A Missed Opportunity for Community Banks
It's a classic tale: community banks sleepwalking while big players snatch up low-hanging fruit right in their own backyards. According to the latest report by Cornerstone Advisors, commissioned by Teslar Software, these banks are essentially leaving $106 billion on the table when it comes to consumer lending. That's not just chump change—it’s a potential game-changer for the banking landscape.
Why Community Banks Are Getting It Wrong
Now, let's put some perspective on this. What we're talking about here isn't just about beefing up the balance sheet with a couple of extra loans. This is about protecting the turf, defending commercial relationships, and ultimately safeguarding deposits.
“Many banks ask whether consumer loans generate enough profit on their own to justify the investment,” said Elizabeth Gujral, director at Cornerstone Advisors. “The real question is what banks stand to lose when business owners turn elsewhere.”
Imagine nearly 60% of small business owners banking with one of the top five U.S. banks—where consumer lending represents a hearty 12% to 24% of total loan portfolios. Meanwhile, the smaller players have a median consumer loan mix that trickles down to a measly 1.2% to 0.83%. It's not rocket science to see the imbalance.
The Domino Effect of Lending Decisions
- A whopping 54% of business owners who tapped into personal loans ended up using banks other than their primary business bank.
- 39% of these folks went elsewhere because of rate or terms, and 35% were deterred by slow approval processes.
- And let's not forget the 14% who skipped out simply due to lack of awareness or options—the silent killer if there ever was one.
Stats like these should be a wake-up call. Letting these dollars slide into the hands of larger banks or fintechs doesn't just slap on a sticky note labeled "missed revenue." It cracks open the door for competitors to waltz in, seize deposits, and build those sticky customer relationships.
The Potential Payoff of Embracing Change
For those community banks that are wise enough to see the writing on the wall, consumer lending could spell more than just fiscal stability. It could mean positioning themselves as strong competitors in the modern age of banking. Joe Ehrhardt, CEO and founder of Teslar Software, put it plainly: "It's an opportunity to deepen existing relationships today and build the commercial relationships of tomorrow." But even the most profound opportunity is just words unless acted upon.
Adapting Through Modernization
If community banks want to escape this financial faux pas, they need to get with the times. Modernizing processes and automating workflows aren't just tech-jargon buzzwords—they're necessary for transforming consumer lending from a sleepy side gig into a thriving business artery. We're talking about a sub-market here that doesn’t just churn profits on paper; it's an instrument for retaining customers and staying competitive.
For those banks that skew towards higher consumer lending, the returns speak volumes: a return on assets (ROA) sitting at 1.44% versus the 1.15% of their lagging counterparts. Both returns on equity (ROE) and deposit growth tell a similar story, clocking in comfortably at 13.4% and 9.9% respectively—leagues ahead of the realm of mediocrity. It's all about turning potential revenue and relationships into something tangible.
Defending Against Future Threats
Let's cut to the chase: consumer lending isn't some lazy river of potential rolling by your doorstep; it's a geyser, waiting for someone willing to turn the wheel. Every loan loss isn't just a revenue cut—it's a signal flare to competitors. With 72% of business owners expecting to need a consumer loan within three years, there's no time like the present to reclaim this territory.
In the cut-throat world of banking, adaptability isn’t just survival—it’s an opportunity to thrive. Community banks, it’s time to wake up before the competition eats your lunch.
