Once Silicon Valley Bank failed, regional and community banks had a new world to navigate. Silicon Valley Bank's decline resulted in a record drop in deposits for small banks.
According to CNN:
"Deposits at small banks fell $119 billion to $5.46 trillion in the week ended March 15, which was more than twice the previous record drop and the biggest decline as a percent of overall deposits since the week ended March 16, 2007."
Consumers lost faith in regional banks. This left regional banks scrambling to transform faster, offer higher interest rate deposits, offer better experiences, and use technology to scale operationally.
Achieving those goals in an increasingly fragile financial world is a challenge still faced by small banks today. Banking systems must focus on several strategies, including:
- Installing a business loan automation platform
- Incorporating SMB and SBA lending
- Taking advantage of stimulus money and the employee retention tax credit (ERTC)
- Providing a strong digital onboarding experience
- Reducing operational costs
Among all these strategies, small banks can transform into customer-friendly banks and win back the trust of customers.
1. Install a business loan automation platform
One of the most important strategies for regional and community banks is to install a lending platform.
A lending platform is a software system that automates the lending process, from the initial application to funding from the lender. By using a lending platform, banks can make the loan application process faster, more efficient, and more accurate.
Lending platforms also help banks streamline their lending processes and increase their lending capacity. This reduces systemic risk.
By using a lending platform, banks speed up the loan approval process, reduce errors and paperwork, and lower the cost of processing loans. This helps banks offer more competitive interest rates and attract new borrowers.
Also, a lending platform helps banks manage risk more effectively. By automating underwriting and credit scoring, banks can make better lending decisions and reduce the risk of defaults. This can help banks lower their risk and offer more competitive interest rates to attract more borrowers.
One example of a great lending platform is Biz2X, which is a platform created by Biz2Credit.com. Biz2X is a lending platform that enables regional and community banks to streamline their lending processes and increase their lending capacity while reducing risk. The platform leverages advanced data analytics, machine learning, and automation to provide a seamless and efficient lending experience.
2. Incorporate SMB and SBA lending in strategy
Small businesses and startups are faring better than other verticals in the market. Lending to SMBs has often been overlooked due to the cost. However, SMB lending can be a valuable source of revenue for regional and community banks considering 13% of all families in the United States own a small business.
To target SMB lending, financial institutions must be willing to invest in technology and expertise. This includes using data analytics to identify potential borrowers, offering customized lending products and services, and providing a seamless digital lending experience.
Small businesses are more resilient during economic downturns and have access to government stimulus programs such as the Paycheck Protection Program (PPP). The PPP:
"Offered forgivable low-interest loans to small businesses facing uncertainty due to COVID-19, to help businesses retain workers, maintain payroll, and cover other existing overhead costs."
Banks that offer knowledge on PPP and provide lending solutions to businesses that are eligible for this program can position themselves as valuable partners to these businesses. By doing so, banks can increase their number of depositors and expand their customer base.
As banks compete for new depositors, they must offer attractive rates and incentives to customers. One way to attract SMB customers is by offering digital account openings. By offering a seamless digital onboarding experience while completing loan applications, banks can increase deposits and provide a faster and more accurate experience for their customers.
Digital account opening can be a game-changer for banks that are looking to attract and retain SMB customers. Banks can reduce the time and effort required to open an account, which can in turn increase customer satisfaction and retention.
Banks can offer incentives to customers who open accounts digitally, such as higher interest rates or waived fees. By providing these incentives, banks can attract more customers and increase deposits.
Interest from banks in SBA lending is likely to increase with scale and underwriting efficiency and profitability. SBA loans can be a valuable source of revenue for smaller banks, and banks that can offer these loans will be well-positioned to increase deposits and expand their customer base.
To target SBA lending, banks must be familiar with SBA guidelines and requirements to ensure that they are properly underwriting and servicing SBA loans. This includes using technology to streamline the application process and reduce the cost of processing SBA loans.
An important takeaway from this is that your bank must be willing to do the research and take the time to understand your clients' needs. While this may take time and energy, it will be time well spent if you're able to bring in new clients because of how you positioned yourselves.
3. Stimulus money and the ERTC (Employee Retention Tax Credit)
Stimulus money has provided a boost to the economy, as well as startups and small businesses in particular. Regional and community banks can take advantage of this by offering loans and other financial services to businesses that have received stimulus funds.
By offering loans to businesses that have received stimulus funds, banks can increase deposits and generate revenue while also helping to stimulate the economy. This can be a win-win situation for both the bank and its customers.
Part of the process of offering these loans is doing research to understand who's interested in said loans and who's been receiving the stimulus money. Dedicating time is just as important as dedicating money.
ERTC is a tax credit that is available to businesses that have experienced a decline in revenue due to the COVID-19 pandemic.
This tax credit can provide a significant financial benefit to small businesses, which in turn can lead to more depositors at regional and community banks.
Understanding who is receiving the ERTC and what they are doing with the money they've earned is key to receiving the most deposits.
Banks that can offer advice on ERTC and provide lending solutions to businesses that are eligible for this credit can position themselves as valuable partners to these businesses.
As much as customers are looking for the ability to deposit, they're also looking for education. Being an expert in the area will position you as a trustworthy partner. Your customer base will feel increased appreciation for you, leading to more deposits.
4. Seamless digital onboarding experience
In addition to digital account opening, banks should focus on providing a seamless digital onboarding experience for their customers. This can help reduce the time and effort required to open an account, which can in turn increase customer satisfaction and retention. Customer satisfaction is key, as the more customers you satisfy, the more they get the word out, and the more deposits you will get from all of your customers.
A seamless digital onboarding experience should include easy-to-use online application forms, digital signature capabilities, and the ability to upload required documents. If you're missing any of these capabilities, you are behind the times and should immediately look into ways to provide them.
By providing a simple, streamlined onboarding experience, banks can attract and retain more customers and increase deposits.
Remember, this is an increasingly digital world we live in. Customers expect to be able to do anything at the palms of their hands and expect to be able to perform the actions they want without a second thought. The faster and more efficient service you can provide, the more likely you are to please your customers.
Consider this: the Bank of England converted its currency into digital form. This transformation illustrates the importance of adapting to ever-changing times and being willing to try new approaches to please customers. The Bank of England has seen success with this conversion because they tried something new, listened to their customers, and used technology to their advantage.
What may have been a perk at one time has now become an expectation, and if your bank doesn't have a strong digital onboarding experience, it will fall behind the competition.
5. Reduce operational costs
Finally, regional and community banks can increase deposits by reducing their operational costs. This can happen through the use of digital platforms, account opening, and risk tools such as BA score, BSA, or Portfolio Monitoring. By reducing operational costs, banks can increase their profitability and attract more customers.
Reducing costs will become even more important now that the government will increase regulation in the banking industry after it was discovered the SVB collapse happened with over 90% of their deposits being uninsured. It can be a challenging task, but it is essential for smaller banks that want to remain competitive in today's market.
By automating processes and using technology to streamline operations, banks can reduce the cost of processing loans and managing customer accounts. This can help banks offer more competitive interest rates and attract more customers to help avoid a bank collapse in the future.
Increasing deposits in a post-SVB failure world to avoid a future bank failure will require a combination of strategies, including installing a lending platform, focusing on SMB lending, taking advantage of stimulus money and ERTC, increasing interest in SBA lending, offering digital account opening, providing a seamless digital onboarding experience, and reducing operational costs.
By implementing these strategies, regional and community banks can remain competitive and continue to thrive in today's rapidly changing market without needing to resort to a bailout from the Federal Government.
However, to be successful, banks must be willing to invest in technology, and must be willing to adapt to changing market conditions.
When looking to be successful, it's important to try new things. Doing the work, meaning the research and the execution, will get you more deposits and help position you strongly during these difficult times.