Taking Care of (Small) Business: What’s the Future of Post-Pandemic Banking?
Five highlights from an insightful webinar co-hosted by Intralinks and LendIt.com.
10 August 2020
Since the Paycheck Protection Program (PPP) launched on April 3, 2020, we’ve heard feedback from borrowers, lenders, legislators and other participants across the board. I recently participated in a panel discussion with representatives from Silicon Valley Bank (SVB), Cross River Bank (CRB), Lendio and LendIt on the involvement and impact of fintechs on PPP. We reflected on learnings from the last four months and shared our thoughts on what may lie ahead for banks and lending going forward. Below are five learnings from the session.
1. COVID-19 and PPP were major tests for the financial services industry.
“Unprecedented” has been overused to describe what has happened since the World Health Organization declared COVID-19 a pandemic in March, but it certainly captured the panel’s sentiment around how we all mobilized for PPP. Global, regional and fintech banks alike had never experienced the volume of loan applications and pressure to process them quickly. I shared that one of our bulge bracket clients reported applications were ten times than in the normal course of business. Denny Boyle, managing director at Silicon Valley Bank, said they received 8,000 indications of interest in one day. Similarly, Phil Goldfeder, SVP at Cross River Bank, reported receiving about 6,000 IOIs on the first day.
The consensus among the panel was that fintech and tech-focused banks have fared better in getting business done amid COVID-19 — as evidenced by fintechs being among the most active in PPP issuance (including co-panelist Cross River Bank, whose institution emerged as the number four PPP bank). Denada Ramnishta, SVP at Lendio, an online marketplace for lenders and borrowers, pointed to the rigorous audits and evaluations as part of the bank’s vetting process as a success factor to fintechs like Lendio well-positioned for the current situation. “Those companies that have gone through bank/financial institution ‘compliance colonoscopy’… PPP proved that process became a competitive advantage.”
2. Higher bar to move quickly but beware of taking shortcuts when it comes to security
During the first round of PPP, applications came in fast and furious. The first round of the program’s initial funding ran out in 14 days. There was enormous pressure for banks to move fast, meaning that shortcuts were likely taken.
For example, some big banks told borrowers to simply send their applications via email, a method known to be not secure when sensitive personal and business information is involved. There are reports of rampant fraud related to PPP; some potentially from exposure of usernames, passwords and other sensitive information.
All panelists agreed: speed, efficiency and automation are important, but security and risk management — key underlying tenets in borrowing — need to be adhered to.
3. “Partner or perish”: stick to what you know and engage partners for everything else
The panel acknowledged that their firms operate under the principle to embrace core competencies and rely on third parties when additional expertise is needed. This goes for both the bank as well as the vendor or partners engaged by the bank. Denada from Lendio said, “It’s critical on the security info[rmation] front to be able to partner with players that are at the forefront, are dynamic, are staying on the cutting edge of ensuring proper protection for their customers.”
On the bank side, Denny from SVB said that banks that choose to buy or acquire instead of partner might face long and difficult integration periods. Having been involved in implementing secure file-sharing for one of the top PPP issuers, I noted that large banks and organizations can be as nimble as the fintechs and smaller firms as long as they can quickly collaborate in the areas of procurement, vendor risk management and implementation. And they can use their deep bench of resources and breadth of tech stack to their advantage.
4. Technology has democratized banking and lending
Or, in the words of Phil from CRB: “This exercise [PPP] proved that fintech was the great equalizer.” He explained that there’s a whole new group of small businesses that never would have thought to go online for a loan pre-COVID-19 but now recognize the value of fintech and tech-driven banks. And that’s not just for borrowing but also support for contactless payments, point-of-sale, etc. — all while keeping them and their customers safe. “Banks that don’t want to automate … they’re not going to last much longer. If they don’t find ways to automate, they’re going to start losing borrowers.”
Denny from SVB shared, “COVID[-19] has brought a great awareness to fintech in general … [we’re seeing customers] who might have been reluctant to come on to a bank they’ve never heard of and couldn’t drive to and are now open to fintech.” They realize the experience can be better, still keeps them safe, streamlines processes and protects information.
Denada offered a caveat: “Prudent innovation” is important and referred to fintech lenders that were too aggressive in terms of automation only to lose customers or completely go out of business.
5. High-tech doesn’t mean low touch
As the banking landscape transforms to incorporate more automation and digitization, the panel agreed that there are some limits to this within underwriting and lending. For example, larger loans may not be suitable for automated underwriting and personal collaboration will still need to come into play. When asked about lessons learned from the PPP/COVID-19 experience, I shared that the key to success in this environment is digitizing and automating the right processes by bringing in the right partners, all while maintaining personal relationships with and leaning on core expertise to help small business clients.
A shared sentiment throughout the discussion was that the panelists and the firms they represented — along with their bank and technology partners — were energized by the ability to help small businesses amid the pandemic. Despite the criticism and initial problems around PPP, it was critical to the survival of hundreds of thousands of businesses — and the fintech community rallied around this mission.
Peter Keevil is sales manager for the banking and securities segment, North America, at Intralinks. Prior to this role, he managed Intralinks sales teams covering banking and securities and investment banking for the EMEA (Europe, the Middle East and Africa) region.