March 3, 2015

Community banks must innovate or perish

Community banks need to either innovate or face extinction in the current environment, according to several industry participants who spoke at the American Bankers Association's National Conference for Community Bankers.

Bank Innovators Council
While many of these smaller institutions have failed to take the bull by the horns in terms of reconsidering how they cater to the market, one resource they can harness is the Bank Innovators Council, according to American Banker.

Late last year, JP Nicols and Will Trout, who previously worked as executives for U.S. Bank and BBVA Compass, formed the council, which helps banks collaborate to develop and test different tools, American Banker reported. 

Nicols emphasized the importance of innovation in a statement and also spoke to the pressures that would discourage such activities at banks. 

Innovation challenges
"Banks need to innovate new ideas to stay competitive, but doing that inside of banks is hard," stated Nicols."FinTech (financial technology) companies have venture capitalists, incubators and hackathons to support them, but banks are on their own." 

Not only are banks in general facing challenges that can stifle their creativity, but most community institutions don't even know what resources are available, Troy Morrison, Bank Innovators Council's chief marketing officer, told American Banker. 

Bold new projects
In spite of these difficulties, some organizations are taking on bold new projects, American Banker reported. In October, Boston-based Eastern Bank selected 800 small business customers from a larger group of commercial clients and then gave them preapproval for business loans. These customers held deposits at the bank but had no loans from the organization. 

Eastern Bank granted financing to approximately 50 customers with scores as low as 500, and Richard Holbrook, CEO of the Boston-based financial institution, emphasized that the organization made a brave move by giving funds to those without a great credit history. 

While pay for staff and other resources devoted to innovation may be prohibitively costly for some institutions, Trout emphasized that his council can help fill their crucial need. 

Innovation gathers steam
Fortunately, it seems as if the need for innovation is gathering steam, as banks across the world have been crowdsourcing different projects, according to American Banker. 

While community institutions can turn to many different possibilities in order to shake things up, one avenue they might want to go down involves searching for new ways to add loans. 

To increase their chances of acquiring loan portfolios that coincide with their investment objectives, these smaller banks can work with Garnet Capital Advisors, a loan sale advisory firm whose principals have years of experience helping bankers enter new markets.