Across the banking industry, a host of lenders have been slow to embrace digital transformation, continuing to lean into the traditional methods and risk-averse strategies they know so well.
But COVID-19 changed everything as the world went contactless. The small businesses that weathered the pandemic the best are those that have embraced digital —and the small business lenders that service them like community banks should be following suit.
Consider the following: in mid-2020, Comcast reported the highest ever number of high-speed Internet hookups in the last 13 years (Washington Post). Nielsen reported a 75% boost in streaming content, and eCommerce sales increased by more than 30% in Q3 2020—accelerating online shopping by nearly two years (eMarketer). While the rest of the world is going online in ever-increasing numbers, too many community banks are still doing things manually.
Then of course there was the great Paycheck Protection Program (PPP) distraction. Although the PPP was a lifeline for countless small businesses, the non-stop volume of applications and inquiries forced many community banks into an all-hands-on-deck exercise. Any digital transformation efforts went to the back burner.
So, how do small banks now adjust their strategies and get a seat on the digital train before it leaves the station? Let’s take a look at a few lessons community banks can learn from small businesses that survived (and even thrived) during the pandemic.
Don’t delay digitization
There are two ways to view digitization—you can embrace it or resist. But many of the most successful stories from this pandemic are from businesses that lept with both feet into the new digital reality.
Take TeamBuilding.com, for example. In February 2020, the Washington-based company was producing $250,000 a month in revenue by hosting a variety of organizational team-building activities and events. By March, that number sunk to zero.
Necessity being the mother of invention, they pivoted—fast. “We saw a surge in interest in ways to connect and engage remote workers,” CEO Michael Alexis told USA Today. The company pivoted, offering virtual activities using online platforms like Zoom and injecting a bit of creativity—as with “Tiny Campfires,” where the company mails s’mores kits to employees and leads games and ghost stories on a video chat. The result? The company is now generating more revenue than before the pandemic—and proudly calls Apple, Amazon and Google clients.
The lesson: Don’t delay your embrace of digital—especially not now. Competitors to community banks are springing up everywhere in digital-first companies like Stripe, Square, Venmo, Brex, and more—even the Wall Street titans are nervous.
Test and iterate
While embracing digital is the new mandate, it doesn’t mean success is a given. With the data insights that digital platforms provide, community banks can tailor their loan offers for optimal impact.
Just look at a small business like Allegiance Flag Supply. They began their eCommerce business in 2018, selling domestically-made American flags. The niche business didn’t exactly take off. “Crickets,” is how co-founder Max Berry described their initial online launch to the New York Times.
But struggling to find product-market fit didn’t stop the team. They continued to test their offers and marketing messaging over the next year, learning what worked and what didn’t, and seeing gradual gains until just before the pandemic.
Then, they struck gold with a 4,000%—yes that’s three zeros—increase in growth. Granted, the timing was right, but they’d also invested efforts beforehand, experimenting not so much with what they offered, but how they presented it.
In the case of lenders, embracing a digital lending process is an essential step—and a data goldmine. By having all your data digitized, you can analyze KPIs to see where there are pain points, which small businesses are the most receptive, what yields the highest take rates, and more. Lenders should be serving their small business customer base with fast, convenient, and easy-to-use digital solutions to strengthen existing relationships and lay a foundation for profitable growth—just the way these small businesses did for their own customers.
Jorge Sun is CEO and Co-founder of LendingFront. Jorge started the company in 2015 after spending time at Capital One as Head of Small Business Credit. He previously was part of the founding team of OnDeck, where he served as Chief Credit Officer.