MeridianLink is a SaaS company serving over 1400 banks and credit unions. As the COVID-19 (Coronavirus) negatively impacts basic economic functions across the U.S. and rest the world, we at MeridianLink are uniquely able to see some market dynamics in real time and understand how recent events are impacting community financial institutions.
Analysis shows an uptick in online deposit account opening, among both current and new customers of banks and credit unions. Customers are adding new CD and money market accounts. The flight to safety is apparent for capital flowing out of stocks and bonds into cash assets like CDs and money market accounts.
Overall online lending volumes have dropped slightly. Even with interest rates at historic lows, two things are driving this trend across mortgage, auto, and personal loans. First is basic caution on the part of borrowers. If they’re worried about their job, taking on new debt usually gets sidelined. Second is the expectation that rates are likely to drop even lower, so even if they’re not worried about their personal financial situation, it seems prudent to wait, especially in mortgage. There’s been a modest increase in business lines of credit, as businesses look to maintain liquidity if revenues drop.
“Social distancing” has critical implications for new customer acquisition at banks and credit unions which still rely primarily on customers coming into a branch. That business is expected to drop off significantly as most people try to limit their exposure by moving as many of their interactions as possible to online channels. People are staying home and expect to be able to do business from there. That’s an inexorable trend over the past decade, but events like a health crisis greatly accelerate online channel demand. Big, life-altering events have a ratcheting effect on markets – people and businesses move away from traditional methods and find that they’re more comfortable or better served by new channels, so they don’t revert to the pre-crisis mode.
Strategies for Banks and Credit Unions
It’s probably obvious, but every bank or credit union absolutely requires real online account opening and online lending capabilities, for personal and business customers. “New normal” is an overused phrase, but it applies here and it applies immediately. Every bank and credit union today is hyper-attuned to financial and compliance risks, the “new normal” from past crises. The current crisis brings another type of risk to the forefront – market risk, the risk that your customers can’t engage with your institution the way they need to now and will want to later. Most banks and credit unions have online banking systems in place for their current customers, but the risk lies in new customer acquisition, for deposits and loans.
The biggest banks are well-positioned. Almost all can open and fund a new account completely online. Almost all big banks have online loan origination software that can originate, decision, and fund personal loans and small business loans. Community financial institutions, on the other hand, are very poorly positioned.
Among banks under $25b assets:
- Only 46% have online personal account opening.
- Only 25% have true online/mobile loan origination capability.
- Over 95% cannot open business deposit account or process a small business loan online.
Those are gaping technical-capability holes that smaller institutions must address. In the hunkered-down world, new loans and deposits will go to the players who can deliver a full spectrum of new customer services completely online – the biggest banks. Those customers probably won’t be back post-crisis and even if they do consider the local bank or CU, they’ll expect the same level of online services that they can get from other institutions on a mobile phone or web browser.
MeridianLink provides the solutions that community banks and credit unions need to close this technology gap. Perhaps the current crisis is the catalyst that will finally move more banks and CUs to action. It’s not expensive, it’s not disruptive, and, based on current conditions, it’s not optional anymore. It’s the New Normal.