Numerated’s new small business lending platform uses artificial intelligence to streamline approval processes, but many banks still have trouble adopting fintech tools. iStock illustration
Small businesses often turn to community banks for business needs because of the relationships developed with bankers. But customers have come to expect even from their local bank the same conveniences made commonplace with technology.
“People’s expectations for convenience have gone way up in the last 10 years due to companies like Amazon and others making it far easier to get products and services from most every company outside of banking,” said Dan O’Malley, CEO of Boston-based fintech firm Numerated. “The same thing has happened in banking itself, and banks have realized that they need to really invest in creating a purchase experience, a buying experience for financial products that is convenient and easy.”
In a survey of about 1,000 U.S. small businesses conducted last July, Aite Group found that more than half indicated that a bank’s ability to offer easy-to-use online capabilities was very important when deciding to select a new bank. More than two-thirds of small businesses surveyed wanted financial institutions to work to some degree with fintech providers to offer more innovative and helpful products and services, and to offer them faster.
Banks Face Roadblocks
It’s not a problem lenders are unfamiliar with: Fintech partnerships are often the only way community banks can provide the services these business customers demand.
But banks, Aite Group said in a report that accompanied the survey results, reported that even though they understood small businesses and their needs, limited budgets and competing priorities made it challenging for banks to move forward with plans to meet small business demands.
“An inability to evolve fast enough is hampering banks’ success with these customers,” Aite’s research director Christine Barry wrote.
Amid this landscape, the FDIC is trying to facilitate partnerships between community banks and fintechs, and last year established a technology lab, FDiTech, to collaborate with community banks on how to deploy technology that serves customers.
“The future of banking is all about providing our customers with a unique value proposition through personalization, speed, and the integration of technology, enhanced by our expert bankers.”
—Ravi Vakacherla, executive vice president, People’s United Bank
The goals of FDiTech include developing tools and resources that will increase opportunities for partnerships while eliminating “unnecessary burdens and costs associated with third party risk management,” according to a recent statement from the FDIC announcing its first guide about fintech partnerships.
The guide, released in February, looks to help fintechs partner with banks by explaining the environment and providing suggestions for navigating banking’s unique requirements.
“Partnerships with fintechs are particularly important for community banks, which often cite cost and regulatory uncertainty as roadblocks to innovation. Leveraging new technology may provide additional opportunities for these institutions and their customers,” FDIC Chairman Jelena McWilliams said in the statement. “The FDIC will continue to work with banks and fintechs to help them understand how they can effectively work together to serve our nation’s depositors.”
AI-Enabled Lending
In the face of small business’ demand for better services, though, fintech companies and the community banks that partner with them are not standing still.
Numerated – which works with 19 banks across the country including $58.3 billion-asset People’s United Bank and $11.6 billion-asset Eastern Bank and $2.3 billion-asset Bristol County Savings Bank – announced in February that it had expanded its small business platform. What started as a tool for offering small–dollar loans to small businesses now provides banks with a digital front-end platform for small businesses, with features including overdraft protection, credit cards, commercial real estate and equipment loans and business deposit accounts.
The company offers its services through a subscription model, with current customers ranging from $15 million to $55 billion in assets
Artificial intelligence is another component of the platform. AI eliminates the need for businesses and bankers to gather and enter most of the information needed for loan and deposit accounts, making for a shorter process. The platform integrates public and private data sources, including state and federal sources, information already on file with the bank and data generated by the platform itself to complete applications.
The AI validates data across a number of different sources, O’Malley said, to ensure the quality of the information.
People’s United is among the 10 lenders who signed on to use the new, expanded lending platform.
Diane McLauglin
“The future of banking is all about providing our customers with a unique value proposition through personalization, speed, and the integration of technology, enhanced by our expert bankers,” Ravi Vakacherla, People’s United executive vice president and head of banking operations and product management said in a statement. “The platform provided by Numerated is the next step in that journey. With more than 400,000 small businesses across the Northeast, we are excited about this platform’s ability, coupled with our focus on relationships and digital solutions, to help business owners build their businesses.”
Along with improving the customer’s experience, technology creates efficiencies for bankers, O’Malley said, giving them more time to build relationships with bankers. He added that it also provides a competitive advantage.
“Everyone is looking to provide better service than other sources of capital,” O’Malley said “And so if [small businesses] can get started with a bank incredibly easily, it sets you up to win more business, to be more relevant and to build a reputation as being a bank that digitally provides great service, which is the formula for winning in your market – it’s everything.”
