Building a strong foundation to stay competitive during economic uncertainty

Community banks are facing unique circumstances when it comes to determining business strategy. High interest rates have receded loan demand, and while this has caused bankers to reconsider their priorities and budgets, longstanding issues of talent shortages and industry disruptors fighting for market share still require their attention. 

It’s easy to push these concerns to the backburner with high loan demand and strapped teams. The idea of allocating resources to launch new tech solutions can feel like layering challenges on top of more challenges. So, while slowed loan growth is still a challenge, this slower period also presents an opportunity for community institutions to evaluate and optimize their processes. 

It’s a lot of pressure to solve existing industry challenges and stay competitive while dealing with economic uncertainty and shifting consumer habits and trends. Ensuring banking operations, processes and technology are running as efficiently as possible can help community institutions emerge from a downturn stronger than ever. Here are recommendations on where to start. 

Reinforce your foundation 

In a volatile market, business strategies usually take a defensive approach—lowering credit risk in underwriting, reevaluating new product offerings and optimizing staff. But this is not enough to strengthen a bank’s competitive position while retaining loans and customers. Before jumping into defense mode, institutions should start with an offensive strategy—using this time to evaluate their lending foundation and whether they are ready to build on top of it.  

During a NASCAR race, maintenance is necessary to win, but drivers don’t try to change their tires and refuel while driving at full speed. They have to take a pit stop. This period of slowed loan growth is an opportune time for that pit stop, prioritizing building a solid foundation, optimizing structural processes and getting operations, credit admin and loan ops teams running smoothly. Only then will it be effective to start layering technology on top of those processes.  

Institutions often purchase technology to fix a symptom and not the root cause of a problem. Establishing a clear pulse on processes and operations at the foundational level will help determine where the biggest pain points lie and which solutions to prioritize. 

Think holistically when looking into tech

When looking into new technology and partnerships, it is easy to get distracted by a flashy new tool and not fully consider how it could impact all sides. Before getting in too deep, banks need to take a step back and evaluate what the long-term and holistic goals for the partnership and tools are, considering whether they have the foundation in place to actually get the tool up and running smoothly.  

To ensure tech is truly optimizing processes, banks need to consider both front-end and back-end processes. Assess if the tool can be built upon, or if it will only solve a piece of the problem. For instance, if an institution purchases a new loan origination system (LOS) that streamlines front-end processes like onboarding and loan origination, but they haven’t built the back-end foundation that can handle this type of tool or the volume it will generate, the bank could inadvertently create new challenges and inefficiencies. It’s a similar concept to buying a new Ferrari but keeping the engine from your ’95 Corolla—the user experience is now clunky and inconsistent.  

It’s also key for banks to identify not only the right technology, but the right partner. How the vendor works with the bank is as important as the technology itself, so the right questions must be asked to determine if a partner is the right fit. Many institutions create a checklist of their desired products, features and capabilities when vetting vendors, and they choose the vendor that checks the most boxes. But few ask how the vendor is going to help them get the product up and running and ensure a successful rollout. For a good partnership fit, the vendor needs to understand the bank and change management and will work with the bank to successfully launch a new technology. 

Personalize the renewal process 

The renewal process at many financial institutions tends to be time-consuming, manual and impersonal for the customer. Now, with interest rates at 7 or 8%, the cost of money and loans rising and competition at an all-time high, it’s become critical for community banks to make this process as streamlined as possible for their customers. 

The “high tech, high touch” approach is still key for community banks’ success. One of the main reasons people love working with their community bank is for the local service and personal touch. However, outdated processes can send conflicting messages about how well bankers actually know their customers. If lender-borrower conversations are primarily focused on what documents are needed, customers will likely go out and shop the loan come renewal time.  

Eliminate the bumps in the road by only asking for the type of information needed to get the loan going—and make sure this isn’t information that the bank already has. This is where automation and technology come into play. Banks can implement tools that help aggregate customer data and provide transparency into which documents they already have and which are truly needed. 

Community banks have proven their resiliency time and again. By taking advantage of the opportunity this slowed loan growth affords, community institutions can ensure their foundation and structural processes are optimized for success in all market conditions. 

Colin Savells is the SVP of Revenue at Teslar Software, a provider of lending process automation tools for community financial institutions. In this role, Colin is responsible for leading the company’s revenue growth strategy and overseeing the sales and marketing teams.