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Community Banks Can 'Up Their Game' With the Right Digital Lending Partner

Posted by Jeff Harper, President, BSG Financial Group on May 18, 2016 8:00:55 PM

American Banker published another article last week about the opportunities that exist for community banks to enter the digital lending space, which is now almost exclusively dominated by marketplace lenders, such as LendingClub and others.

Marketplace lenders are the online outlets that pair borrowers and lenders through the use of a digital platform without a traditional bank intermediary—often underwriting and delivering loans outside traditional bank debt capacity and coverage ratio underwriting and pricing. They are generally considered rivals to community banks, siphoning off customers who choose convenience over often high interest rates (some as high as 29%).

The article, entitled, "Marketplace Lending Was Just What Banks Needed" points out that, despite some recent bad publicity, marketplace lenders have succeeded in filling the needs of consumers who crave the convenience of being able to apply for a loan digitally and get funds quickly. Their focus on automating the small business lending process has helped them double their outstanding portfolio balances every year since 2000.

Their success has forced community banks to 'up their game' and become part of the digital revolution.

Wells Fargo, for instance, recently rolled out FastFlex, a digital, fast-decision loan aimed at small businesses, with funding available as soon as the next day. The bank developed the lending platform in-house, as part of its overall commitment it made in 2014 to lend $100 billion to small businesses in the next five years .

But how can community banks—lacking the deep pockets of a Wells Fargo, and whose commercial lending areas are some of the least automated in the company—suddenly 'up their game' to compete with marketplace lenders?

How can they profitably deliver small business loans under $100,000, when doing so can cost between $3,000 and $4,000 to obtain, set up and monitor?


 “Banks need to accelerate investments in digital lending
if they are to avoid a material decline in profits and loss in market share.” 

Bain and Company, December, 2015


 As the American Banker articled stated, "If they [banks] are able to address the speed and convenience issues, they have the embedded confidence of incumbency on their side. They also have a cheaper cost of capital." In other words, combine proven digital lending technology with your institution's trusted branding and positioning in the marketplace to grow your loan portfolio from existing customers.

Luckily, this can easily be accomplished with the help of a digital lending partner (defined as one that offers a turn-key application that automates processing, set up and delivery of smaller loans, often to specific market segments, i.e. small businesses). The end-to-end systems are not complex and offer application and account set up in minutes with funding in a few days or less.

These digital delivery systems create never-before-seen efficiencies (like eliminating paper work and loan officer involvement), so your institution can profitably fund and manage smaller dollar, unsecured business loans (up to $50,000) at a fraction of the cost of manual and paper processes

cost-to-underwrite-loans.png

What kind of Digital Lending Partner can get you into the 'game' quickly? 

One that has proven success in the small business lending arena, and that:

  • Allows your bank to manage the system under your brand and control
  • Keeps the loans on your balance sheet as earning assets
  • Accepts online applications by computer or mobile phone
  • Provides approvals in an instant, funds in just days
  • Monitors loans, deposit activity and credit information
  • Handles loan renewals

The key is automating the entire process so smaller dollar loans are profitable, and your business customers get the rate and terms they prefer (yours), but with the speed and simplicity of marketplace lenders. 

Indeed, with the right digital lending partner, it's 'Game On!'

For more in depth information about how your financial institution can partner with a digital lending expert, contact us at (502) 581-1511, ext. 239.


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