Real-time payments and other new types of banking technology will help community banks take advantage of growth in the small business sector, experts say.

Technology continues to transform how retail and business customers interact with banks, and 2020 promises more changes for the industry, experts say. 

The first quarter will see more community banks joining The Clearing House’s real-time payments platform, a possible competitive advantage for these institutions. The growth of small businesses offers opportunities for banks and credit unions, with many expected to look at fintech partnerships to expand services for these customers. And lenders will continue to adopt technology innovations for mortgage originations, freeing up loan officers to provide more personalized service. 

Real-Time Payments 

Consumers have become aware of the ability to receive funds in real time, making this service an expectation for best-in-class service, Erika Baumann, a senior banking analyst with Aite Group, said in an email to Banker & Tradesman. These expectations affect all types of payments, including person-to-person, business-to-customer and business-to-business.  

The Clearing House, which is owned by the country’s largest commercial banks, launched a real-time payment network two years ago. It now connects about 51 percent of the country’s demand deposit accounts with about 20 mid- and large-sized banks in the network. Hudson-based Avidia Bank declared in mid-2019 it would join the network, making it the first community bank to do so.  

The first community banks will go live on the RTP Network in the first quarter of 2020, Baumann said, noting that this development indicates that these banks recognize the importance of offering a real-time solution and the ease of connecting to the network.  

“The Clearing House designed the system to be accessible to institutions of all sizes,” Baumann said. “That promise is materializing through the industry partnerships that have been made to ease implementation and keep costs down.” 

She added that by having payment options that meet customers’ needs, community banks in the network will be ahead of the curve compared to many of their larger competitors. 

The Federal Reserve’s real-time service, FedNow, remains under development and a couple years away from implementation. 

More Small Business Banking 

The new year could also see community banks and credit unions increase their focus on small businesses by adding more services for these customers, Baumann said.  

One possible area for partnership involves money management tools, Baumann said, including forecasting, expense management, invoicing and mobile payments. 

She expects these institutions to work with core processors and online banking providers to find ways to take advantage of the capabilities these fintechs have to offer.  

Opportunities to work with small businesses continue to grow. According to the U.S. Small Business Administration, Massachusetts has almost 670,000 small businesses in 2019, a 2.5 percent increase over 2018. 

Opportunities to work with small businesses continue to grow. According to the U.S. Small Business Administration, Massachusetts has almost 670,000 small businesses in 2019, a 2.5 percent increase over 2018.

Small business owners are looking to community banks to bring more convenience to banking, Needham Bank CEO Joe Campanelli recently told Banker & Tradesman, adding he has seen many small firms growing. 

One challenge for community banks is having the resources to listen to each business owner and address unique needs, Campanelli said. Needham Bank plans to build new products as well as partner with fintechs to meet these needs. 

Baumann also expects these community banks and credit unions to leverage the fintech community for stronger analytics and artificial intelligence capabilities, allowing them to improve services, including more effectively cross–selling products and better predicting customers’ future needs.  

An example of this type of service came out of a “hackathon” – part recruiting event, part opportunity to find new fintech partners – sponsored this fall by Citizens Bank. 

A group of college students suggested a way for bankers to monitor business customers in real time. Using the example of a restaurant, the students identified ways to notify the bank of online reviews and reservations, while also tracking the restaurant’s daily financial activity.  

Frédéric Chanfrau, CIO for Citizens’ commercial lending operations, said this type of service would help bankers understand potential issues within a business ahead of time, giving bankers opportunities to identify corrective actions early on.  

Diane McLauglin

Mortgage Automation 

Technology in recent years has transformed mortgage loan originations.  

Leslie Parrish, also a senior analyst with Aite Group, said in an email that mortgage lenders would increasingly adopt artificial intelligence techniques to free loan officers from routine and mundane tasks, such as data entry from borrower financial statements, tax forms and other information needed during the application process.  

“While AI and other forms of technology will not upend the relationship between the loan officer and borrower (most borrowers still want to engage with a human, especially first-time homebuyers), AI will also help the loan officer make better loan recommendations that are more tailored to a borrower’s needs and make refinancing offers at the right time,” Parrish said.