Digital investments give small banks deeper borrower pool

With fewer customers showing up in branches for coffee and local gossip, some community banks are digitally transforming themselves to bring Main Street to people’s homes.

The investments acknowledge the risk and reward of online expansion. Even at the community banking level, competition abounds, but there’s potential to reach clients outside of the branch footprint.

“When you look at the traditional channels, you have to understand the dynamics are changing,” said Teri Ginther, chief operating officer at Emprise Bank in Wichita, Kan. “The challenge is not only to stay relevant, but have the leading-edge digital services as well.”

The $1.7 billion-asset bank has taken several steps toward that edge, Ginther noted, including investing in an e-signature platform for loans from the digital vendor IMM and undergoing a “significant core conversion” with FIS. It is also experimenting with new branch designs, and aims to add universal bankers equipped with tablets and videoconferencing with remote, centralized experts.

“There are lots of things we are thinking about in terms of digital,” Ginther said.

In July, SourceMedia Research surveyed 304 chief information officers from banks, credit unions and other financial institutions with assets ranging from less than $100 million to more than $10 billion, and nearly 70% said they planned to spend more on technology in 2017.

Emprise Bank’s e-signature product is set to go live on Nov. 6. The bank initially looked to beef up its digital lending capabilities in light of strong growth in both commercial and consumer loans in the past several years, said Elizabeth Crawford, credit strategy manager at Emprise.

“We’ve experienced good organic growth, and so we really wanted to digitize our loan process,” she explained.

The bank declined to say how much it invested in these digital products, but Crawford noted that Emprise looked at the investment as a way to gain competitive advantage and potentially expand its customer base outside its current geographic footprint.

“We looked around and saw that there are not many community banks” digitizing the lending process, she said. The upgrades “also position us to pursue customers outside of our market area. We haven’t made a final decision on that yet, but now it’s something we can look at.”

That’s a sentiment shared by other community banks. For example, the $97 million-asset Surety Bank in DeLand, Fla., this year ditched its legacy core systems vendor to move to startup, cloud-based core provider Nymbus. Part of the reason it did so was to reach well beyond its three branches in central Florida.

“Community banks don’t just compete against banks in their immediate community. We now compete with every bank, whether it be bricks-and-mortar or internet-based, credit unions, payment processors, credit card companies, investment houses, fintechs, peer-to-peer payments, you name it,” said Ryan James, Surety’s CEO.

“It is easier now to conduct your life and finances without a traditional bank account than ever before. We must have a seamless digital solution that integrates into people’s everyday life.”

Crawford noted customers have increased expectations when it comes to lending, in large part due to experiences with online lenders that tend to offer quick decisions and digital-first experiences. The new digital capability will give Emprise’s customers the ability to apply for a loan entirely via the digital channel, as well as reduce paper-based processes in the back office.

“Customer expectations have been changing over time, and people want to conduct more transactions digitally,” Crawford said. “This will let them originate and close the loan completely electronically.”

Pursuing a digital strategy could be a relatively inexpensive way for a community bank to expand, said Ed O’Brien, executive vice president of research and strategy for ath Power Consulting.

“I think it’s a way for many of them to expand their reach beyond their branch footprint,” he said. “It’s less expensive than building new branches to establish a new footprint, and if they decided they wanted a physical presence in an area where they have a large presence of digital customers they could maybe open a mini-branch there.”

Such digital investments make sense for community banks, as long as they can still retain that local feel in a digital environment, O’Brien added.

“There’s a lot that self-service customers can do with digital which reduces the need for human intervention,” he said. “For many community banks, that’s helpful, as most don’t have 24/7 contact centers. At the same time, their value proposition is personalized service, so they have to try to translate that to digital.”