In small business lending — regardless of the size of the bank making the loan itself — a high-touch approach and in-person branch visits are “primary guidelines” for lending, the Federal Deposit Insurance Corporation (FDIC) has found.
In its 2024 Small Business Lending Survey, which relies on responses from nearly 1,300 banks received through 2022, the FDIC finds that technology is part of the process, but it’s tied to compliance and loan servicing as funds are small and medium. – business cash registers (SMB).
As for the competitive landscape, the FDIC found that banks are competing more fully with credit unions and non-bank FinTechs for small business customers. There is at least some recognition of the trend toward partnering with FinTechs: About half of banks were using or considering using FinTech in their small business lending process, the FDIC said, adding that 3 in 10 banks used FinTech within their lending process. their lending and 2 others. in 10 banks “were discussing or developing its use”.
The FDIC’s findings follow PYMNTS Intelligence’s own reporting that 65% of banks and credit unions have entered into at least one FinTech partnership, and a full three-quarters of banks see FinTech partnerships as necessary to meet customer expectations.
Overall, according to the FDIC, “technology has not replaced the relationship-oriented, staff-intensive nature of small business lending that is locally focused around branches.”
In fact, the report states, “branches and field visits are the primary channels for small business credit,” adding that “banks use and greatly value branch locations and field visits as ways to generate and maintain lending relationships for small business”. Most banks do not allow borrowers to complete their loan applications entirely online.
Elsewhere, PYMNTS Intelligence and Velera (formerly PSCU) collaborations have highlighted the value of brick and mortar branches. As mentioned here, research shows roughly 1 in 5 credit union (CU) members switched their primary financial service provider in the past 12 months – and the most influential factors driving the switch included convenience, including not having a branch local.
The value of ‘soft’ information
There is special use of what is called “soft” information for businesses. Hard information is defined as quantitative in nature; soft data are difficult to summarize in a numerical result and require context. Examples cited in the report include the “fatness” of a business plan, industry experience and knowledge of general market conditions.
Banks that rely on hard information, according to the FDIC’s analysis, “can more easily divide information-gathering and decision-making tasks, while banks that rely on soft information generally must assign these tasks to one person or a group of small number of people with specialized knowledge. of an industry or geography,” as smaller banks use more soft data than their larger brethren.
Data, we note, can be difficult to collect and difficult to synthesize, although technology is making advances along these lines. In one example, and in an interview with Karen Webster of PYMNTS, Markaz CEO Hany Fam noted that while his firm has debuted a new global business identity platform complete with hundreds of millions of data points, “parties to connect securely with each other and create real-time, mutual consent monitoring.” Markaz has built a pre-populated directory of over 300 million businesses worldwide, covering firmographic attributes, financial health and compliance, linked to 65,000 global data sources.
