prepare bank for industry disruptionsIf businesses have learned anything about staying relevant in the 21st century marketplace, it’s that you must learn how to deal with disruption. Perhaps the biggest disrupter of all, Amazon, has transformed entire industries since it started out selling books online more than two decades ago. More recently, companies like Uber and Airbnb are turning the taxi cab and lodging industries upside-down.

Banks Aren’t Immune
The banking industry isn’t immune to the effects of business disrupters. A whole new slate of financial services providers has popped up in recent years to challenge the traditional banking model of providing loans, checking and savings accounts, and other financial products.

Fintech companies are emerging as perhaps the biggest threat to traditional community banks. Fintech firms use the latest online technology to provide loans, insurance, savings and investment products, and funds transfers and payments more efficiently and at a lower cost than banks often can.

Fintech disrupters include many well-known companies such as marketplace lenders OnDeck and LendingClub, robo-advisors Betterment and Wealthfront, and payment processors PayPal and Square. They are using technology and the Internet to deliver financial products and services both faster and cheaper.

Young entrepreneurs and small business owners are especially receptive to doing business with fintech companies, as conducting financial transactions online comes naturally for them and many see little value in working with a traditional bank or a brick-and-mortar branch.

Strategies to Compete
What can your community bank do to compete with these fintech disrupters and preserve and grow your market share? Start by emphasizing your biggest competitive advantage against fintech companies: your ability to add the personal touch to relationships with your customers.

Marketplace lenders might be able to approve loan requests in minutes, but they can’t offer the kind of personal, value-added service your bank can. Your bankers should focus on fulfilling their role as a trusted business advisor, not just a provider of financial transactions.

One of the best ways to do this is to turn what some borrowers view as a negative when borrowing from a bank — the need to provide comprehensive financial information along with a loan application — into a positive. You can do this by using the information to show borrowers how to operate more efficiently and thus boost their sales and profits — of course, without telling them how to run their business, which could possibly expose the bank to liability.

Maximize Your Advantages
Here are a few more strategies for maximizing your competitive advantage of being a trusted business advisor:

  • Help your borrowers benchmark their performance against competitors by providing them with competitive industry information such as that provided by IBISWorld, First Research and RMA Statement Studies.
  • Offer guidance to help borrowers determine the best type of loan for their financing need.
  • Show borrowers how additional bank products and services beyond loans can help them meet other business challenges and needs. These include treasury management, wealth management and merchant processing services that often aren’t offered by fintech competitors.

To free up bankers to be trusted business advisors, you should remove any steps in the credit evaluation process that don’t add value for the customer. This involves taking a page from the fintech playbook and using technology to automate these processes whenever possible.

Also, work on simplifying your loan application process and shortening your loan approval time as much as you can. And take steps to reduce your loan underwriting and funding costs, especially on small business loans less than $100,000.

Plan for Disruption Now
The list of bankrupt companies that were unable to adapt to the disruption caused by Amazon and other disrupters is long and keeps growing. We don’t know what the future holds when it comes to financial services disrupters, but now is the time to plan.

Give us a call if you would like to discuss strategies for dealing with disruption in more detail 417-881-0145.