Why Community Banks Should Digitize, and Why They Should Do So Fast.
The Impact of Covid on Finance
In the early stages of the coronavirus in 2020, not only was the virus itself a threat to the general public, but the threat of losing small businesses due to the nationwide lockdowns. As many started to lose their homes and their jobs, the government and banks needed to find a solution to the pandemic’s impact on society. According to the Federal Reserve Bank of Richmond, since banks are required to put aside provisions, or funds that cover losses on loans, banks across the nation started to increase their provisions as early as March of 2020. This data shows that banks were prepared to become more lenient about giving out loans in this time of need because of the pandemic and the limitations put on society during that time. This data also implies that banks would have been able to withstand the losses and maintain their amount of requirements. Therefore, since banks have been continuing this level of higher provisions, credit scores have become less and less stigmatized in the financial market, and lenders now look at more than just a credit score.
The Increasing Sentiment of Community in Today’s Society
Following the pandemic, there has been a nationwide emphasis on a sense of community due to the loss of contact for many during the pandemic. This was not only in a social aspect, but was also seen in a local sense as well. Just as people started to purchase more from smaller businesses during the pandemic in order to support their local communities, many also started to depend more on community banks as well. With the Paycheck Protection Program, Congress allotted $350 billion in loans for small businesses during the shutdowns. Although community banks only hold just 15% of the total loans in the banking system, The Financial Times states, they processed about 60% of the program’s fundings, meaning the majority of people relied on local banks for their funding. This statistic conveys how during and still after the pandemic, due to the heightened sense of community, more and more people relied on community banks. This in turn shows how since the vast majority of the public have started relying on banks with less stringed requirements of approval for loans, credit scores do not have the same impact on loan approval in recent years. Therefore, financial industries need to start processing loan applications by looking at more than just a credit score, and that requires technology.
Changing Technological Needs
While community banks have become more frequently used these past few years, they still somewhat lack the online banking systems that most national banks use. According to Time, with advanced technology, smaller banks and lending businesses can advance their online systems with new software that can increase their efficiency and their incomes.
The sudden increase in borrowing from community banks has also increased the urgency for technology in these banks in order to process loans better and faster. However, implementing modern-day technology, like AI, requires a big investment in resources and – most importantly – time. This begs the question–Can community banks implement these technologies faster?
Scorelate has been able to create completely autonomous software, allowing businesses to run the system without any tech experts, making this software easily adaptable to any financial company. With this new advanced technology, lenders and financial institutions can now implement advanced AI technologies in their business in an affordable and easy way. They can run personalized analyses and behavioral predictions as well as simulate and get recommendations on different possible scenarios.
With these new improvements in the technology realm, community banks could keep up the growing demands without changing their business workflow or even investing much in technology in no time.