Who are the winners of the digital banking transition?

Big traditional banks face increasing pressure amid digital banking advances among regional and community competitors, according to a new report from the Kroll Bond (KBRA) rating agency.

The coronavirus pandemic has accelerated the rise of digital banking services with a greater focus on online lending, deposits and processing, the rating agency reported.

Small regional and community banks in the United States are responsible for much of the support provided to small businesses under the Paycheck Protection Program (PPP). Online services have enabled small creditors to exceed their scale limits and compete at a level above the inherent size of their assets through technology loans.

Small banks have strengthened their PPP lending capabilities by partnering with fintechs, such as New Jersey-based Cross River Bank, which has partnered with more than 30 fintech firms to facilitate billions of dollars in loans to small enterprises.

The ability of large banks to invest in technology had previously made it more difficult for small banks to remain competitive, KBRA said.

However, electronic banking has redefined the way customers access services, giving small banks the ability to scale their product delivery systems to digital platforms at lower cost.

While digital banking has become popular with consumers due to its accessibility and user-friendly interface, the report also highlighted the increase in operating costs and regulatory compliance as a key factor contributing to banks’ shift to digital banking. online bank.

New services such as remote deposit entry and online account opening have also contributed to the digital shift, coinciding with temporary cuts to branch services at the height of the Covid-19 pandemic last year.

The report cited MVB Financial’s 2019 sale of three branches located in the West Virginia enclave. The bank redeployed capital in its nascent FinTech-focused business with a focus on generating low-cost deposits and commission income opportunities.

Other banks have taken similar measures to consolidate their branch networks at the expense of their customers who increasingly favor online services.

Byline Bank, based in Chicago, is set to close 11 branches, or nearly 20% of its network, this year after an increase in the use of its digital services. Midland States Bancorp, Ill., Made a similar move, slashing its physical branch network by 20% through 13 closures or mergers.

New York’s Five Star Bank and Georgia-based Colony Bank also announced the closure of several branches last year.

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