The coronavirus pandemic and the federal government’s Paycheck Protection Program aimed at helping businesses weather the crisis have fueled a rapid shift in the banking industry with some well-positioned for change while others find themselves in need of innovation.
Financial institutions throughout the pandemic have been pressed to find ways to deliver products to customers digitally or improve upon products already at their disposal.
As banks dealt with an influx of PPP applications in a short period of time, technology in part dictated the volume and speed at which they could process loans.
The rush to process loans proved to be a “big gotcha” moment for financial institutions, exposing the weak points of banks, particularly smaller-sized community banks, that were ill-equipped to serve customers digitally, said Kent Belasco, a former executive at First Midwest Bank and director of Marquette University’s banking program.
But many fintech companies found the PPP loan process to be right in their wheelhouse. In addition to disbursing PPP loans themselves, some fintech companies are selling digital solutions to smaller banks that may have had a platform to administer those loans.
“I could see where (fintech companies) look at this and see this as an opportunity,” Belasco said. “Strategically, that could put them in good stead to be a competitor with the banks going forward.”
The financial institutions that processed the most PPP loans for Wisconsin companies included local industry leaders BMO Harris and Associated Bank, along with multiple out-of-state fintech companies including Atlanta-based Kabbage, Inc. and Fort Lee, New Jersey-based Cross River Bank, according to BizTimes’ analysis of U.S. Small Business Administration PPP loan volume data.
For financial institutions that went to great lengths to adopt new technologies, Belasco said they will use that experience to their advantage down the road.
“If a pandemic does happen again, we should be prepared,” Belasco said. “And I think banks are already thinking in that direction.”
Meanwhile, industry experts are taking stock of how the pandemic has accelerated the use of technology in every day transactions.
At Old National Bank, clients who previously hesitated to use remote deposit capture to deposit funds have now signed up for the program in droves, said Kevin Anderson, Wisconsin region chief executive officer at Old National Bank. Clients have also turned to online treasury management tools and want more guidance on how to transact more business online, he said.
As customer behaviors change due to the work-from-home environment, banks are tailoring strategies and products to meet their needs. At Old National Bank, that has looked like enhancing its ability to execute loan documents and treasury management agreements using electronic signature, Anderson said.
Jeff Roseland, who heads Old National’s SBA operations, said the coronavirus crisis has highlighted the industry’s agility.
“We can move smart and we can be prudent, but I also think we can move fast,” Roseland said. “We should continue to apply that sense of urgency within our bank to the benefit of our borrowers and our communities.”
Financial institutions are also likely to see a shift in their customers in the wake of the coronavirus and PPP process, according to industry experts. Several banks were accused of demonstrating favoritism by prioritizing their larger or high-profile clients during the first round of PPP loans.
“It’s out of these emergency situations where it disrupts what relationships did exist out there,” Belasco said. “Because of the delays and their immediate need, (small businesses) started shopping around to find a bank that would talk to them.”
Phil Rehberg, owner of Waukesha-based recycling company Allied Resource Recovery Inc., said his business received funding in the first round of PPP, with his bank processing the loan in three days. Rehberg said he knows of other business owners, particularly those with small-sized companies, who were not as fortunate, including a local landscaper whose needs were not immediately met by a larger bank.
“Here you have a big national bank that doesn’t want to bother with (PPP) because this was a very small business, this landscaper, but then you have a small local regional bank that was able to jump in and long-term they’re going to have a customer,” Rehberg said.
The pandemic experience has highlighted the importance of relationships between bankers and small business owners as they navigated the challenges that neither of them could have foreseen, Anderson said.
“The level of engagement because of the COVID crisis itself gives us the opportunity to have an even deeper conversation with our clients about some of the hurdles they’re facing,” Anderson said.
What remains to be seen is whether the amount of federal funding injected into the economy will be enough to keep small businesses afloat through the pandemic.
Ace Hardware franchisee Ben Gil, who received PPP funding in the first round, said the funds that his four area stores received from the federal government have been enough to keep his business in operation. But, he places himself in a different category than many businesses because hardware stores were deemed an essential business from the onset of the pandemic.
“There’s a distinct line in the sand between essential and nonessential businesses,” Gil said. “We were an essential business, so right off the bat, we had one leg up on the ones that were forced to close. That’s huge.”
Rehberg said PPP has been critical to the recovery of Allied Resource Recovery Inc., where business was down 50% in March. Without it, he would not have been able to keep employees on the payroll or his doors open, he said.
“Right now, we only have two months of support, but it would have really helped us if we had a third month of support,” Rehberg said.
While the federal government’s stimulus programs have been critical to the recovery of small businesses, it may not be enough, said Chris Goller, Wisconsin regional president of Pittsburgh-based PNC Bank.
PPP was designed to give owners time to react to the sudden economic shock, and allowed businesses to shift production or explore new markets.
“We’re seeing the great ingenuity of our clients and, given time, which is what PPP did, to basically retool things,” Goller said. “I think we’re going to continue seeing that as the normal as businesses figure out how they have to operate differently.”
Experts have drawn some parallels between the current state of the economy and the financial industry crisis and Great Recession of 2008. But one key difference is banks are far more capitalized today than they were in 2008, making them an engine of recovery rather than part of the problem, Goller said.
“I think the banks have a lot of capital right now and they’re willing to lend,” Goller said. “We are lending and that’s really important. There is not a credit crunch that you have seen in other recessions where it was really difficult to get a loan.”
With the PPP loans, which are guaranteed by the government, on the books, they have increased financial institutions’ assets considerably, putting them in a strong position, Belasco said.
Still, he said banks will inevitably face loan losses from the loans of business owners and customers that are currently under a grace period.
“Will banks take any losses from other loans and other relationships they already have with small businesses?” Beslasco said. “The answer to that is yes. The big banks are already provisioning higher amounts of their reserves for loan losses. The regional and small banks, I’m certain, are doing the same thing.”
Financial institution - # of loans BMO Harris Bank - 5,462 Associated Bank - 5,324 U.S. Bank - 4,008 Nicolet National Bank - 2,499 JPMorgan Chase Bank - 2,264 Johnson Bank - 1,933 Cross River Bank - 1,932 Bank First - 1,789 Kabbage, Inc. - 1,666 Waukesha State Bank - 1,560 Summit Credit Union - 1,396 Celtic Bank Corp. - 1,314 Citizens Community Federal - 1,214 Tri City National Bank - 1,073 State Bank of Cross Plains - 1,071 Peoples State Bank - 1,014 Compeer Financial - 978 Bank Five Nine - 959 Town Bank - 959 Royal Credit Union - 897 Community First Credit Union - 868 Investors Community Bank - 859 IncredibleBank - 844 Monona Bank - 726 Oregon Community Bank - 715