By John Merrill, Q2 Director of Product Management, Lending

Consumers and businesses increasingly want innovative banking services to meet their needs. A prime example of this preference is found in lending where borrowers now expect an easy application process and fast credit decisions through digital lending. Regrettably, many FIs – even larger regional ones – are losing opportunities to other digitally attuned FIs and fintechs.

Equally concerning, those FIs that remain wedded to a slow traditional lending approach amid ongoing low lending margins will require faster turnaround on their loan processes and approval times to remain profitable.

M&A: A digital lending remedy for some FIs

Regional banking mergers have been happening at a steady clip in 2021, as some FIs seek scale and speed to better compete with the largest U.S. banks as low interest rates continue to cut into lending profitability. Low spreads in recent years have taken a big bite out of many FIs’ yields and overall deposit growth and for some, pushed them into a position in which mergers with other FIs possessing optimized digital technology can allow them to remain competitive.

According to Forbes, 2021’s M&T Bank and People's United Bank merger is an example of a merger designed to help lenders “cope with low interest rates – which cuts lending profits – modest loan demand and the need for more investments in digital banking technologies.” Forbes also pointed to recent observations by banking experts that testify to the merger trend accelerating. One expert aptly pointed out, "Customers have shown they can adapt to changing technology. Adoption may have advanced three to five years faster than what it might have been otherwise without the pandemic. Tech capability is all the more important now."

Deloitte’s 2021 banking and capital markets M&A outlook reflects Forbes’ reporting about the need for investment in digital banking technologies. Deloitte is clear in its projection for digital banking:

Some commercial and retail banks haven’t scaled to a point where they can compete in a fully digitized world. As banking-as-a-service evolves and customers expect frictionless, personalized digital engagement, the imperative to fill out a bank’s front-, middle-, and back-office digital capabilities should increase, driving ongoing M&A across these categories of banking fintech.

Staying independent? Then, commit to speed, scale, and borrower experience.

There’s no doubt that any FI seeking to remain independent and to grow in a lower interest environment must process loans at a faster, higher-volume pace to generate the results they may have been accustomed to in the past. If your FI is trailing in the digital banking race and remains committed to its independence, a digital uplift should be part of any upcoming strategic planning.

Whether going it alone or partnering with another FI or even a fintech via M&A, you must ensure the digital lending solution put to work provides an excellent experience for both borrowers and staff. The solution should offer:

  • An easy enrollment process for both consumer and/or business borrowers
  • Straight-through, seamless loan processing that allows easy configurability
  • Automated real-time due diligence and decisioning through integration with best-of-breed data vendors
  • Self-service anytime, anywhere through desktops and mobile devices
  • Support for frontline staff in branches. Bringing digital and the human touch together brings better service.

As just pointed out, bringing digital and the human touch together can enable better service. But there’s much more the “human digital touch” can produce.

With deeper customer knowledge through digital and attentive relationship managers, what emerges is an effective means to develop relationships and create cross-sell and upsell opportunities amid a period of lower lending profitability.

As you think through your digital lending options, consider reading our 'Fight Fire with Fire' Small Business Lending executive summary for more insights on the importance of digital lending moving forward and what your FI will need to gain a market advantage.


Written by Q2