2020 will go down as one year that the banking industry may want to forget. Lending is the very lifeblood of banks, and when the economy went into a tailspin in March 2020 due to Covid-19 lockdowns and restrictions, lending all but dried up.
Unsure of the future and whether or not they’d even have a job, many people turned their backs on everyday credit like credit cards and personal loans. Government stimulus checks and extended unemployment meant people didn’t need to rely on debt to spend.
2020 saw Americans save and pay back loans in record numbers. According to WalletHub, Americans paid back $83 billion in credit card debt in 2020, resulting in only the second time in 35 years that Americans ended the year owing less than when the year began.
2021 and 2022, however, have already put that trend in the rearview mirror. With the economy now fully open, consumers are spending. According to credit-reporting firm Equifax, consumer demand for credit cards, personal loans, and auto loans was up 39% in April 2021 compared with the same period in 2020.
Like the larger banks, local community banks and credit unions are certainly poised to reap the rewards of increased consumer confidence and spending. But local institutions will need to navigate some challenging headwinds to grab a healthy slice of that pie.
Traditionally, smaller financial institutions such as credit unions and community banks have relied on their unique advantages over big banks to win business. Smaller banks can more easily form personal relationships with their customers, they are embedded in the local community and know its needs. According to the Chicago Booth/Kellogg School Financial Trust Index, 60 percent of financial decision-makers in America reported a high degree of trust in credit unions. Only 30 percent said they considered big national banks trustworthy.
But these advantages are not enough to conquer what is a veritable tsunami of investment by the big banks to innovate and win business.
Consumers nowadays demand ever more complicated services and they want them instantly, including flashy websites, mobile banking, instant transfers, and loans approved at the touch of a button. The big banks are delivering on all of these features by pouring huge sums into technology upgrades. JP Morgan plans to spend $11.4 billion on technology in the coming year. Bank of America has $10 billion lined up to spend on technology upgrades, while Wells Fargo and Citicorp plan to spend $9 billion and $8 billion respectively.
On top of this, big banks are investing large sums of money into digital advertising. According to the US government regulatory body FFIEC, the big banks spend over $17 billion on advertising and marketing annually, dwarfing amounts that smaller community banks can spend on promotion.
So, what does all this mean? We know that the customers are out there ready to borrow. We also know that many of these people trust community banks more than big banks. The challenge then, is for community banks to get seen and heard, for them to be able to provide consumers with the flashier technologies they’re demanding.
Konduit is an emerging platform that solves a large part of this challenge for community banks and small to midsize lenders. Konduit helps banks modernize by leveling the playing field. The platform provides access to the fintech that consumers want to use, but small and mid-sized banks often find it difficult to integrate. The embedded fintech platform allows banks to quickly onboard and test the 3rd party fintech solutions that their consumers are demanding.
Nish Krishna of Konduit, explains, “Community banks are the backbone of local economies and our platform helps them to modernize and digitize.”