programs in a smaller size. Getting the positive results from the smaller sample size, and then convincing those in management and the investors and even the board of directors that it’s a good use of resources.
Lessons from The COVID-19 Pandemic
At the height of the COVID-19 pandemic, Gateway was tasked with offering PPP loans to not only its customers, but also the community at large. And they didn't know what to expect.
So they worked with some technology partners and created an online application, allowing borrowers to complete the application, credit review, and submission to the SBA all online. It gave them the ability to scale, and they ended up funding over 1,000 loans for over $50M in funding.
The board of directors were pleasantly surprised. The bank got some fee income, some long term customers, and there was this altruistic feeling of helping out the local community. So they began to ask themselves, “If we can do this for the PPP loans, why can’t we do it for other products and services?”
At the end of the day, they were focused on doing what other banks weren’t doing, because, as Gary put it, when you’re just playing the commodity game, there’s going to be continued consolidation and many of these local community banks won’t exist in ten years.
Making Sure Small Banks Stick Around
Most people in the industry are worried about keeping regulators and investors happy. As long as the investors are happy, things are good.
But for a lot of smaller banks, that’s just not enough. Gary likens it to turning yourself into a Blockbuster when you could be a Netflix. If you’re not focused on disrupting the industry, on doing things that nobody else is doing, you’re not going to last.
Twenty years ago there were over 20,000 banks across the United States. Today there are under 5,000. Instead of doing the same things you’ve been doing and hoping to survive, it’s time to start looking at the changing landscape and making the necessary changes to ensure that you’re around in twenty years.
