BID® Daily Newsletter
Nov 9, 2022

BID® Daily Newsletter

Nov 9, 2022

CFI Priorities: Growing Loans and Increasing Tech Spending

Summary: CFIs say their top strategic goal is growing loans. They also say they plan to increase tech spending. Targeting more of that increased tech spending on products demanded by small businesses can help advance loan growth.

As technology continues to dominate our lives, some who are overwhelmed by pinging notifications and the inability to be unreachable, have embraced “unplugging,” when people intentionally avoid technology for a defined period of time. Many who unplug say their mental health and overall wellbeing has benefited, but it looks like the financial industry is looking to do the opposite.
For community financial institutions (CFIs), keeping up with technology appears to be a key goal. In a new survey by Jack Henry, three of four CFI executives said they plan to increase tech spending over the next two years. Curiously, only four in ten said adding new digital products was their top priority. Instead, they named growing loans as their most important goal for 2022, with 67% saying loan growth was their top strategic priority.
The seeming disconnect between spending priorities and strategic goals highlights the challenges CFIs face trying to adapt to rapid technological change, while also churning out revenue and profits. If your top goal is growing loans, then small business lending is where you’ll find it as a CFI.
Technology, on the other hand, is often regarded as a necessary expenditure to help with operations. In the survey, executives said much of their increased tech spending would go toward the back office for things like automation, security, and fraud prevention. If there is a return on that investment, it would seem to be primarily in increased operating efficiency.
Merging Loan Growth with Technology

Drilling down into the tech spending-lending growth dichotomy can yield some ways these two areas of interest might be compatible. Tech spending can, in fact, help a CFI with its strategic goal of growing small business loans.
For starters, CFIs can examine what small business executives want from their institutions these days. Some things remain the same, but there have been some important shifts.
  1. Small and medium businesses have been rapidly switching to digital models. Since the onset of the pandemic, more than half of small businesses have changed their business models, according to an EY survey, with most of them adopting more digital methods. As they go more digital, they need their banks to keep up by offering digital channels that align with their new models. That goes for payments, account services, and other functions. The good news in the EY survey is that 62% of small businesses said their banks offered a “streamlined digital experience.” The bad: only 19% were highly satisfied.
  2. In response to demand, the number of digital lenders to small business is growing exponentially. In July, FinTech Labs ranked just the top 30 alternative lenders to small businesses. One of the biggest, Nav, recorded more than 1MM unique visits. What the growth of alt lending sites suggests is that failure to provide top-class digital lending products for small businesses could put a CFI at a distinct disadvantage.
  3. Despite the growing demand for digital services, small businesses still value the personal touch of a CFI. They want a CFI that understands their business and their needs, that offers excellent personal service, and that shows an interest in helping them succeed.
Strategic Approach

What all this suggests is that a strategic approach to small business lending should include a first-rate digital offering (including new tech products as needed) combined with a solid core of seasoned lending pros who can provide personal, community-based service.
A CFI that focuses its tech spending primarily on the back office might be able to improve its own operating efficiency. But that tech spending, invisible to outsiders, won’t do much to impress small business owners looking for new, up-to-date digital solutions.
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