As Congress considers additional relief packages, a COVID-19 vaccine is approved, and states ease then reinstate lockdowns and restrictions on businesses as cases fall and rise, bankers are both reflecting on the Paycheck Protection Program (PPP) and considering how its legacy will inform banking in the future.
In this article, we highlight some of the most important lessons learned during the course of PPP, as well as some innovative and promising strategies banks are exploring and enacting to further serve their small business customers, while also adding to their bottom lines. We also consider, more philosophically, how changes to banking during the pandemic can help us better understand the role of banks in society.
By the numbers: where things stand
As of August, 5.2 million loans had been approved, spanning 5,460 lenders, in excess of $525 billion. Though big banks issued the largest dollar value of loans (JPMorgan Chase, Bank of America, and PNC Bank topped the charts), community banks (Cross River Bank, with a modest $2.5B AUM, issued more than double the volume of PNC), generated the largest volume. As a result of PPP loans, 1.4 to 3.2 million jobs were saved during the coronavirus pandemic. And as winter approaches, a floodgate of PPP loan forgiveness applications seems ready to burst open.
Technology and process efficiency
While some banks struggled to keep up with the massive influx of PPP applications in the spring and summer, others excelled. Technological strength and process efficiency were clear and consistent differentiators. Harris Simmons, CEO of Zions Bank (their PPP originations were 3.6 times their deposit market share), noted that Zions Bank’s “outperformance was a function…of our ability to combine the efforts of 1,500 plus customer facing bankers with best-in-class technology and workflow processes.” Well-staffed teams paired with scalable fintech paved the way to success.
The implementation and application of agile principles also helped separate the leaders from the laggards. In a fast-moving public health situation and unpredictable business climate, responsiveness to customer feedback facilitated by technology helped Umpqua Bank to issue over $2 billion in PPP loans. CEO Cort Lane O’Haver noted, “the transformation of our development processes to follow agile principles…was a key reason behind our success in launching PPP so early and effectively.” Now with the benefit of hindsight, banks have seen the advantages of process agility, especially in differentiating themselves from competitors.
Effectively serving small businesses during the coronavirus pandemic has been a team effort for most banks. Analyzing the successes in PPP lending by banks like Zions and Umpqua, Derek Corcoran noted that the most successful financial institutions were “the ones who already invested in leadership, vision and systems that support customer-centric digital strategies.”
Cross River Bank, which issued nearly double its AUM in PPP loans, thrived by partnering with “over 30 leading technology companies…to allow thousands of additional businesses…to receive funding.” Strategic partnerships with fintechs helped banks to focus resources, both in money and human power, on what they traditionally do best: providing personalized, community-based service to their customers.
Looking ahead, many bankers have doubled-down on the importance of technology solutions to the survivability of their banks. “The Paycheck Protection Program,” according to Brad Rosenfeld, CMO at Biz2Credit as quoted in Forbes, “is hard evidence of the need for banks to engage with fintech solutions in an aggressive way, or risk being outmatched next time.” Though the build vs. buy debate persists over technology solutions, the pandemic has helped demarcate swim lanes more clearly: fintechs excel at building robust and ready-to-use digital solutions; whereas banks excel at building relationships and offering high-touch, human-centered service.
After a stressful and chaotic year in banks across the country, bankers have cause to celebrate some hard-earned victories. Matthew de Paula in American Banker reported that “after dropping for the past two years, bank reputations are once again on the rise.” One main reason is “the goodwill banks have generated by helping customers and employees weather the pandemic.”
PPP is the main character of this banking success story, as the ABA found that banks were responsible for 94% of the 51 million jobs supported by PPP. In addition to issuing loans that saved businesses and jobs, banks won public favor through charitable giving. Wells Fargo, for example, donated over $400 million in PPP fees to assist small businesses. PPP has helped reaffirm the rightful standing of banks alongside other vital institutions, such as public schools, fire departments, hospitals, grocers, and auto mechanics. Now the question for many banks is how they can both maintain their record-high reputations, while also figuring out how to continue to grow their businesses.
Looking ahead: growth opportunities
The legacy of PPP lending offers a significant growth opportunity for banks nationwide. Zions Bank CEO Harris Simmons touts the “longer-term benefit” of having “more than 14,000 new to bank PPP customers.” Simmons says the bank is, “laser focused on building deep relationships” with these new customers. Umpqua Bank is also looking to capitalize. CEO Cort Lane O’Hover said the bank is “aligning resources internally to take advantage of the great opportunity for additional customer growth.” As small businesses emerge from the pandemic, they will continue to need strong bank relationships and bank products and services to thrive.
Expanding into retail
But the long term opportunities are not only on the business banking side. One smart strategy already being explored by several banks is to grow wallet share with small business customers on the retail banking side. Small business owners and their employees have myriad personal banking needs. Moreover, as small businesses have struggled, owners and employees have faced parallel challenges in their personal financial situations. Banks see an opportunity to meet many unmet needs by providing timely retail products and services, such as deposit accounts, mortgages, and retirement plans to these customers.
Meeting customer needs at scale
A key challenge banks will have to address is how to effectively and efficiently grow wallet share with legacy PPP customers at scale. This year, SigFig launched Atlas, a comprehensive digital needs discovery solution, to enable bankers to triage customer needs and route leads to the right bankers and specialists. Since banks want their relationship managers and specialists to spend their time with the best opportunities, needs discovery is vital to ensuring not only high lead generation, but also lead conversion. Further, a banker who already has information and insight into their needs will provide more personalized, relevant service to a customer, improving the quality of the overall customer experience.
Permanent changes to banking: the centrality of need
The acceleration of digital transformation driven by the pandemic has likely caused permanent changes to how customers interact with their banks. American Bankers Association Chairman Jim Edwards observed that “years of digital transformation accelerated into a few weeks.” At United Bank in Georgia, which Mr. Edwards leads as CEO, “more than four in 10 consumers say they will reduce branch visits even after stay-at-home orders are withdrawn.”
Though a forecast for rain can turn into a day of sunshine, the prognosis for bank interactions shifting into digital channels aligns with well-established national trends. Many branches will either re-invent themselves or shut down completely, as customers increasingly turn toward digital channels to meet all of their banking needs.
If there’s a single word that captures both the legacy of PPP and its future implications, it’s need. Small businesses needed banks to survive; banks needed the right mix of technology, process, and service to deliver; and customers, whether small business or retail, will continue to expect banks to center all sales and service on their needs.