Community Banks’ Leg-Up On The SME Lending Giants

Small community banks may not have the ample resources that Wells Fargo or Bank of America have to develop high-tech, experimental solutions internally. But that doesn’t mean local FIs are at a disadvantage.

At least, Seacoast Bank CMO Jeff Lee and CEO Denny Hudson believe so. In fact, the executives recently told PYMNTS that community banks actually have an advantage over the big guys, especially when it comes to small business banking.

In the last few years, they explained, there has been a democratization of technology that makes high-tech tools, like data analytics and web development, highly accessible to smaller banks.

“There is quite an advantage to being smaller in today’s market,” Lee said. “If your head’s in the right space, you have access to data and to technology, and you can move quickly.”

Florida-based Seacoast Bank has $3.5 billion in assets, according to company figures. That’s compared to Bank of America’s more than $2 trillion in assets, for example.

Despite such a difference in terms of financial resources, community banks, the Seacoast executives said, have a leg-up on their giant competitors.

Lee said it’s a “little known fact” in the banking world that community banks often team up with other providers. In Seacoast’s case, the Florida bank works with Fidelity National Information Services (FIS).

“FIS has enabled a lot of different technologies that we can tap into if we want to,” he said. “There may be a perception that small banks can’t compete, but we have access to the same technology as every other bank. We’re also small enough to be able to implement and execute and refine a lot easier.”

According to Hudson, Seacoast’s main competitors are actually Bank of America, Wells Fargo and the like — not other community banks. But not every small financial institution is ready to compete in the big leagues, he said. While small banks certainly have access to technological resources today, not every one is making use of that access.

“Most community banks are not thinking about using technology to enable massive changes in how they come to market,” Hudson stated.

When it comes to making use of the innovations available, Hudson explained that there is more than one way it can help a community bank get ahead.

Of course, technology is key to providing small business customers with the digital and online banking tools they not only want but they need and expect today, the executives explained.

Hudson noted that, just three years ago, it may have been more of a challenge for small banks to compete with larger FIs for small business clients. Today, however, SMEs have the expectation of solutions like online banking platforms, online resources for loan applications, better customer service and mobile tools, like remote deposit capture.

“They expect that today. Three or four years ago, small businesses didn’t have that expectation. Now, they do,” the CEO said.

But this technology also helps community banks be smarter about who they’re working with. For example, the executives said, data analytics capabilities enable banks to more efficiently sort out which small businesses they should be working with and which SMEs are appropriate for their risk models. Banking technology also helps community banks reach out to small business customers through multiple channels — online, mobile, phone and in-person.

“The key here is it’s less about the technology that’s widely available and it’s more about transforming how we come to market in a way that’s far more convenient and relevant to our customers,” Hudson said.

When given the choice, small businesses will pick a community bank because they give clients the attention they can’t receive from a multinational firm, the executives said.

“Small businesses are looking for all of the routine matters to be handled quickly and efficiently and, secondly, looking for a relationship with a banker that they can call upon from time to time when they need advice,” Hudson said.

But when community banks aren’t taking advantage of technology to provide the level of banking technology and services SMEs expect — and to help the bank itself manage clients, mitigate risk and assess their performance more adequately — they’re losing out on market share.

According to Hudson, this may be because the banking and financial services space has evolved so quickly — that community banks still perceive small business customers as the way they were only a few years ago.

“The entire business model that we traditionally operated on up until about five years ago is no longer relevant in the environment that we see ahead of us,” Hudson explained. “That business model was developed around face-to-face transactions, people walking into physical facilities.”

There was no data analytics involved, which today, Hudson described, is a “foreign” concept.

And while only a few years ago the executives said it may have been difficult to convince a small business that a community bank can provide service at the same level — and even at higher levels — than major FIs, today, SMEs simply expect even their local branches to be up to standard.

“Banking local is about not having to give anything up,” Lee said. “It’s the same level of service.”