Far from 'Crushed,' Community Banks Punch Above Their Weight
Technology, like mobile banking and credit scoring, has eroded any strategic advantages small banks once held in serving small businesses, industry experts say.
Big banks have discovered that mobile banking is their best bet for combating deep consumer distrust and rampant turnover. Small banks can overcome their lock on mobile by playing up the strengths of their existing business model.
Despite American Banker's sensational headlines to the contrary, the common knowledge about community banks and small-business lending is actually still true. Community banks are still specialists at small-business lending. They still attract small-business customers with their expertise and one-on-one face-time. And they have been building on their mobile banking offerings, among other technologies, to continue their reign as the lenders of choice for small businesses.
Say what you will, but the facts and the experiences of community bankers and small businesses on the ground tell the full story.
For starters, community banks continue to punch above their weight when it comes to lending. The fact remains that while community banks comprise just 20% of the banking industry's assets, institutions with less than $10 billion in assets provide nearly 60% of the industry's small-business loans. According to the Federal Deposit Insurance Corp.'s third-quarter 2013 industry data, small-business lending at banks with less than $1 billion was up 3.8% from the previous quarter and 3.0% from the previous year. At banks with more than $100 billion in assets, lending was down 0.8% in the past year and a whopping 9.5% from the second quarter.
The Treasury Department's recent report on the State Small Business Credit Initiative offers further evidence. According to the data, community banks and Community Development Financial Institutions made nearly 90% of the dollar volume of small-business loans under the initiative. Community banks alone accounted for nearly 60%. Community banks originated 1,853 loans under the program, while CDFIs accounted for another 2,008. Large banks, on the other hand, originated 403.
When they're not working with small businesses to create jobs and promote economic growth, community banks have been busy expanding on the technologies they offer their customers. According to the 2013 ICBA Community Bank Payments Survey, the number of community banks offering mobile payments more than doubled in the past two years to more than a third of all community banks. Another 43% plan to introduce mobile payments by next year.
Further, ICBA's 2012 technology survey revealed that community bank concerns with new technologies aren't operational, but regulatory. Regulatory compliance was the top technology concern for 82% of community banks surveyed, which was the same rate as in ICBA's 2010 tech survey.
Community bankers, which are themselves small businesses, obviously remain committed to their small-business brethren, which are the lifeblood of local communities across the nation. The data back that up. And I can tell you firsthand that small businesses remain committed to their community banks.
In 2009, when the financial crisis was in full swing, the Small Business Administration rolled out its America's Recovery Capital program to promote small-dollar loans to help keep small businesses from going under. At the time, I was the CEO of a community bank in rural North Dakota. After I expressed interest in the program in a news report, my community bank got dozens of calls from small businesses across the country looking for a loan. Many were customers of the big banks and had their credit cut off when the going got tough. Community banks, as always, were the last lender standing. With small businesses, it's like a marriage we're in it for better and for worse. We're a partner, and we're committed for life.
The community bank-small business relationship is not just a story we like to tell. It isn't a fairy tale that we can grow out of. The truth is that community banks are making strides in mobile technologies. This isn't so they can keep up with the megabanks, it's so they can continue meeting the needs of their customers. Because community banks are small businesses themselves, it is in their best interest to keep their customers' best interests a top priority.
That is the true story. And as you can see, the facts back it up.
Terry J. Jorde is senior executive vice president and chief of staff of the Independent Community Bankers of America.