Some small banks see upgrading consumer-facing tech as an imperative

Consumers seem not to be having a very good time when they do their banking. A recent report from Forrester Research found that bank customers’ opinions of the experience has been declining in the U.S. for three years in a row.

That has a lot to do with the kinds of digital technology that banks deploy. For instance, some banks make it really easy to transfer money or pay off a credit card bill. Others? Not so much. 

The report also found that customers’ opinions of their banking experience will continue declining if banks don’t continue to invest in better technology. And right now, smaller banks in particular see those upgrades as a business imperative.

Over the last year, Bankwell, a community bank in New Canaan, Connecticut, set the goal of making more loans to small businesses. But Ryan Hildebrand, the bank’s chief innovation officer, said the loan approval process was taking way too much time.

“We would have to have a conversation with them, trade emails, texts, phone calls, visits in person, and then be able to pull together a paper application to be able to say if a business can be loaned to or not,” Hildebrand said.

So last spring, the bank started partnering with a tech company to speed up its loan application process by using artificial intelligence. Now, applicants can enter a few details on the bank’s website and get a decision within minutes.

“We connect to their bank account, we are able to understand what their tax returns look like, what industry they’re in, to be able to make a quick, high-level prequalification decision,” Hildebrand said.

As a result, Hildebrand said, the bank is making more loans because the whole process is smoother.

David Schiff, senior managing director with FTI Consulting, said AI tools can also help banks price their loans more competitively so they can turn applicants into borrowers.

“To make sure that you get through all the way through underwriting and through close, with customers, because the rate doesn’t feel too high, they’re not shopping it around as much,” Schiff said.

Schiff said small banks are starting to use AI in a bunch of other ways, including deposits and  loan collection. That said, big banks are pouring money into upgraded technology too. 

Christian Ruppe, chief innovation officer at Colony Bank, a community lender based in Georgia, said his big national competitors have invested a lot in customer service technology.

“It’s only going to become easier for them because technology is making customer service easier,” Ruppe said.

Ruppe said that’s making it harder for him and other smaller lenders to compete. That’s because community banks and other smaller lenders have traditionally relied on personal relationships to bring in clients — the idea that a community banker will pick up the phone when a customer calls or that it will lend to a local business with unique needs.

But as better technology has helped big banks get better at serving customers, Ruppe said, those small bank advantages have started to wane.

“More and more you’re hearing from customers, ‘Look, we really love to work with you guys, but just so you know, it’s really hard to do what we need to do when your app won’t let us do X, Y, Z,’” he said.

That means many smaller banks feel they don’t have a choice but to upgrade.

“If we don’t make this investment, we will cease to be relevant,” said Robert James II, CEO of Carver Financial Corp., a company with two community banks in Georgia and Alabama.

James is in the middle of upgrading Carver’s entire digital platform, everything from making it easier for customers to transfer money between accounts to letting them use the bank’s debit cards in Apple Pay and Google Pay. He said a big motivating factor is that his current customer base is aging.

“We want to make sure that we have the ability to serve those customers’ kids who may not have accounts with us,” James said.

James said his bank has a responsibility to stay relevant because it predominantly serves Black customers who have historically had a much harder time gaining access to credit and other banking services.

“There’s only 23 Black-controlled banks in the U.S., and two of them are a part of Carver Financial Corporation,” James said. “If we don’t exist, then there are customers that otherwise will not have access to these critical financial services.”

James said the hope is that the new technology will help the banks get bigger, enabling them to invest in even more tech upgrades in the future.