Credit Unions Explore Digital Pathways to Transform SMB Lending

While traditional financial institutions (FIs) have historically dominated the industry, credit unions (CUs) have carved out a unique niche, serving the needs of their members with personalized care and a focus on mutual benefit.

However, faced with the dual challenges of technological disruption and shifting consumer expectations, the once-traditional image of CUs is undergoing a profound transformation, with smaller banks rethinking their strategies and embracing innovation. 

For Bankwell, a $3.2 billion community bank with a workforce of 135, adapting to this evolving financial landscape necessitated the appointment of a chief innovation officer to lead the bank’s innovation and technology strategy.

According to Ryan Hildebrand, who assumed the role in July of last year, the first order of business was to ensure that the basics were covered.

“The journey to digital transformation,” he told PYMNTS, “started with making sure that all the surfaces, from account opening to online banking and lending, [operated seamlessly] and that we have the best systems that are touching our customers across the board.”

This need becomes even more apparent when considering the heightened competition from FinTechs, which have reshaped the financial landscape with their innovative technologies and customer-focused strategies.

Read report: Credit Union Innovation: How Credit Product Rates Impact FI Selection

According to findings detailed in a PYMNTS Intelligence research study, while CUs have reduced setup times for various products, with 45% reporting significant progress, they continue to face intense competition from FinTechs due to the perceived lack of variety in their product offerings. 

Addressing this vulnerability and exploring strategies to stay ahead in the competitive landscape, Hildebrand, a serial entrepreneur and Y Combinator graduate, emphasized the importance of a strategic mindset that prioritizes collaboration over competition.

“For us, the strategy is to find some really solid FinTechs to partner with, not just engage them as vendors, and think about ways that we can help both sides improve,” he said, adding that “having a true partner relationship versus a vendor relationship is how we can differentiate in the market.”

As noted in separated PYMNTS Intelligence research, several hurdles, ranging from high costs and stringent eligibility criteria to the complicated nature of the application process, hinder small- to medium-sized businesses (SMBs) from accessing working capital. 

Moreover, lending to small businesses can be labor intensive, which, coupled with their typically lower profitability compared to larger commercial clients, frequently dissuades large banks from engaging with them. 

To bridge the gap and make small-business lending more efficient and innovative, the Connecticut-based bank has been testing a generative-AI-based virtual assistant named Sarah to streamline the loan application process for small business owners. 

The virtual assistant undertakes various tasks traditionally performed by loan officers, including data validation, qualification assessments and loan approval, reducing processing time and administrative burden. Sarah’s 24/7 availability also ensures that SMBs receive assistance and guidance, even during off-hours, making the lending process easier and faster.

So far, the implementation of the AI tool has yielded promising results, with increased lead quality, higher conversion rates and improved customer engagement. 

“The majority of applications, 63%, are actually received outside of bank hours, and this is where Sarah comes in to answer any questions and help them fully finish their applications,” Hildebrand said, adding that Sarah has already reactivated 42.3% of churn applicants, leading to an increased pipeline of $12.3 million of loan application volume since December 31.

Moving forward, Hildebrand emphasized Bankwell’s commitment to forging strategic partnerships aimed at enhancing offerings for clients, particularly homeowner associations (HOAs) and municipalities. This includes tailored solutions to efficiently manage multiple accounts, as evidenced by a recent collaboration with Z Suite Technologies, a vendor in digital escrow sub-accounting ledgering.

Additionally, the community bank is looking to bolster its small-business services by launching a small-dollar Small Business Administration (SBA) lending program and deposit programs, leveraging partnerships with lenders like Cooperative and tapping into networks such as Y Combinator to reach more entrepreneurs and business owners. 

Finally, when asked about Bankwell’s vision for the next year, Hildebrand expressed an ongoing commitment to digital transformation, aimed at elevating customer experience services such as account opening, online/mobile banking, loan application systems, and risk and fraud systems to top-tier standards. 

“We will focus on how we continue to build elite client experiences with the modern technology stack,” he said.

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