Banking on Digital Growth
Banking on Digital Growth

Episode · 5 months ago

102) #ExponentialInsights - The 3 Biggest Opportunities in Small Business Lending


Small business banking is 20% of global banking revenue, which means if you are a bank or credit union…

You can’t afford not to do it.

When you want to figure out the best SMB lending model, you turn to today’s guest, Gord Baizley, CEO at JUDI.AI.

He joins the show to discuss:

- The 5 biggest opportunities in small business lending

- The culture required to thrive in small business lending

- The importance of benchmarking and being able to iterate quickly

You can find this interview and many more by subscribing to Banking on Digital Growth on Apple Podcasts, on Spotify, or here.

Listening on a desktop & can’t see the links? Just search for Banking on Digital Growth in your favorite podcast player.

Small business banking is according toMcKinsey, of global banking revenues, like it's a massive category and Imentioned before, my belief is it's an anchor to a whole bunch of otherdimensions of the relationship. So you can probably counted as 30% of globalbanking revenues when you attach the peripheral opportunities to it. Like Idon't think a bank or credit union or an institution can afford not to do it, No. Mhm. Mhm. You're listening to banking on digitalgrowth. With James Robert lay a podcast that empowers financial brand marketing,sales and leadership teams to maximize their digital growth potential bygenerating 10 times more loans and deposits. Today's episode is part ofthe exponential insight series where James robert interviews the industry'stop marketing sales and fintech leaders, sharing practical wisdom toexponentially elevate you and your team. Let's get into the show greetings andhello, I am James robert, ley and welcome to the 102nd episode of theBanking on digital Growth podcast. Today's episode is part of theexponential insight series and I'm excited to welcome Gord basically tothe show, Gordon is the Ceo at judy dot Ai and they are helping small businesslenders make the most of economics of small business work through A. I. Andautomation with underwriting monitoring and portfolio reporting. Now I'mexcited to talk with Gord about the work he and his team are doing at judyAi because we are continuing to see a tremendous growth opportunity forfinancial brands to maximize their own digital growth with a focus on the SMBmarket. And with that welcome to the show, Gord, thanks very much for havingme, excited to be here. And looking forward to a great conversation aboutsmall business lending. Absolutely. And speaking about exciting what is onething that you are excited about right now, just personally or professionallyyour pick? I would say, I'm excited about something that blends into both,which is the world is coming back to life. And uh, obviously we're all ableto start to live a live a little and then hopefully get Covid behind us.We're a little behind you here in Canada. But we're getting there andprofessionally, obviously that's really an exciting time to, we found, you know,when Covid first sort of on set itself on us, things slow down for a quarteror two. But it's since that time and really, I think disrupting the wayinstitutions think and driving digitization and innovation andhopefully, uh, there'll be some, I guess, some good to come with us on theother side of it. So looking forward to seeing what that looks like. Yeah,that's been a repeated pattern and trend that we're hearing from others.And you mentioned that you get out to go play golf recently with a client andthey're just overwhelmed right now with a lot of opportunity, right. Yeah.Absolutely. I mean there uh I think all of the uh certainly mid sized financialinstitutions are frantically trying to digitize you know and get for some ofthat. Some of that was happening anyway. They were saying you know their I. T.Team as the words they use but it's under siege in a positive way. Butthere's just so much demand on them for projects and getting a projectprioritized as a real uh real art. So yeah and that comes down to justwanting to capture all the opportunity. And as I've mentioned, I seeopportunity with the SMB market. This has been a one of my top 12 trends fordigital growth in 2021. I referenced back in episode # 55. Ron Shevlin alsotouched on that in episode 58. I'm excited about the work that CoreyLeblanc and his team are doing, which he referenced an episode 73 the S and Bmarket and then just had Derek Sutton on an episode 94. So that's somecontext for the dear listener that this is this is something that keeps comingup time and time again. But Gordon, I want to hear from you right now. Why doyou feel that the Smb market is primed...

...for financial brands as a way tomaximize their own future digital growth potential. Yeah, I mean, thereare a few reasons, you know, first of all, just a massive segment, right? Sodepending on the data you look at, but it employs the majority of americans,the majority of businesses or small businesses. So it's a huge opportunity,but it's one that's kind of been lost because it's hard to service. So it'sbeen either buried in the retail divisions of the large banks and notservice properly as a result. Or it's been stuck into the commercialprocesses of banks and credit unions, which in particular with respect tolending a large dollar commercial process, doesn't work for smallbusiness lending. And so, so there's this massive market that's beenuntapped and I think there's an opportunity to blend relationshipbanking with technology and data and come up with the best of all worldsagainst the service stock market. So that's what we're trying to do herebefore we get into deeper some of those opportunities, I want to start with thepain points. What are those pain points? Those friction points that you areseeing through the conversations that you're having with financial brands.When it comes to connecting with those small to midsize businesses? What'shurting them right now? Yeah, I mean, most of the financial branches find ithard to service that segment. The economics are challenging, right? Sothat you got small dollar loans and I refer to small business as our smallbusiness lending as uh, the worst of all worlds in the middle. So on theleft, you've got consumer lending, right? Credit score driven, prettystraightforward. And then you've got large cellar commercial lending on theright, which is, uh, you can spend some time on it. The economics work to dothat, but you can't treat in the middle a $50,000 loan or even a $500,000 loanlike $50 million loan. And, and that's the challenge and damage to the space.So you've got a little hit rate on credit for us, for the business itself,You've got financial statements that are hard to get. You know, we had aprospect the other day talk about a game of ping pong have with these typesof businesses where it's back and forth, back and forth and the information andthen it's not reliable when you get it. And then the analysis, you can't spenda bunch of time on the analysis. So all of that adds up to economics that don'twork. And if the economics don't work, then the customer experience isn'tgonna work either. You talked about this being a growing market and we'reseeing that. I'm curious to get your thoughts for the dear listener becausethis is an untapped opportunity here. Where and how does the growing gigeconomy play into this conversation? Because you're right up to this pointhistorically, I would say the gig economy has gotten hidden or has beenhidden in the consumer side of things. It's now time to pull that out and giveit its own space to play in. It is and it's small businesses hard and the gigeconomy creates an added dimension to that complexity. Is the business forself or whatever you want to call it. And you've got now people andbusinesses that look the same, but they're neither. So you need to find away to untangle that and untangle it efficiently and hopefully draw in someof the efficiency that is in consumer lending and apply that to smallbusiness slash gig economy lending while not losing the rigor ofcommercial lending so that you don't lose your shirt. And you need to comedata to do that. And that's where the opportunity is, because you've you'vetouched on this a couple times now, you mentioned the efficiency and andthere's a great infographic that you have on your website that shows thetraditional S. And b. Lending journey being, you know, 1-4 weeks. But you'retalking about taking that from down to just mere minutes now. My question isgoing deeper. What are some of those more specific opportunities thatfinancial brands have to really innovate the sMB lending model here?Yeah. I think there's really three opportunities. Right? What is yourspeed? So can you speed up the process and get to a faster decision? Andthat's that's the efficiency play right? If you can do things faster with lessresources, you get a better result...

...quicker. The second one is managingrisk. And ultimately if you're managing risk Better you can reduce the lossrates but more importantly you can expand the credit box and so if you canprovide more credit to small businesses, that's a big win on any given survey,you look at 50% of small businesses complained that lack of capital is thelargest problem, right? So you can use attack to solve that problem. And thenif you get speed and if you get an expanded credit box, you've got a waybetter customer experience. So that's a massive win for obviously the smallbusiness, but also the institution in terms of retaining the client. And ourview is that small business and banking and small business lending is actuallya pretty strategic part of the relationship. And if you have that, youprobably get the consumer side and the mortgages and wealth management. So wehave a few clients that definitely look at it that way. And you know, ratherthan looking at it just as another part of the retail business. So there's thetrifecta of speed, reducing speed, risk improving the risk model, particularlyfor the business owner, because that pain point is access to capital. Andthen when you add those two together, it's an optimized experience that makespeople feel good and you can tap deeper into the business wallet. But then alsoyou've got a whole opportunity of of employees who work at said businessbecause that that that employer becomes the advocate for the financial brand.It can really I mean, it's it's a win win win win for the the small businessand the small business owner, a win for the financial brand and even a win forthe employees of the small business. When you add all of these differentcomponents together, where might because you've you've touched ontechnology and data a couple of times out to where might there be anopportunity for a financial brand to transform their model to move fromreally being reactive, waiting for an S and B to raise their hand and say Ineed help to taking more of a proactive stance in that S MBS life if you willto provide recommendations to provide advice. And dare I even say, to providemaybe some even coaching and advisory services based upon the data thatthey're seeing from that S and B. What what does that look like here? Yeah,absolutely. And that's certainly where all of this is going, where ourplatform is going. You know, we've started with looking at everythingthrough the risk plans. Right? So all the data we ingest, we're looking toassess risk, but you quickly transfer from Okay, this is a risk assessment inreaction to an application to let's do a risk assessment as part of a threeapproval process or across all or Upsell process. But then you're into,okay, forget about risk for sex. What else is in the data? What else can youtrack them there, you know, sitting on too much passion, you better call thewealth management team or they've got a bank account Dora or alone with anotherinstitution or these guys could use some insurance or so when you'relooking at the data and our clients are quickly pushing up there saying, well50 if you're looking to sitting on all this data and you've got the talent andthe tech to look at it, please bring us the growth opportunities as well. So and that's where I see more of theproactive coaching advisory. Next best product. I mean we're seeing thatalready in the Quickbooks world. We're seeing that in the MX world. I mean Iget offers based upon all the data that they have on me and could get access tocapital literally within five minutes if I needed it. But it's interesting toto see what's going on on. Like for example, the payroll side, like withGusto and how gusto is bringing financial services. So there's atremendous opportunity. My question when it comes to innovation andtransforming not only the model, but transforming the mindset, what are someof the challenges that you're seeing holding financial brands back fromoptimizing and innovating on this smb...

...lending experience and really just Iwould say the overall relationship as a whole, what's keeping them from makingprogress here? Yeah, a couple of things. The first one we already touched on,but just resources, you know, and there's so much digital transformationto be done and so many digital projects underway that getting this particulardimension prioritise is always a challenge. And so they've got to fightthat. I guess the second one would be would be just cultural. So, you know,we're selling in particular into community banks and credit unions inand you know, they're very protective of their positions as relationshiplenders and stewards of the relationship, which as they should be,that's their that's their competitive advantage. But they don't have to thinkof this as mutually exclusive technology and data can unlock time forthe relationship and for higher value activities. And so it's not that you'reautomating customer service into oblivion, it's it's quite the oppositeactually. It's going to it's going to raise the bar and give you more timefor that relationship. Technology has transformed our world and digital haschanged the way consumers shop for and buy financial services forever. Now,consumers make purchase decisions long before they walk into a branch, If theywalk into a branch at all, but your financial brand still wants to growloans and deposits, we get it. Digital growth can feel confusing, frustratingand overwhelming for any financial brand, marketing and sales leader, butit doesn't have to because James robert wrote the book that guides you everystep of the way along your digital growth journey, visit www dot digitalgrowth dot com to get a preview of his best selling book banking on digitalgrowth Or order a copy right now for you and your team from Amazon insideyou'll find a strategic marketing manifesto that was written to transformfinancial brands and it is packed full of practical and proven insights. Youcan start using today to confidently generate 10 times more loans anddeposits. Now back to the show what's using automation and ai artificialintelligence has not a replacement but an augmentation to the internal talentto the internal resource that can then provide better recommendations thatproactive coaching guidance advisory model for. But let's dig deep into thatthat idea of culture of the mind set. Where's the gap? And what do you feelcould be done to begin to bridge that gap to say, hey, we're not trying toreplace anyone. We're just trying to make you even better so that you can doeven more for your clients. A lot of the culture obviously starts withleadership saying, look, this is a priority and we're going to drive thisright? And I've talked to, I remember distinctly being in a meeting recentlywith a credit union and it was in a C suite executive talking to us about, Iknow that my competition is in the bank down the street or the crediting downthe street. it's going to be amazon or facebook for all of the platform guysthat are getting into small business lending and then banking. And so thatmindset had them running fast at, okay, where what are the ways that we caniterated and digitize quickly and not just taking on massive digitaltransformation projects, but actually finds equipment. And I think that's akey mindset in terms of the culture, is getting iterate quickly and not justlook for a platform that's going to solve everything all at once. You know,you talk about this idea of quick wins. We were we were discussing being ableto get set up and running and Eight weeks vs you know, 2-3 years. And bythat time it's it's too long. Let's talk about cash flow data because youwrote about this being an old piece of jewelry with a new battery, the newbattery being machine learning and how that can help address some of the S.And P. Credit conundrums that are really a big sticking point. So wheredoes cash flow data play into the mix here from being able to help make someof these proactive recommendations and...

...decisions? Yeah. I mean it's a criticalpiece of the puzzle. It's what allows us to not have to pour over financialstatements and do a bunch of manual analysis. And and like we wrote about10 years ago you couldn't look at this because it would have been manualprocesses. Now with some of the machine learning technologies available. We canuntangle that. A bank statements, a bowl of spaghetti. It's cryptic andit's pages and pages and months and months of data. You can look at. Youknow if you have 12 months of data to look at and 55 pages per month you got60 pages of very cryptic transactions. But imagine now if you could quicklyturn that into a synthetic income statement and then quickly extractproxies for ratios out of that. Well you can automate the lending processalmost in seconds as a result. And then from there to your point you're alsolooking at saying, okay where's the growth and the golden there too. So sothe whole idea of looking at cash flow data has really transformed lending.And it started with the Fintech lenders, you know, several years ago and now.And that's where we were born and incubated within one of those. And sothe idea of using that sort of alternative data which is debatable hasbeen around a long time but it's key. It's definitely critical totransformation that's underway. You mentioned being spun out of of, ofFintech. I have to ask you when it comes to sMB lending, what is a commonbelief that others in this industry might have that you just passionatelydisagree with. Yeah, I would say, you know, there would be lenders out there,whether it's commercial lenders or retailers that don't think you can, youcan have run an SMB portfolio profitably and efficiently and thenit's worth the trouble. And I would passionately disagree that you actuallycan do that. Not only you can, but you need to, its small business banking isaccording to Mckinsey, 20% of global banking revenues, like it's a massivecategory and I mentioned before my belief is it's an anchor to a wholebunch of other dimensions of the relationship. So you can probablycounted as 30% of global banking revenues when you attach the peripheralopportunities to it. Like I don't think a bank or credit union or aninstitution can afford not to do it. And getting really practical, let'slet's take one of the financial brands that you've been able to work with andoptimize this experience and you don't have to name names here. But what didthey come to you with? They came to you with a problem. What was that problemthat they address? And you were like, we can definitely solve that problemfor you. What did their past look like before working with you guys? Yeah. SoI can think of 11 client particular crediting and that came to us and theyfelt that they weren't properly servicing their members in this respect.And then it was a massive opportunity. And the way credit you think it's notjust an opportunity, but it's actually something they have to do. Like this isa service we need to provide to our members. And, and so we've got to makeit more efficient and we've got to be able to lend the small dollar amountswithout taking weeks and months and, you know, ruining the economics androuting the customer member experience. And so this was actually our firstclient essentially. That was arm's length when we respond out of our, ofthe Fintech. And so this is exactly what we were doing inside the Fintech.And we had the benefit of having gone through all the trial and error, Iguess, and the growing pains as a lender ourselves before spinning outand reselling the platform. And so how important thinking about this is doingsome type of benchmarking. It might even be competitive benchmarkingagainst others because coming back to the point about culture, aboutleadership, what I find is the big thing that holds people back is justthe lack of knowledge a of what is possible or be it's the fear of theunknown. And so by doing some type of benchmarking study, i. E. Let's justcall it digital secret shopping. I'm curious how many S. And B. Lenders haveever done that comparative to say like...

...a cabbage or any of these other Neillenders in the marketplace, who literally are making the claim that youknow, you can get access to capital and cash sometimes in minutes and that's avery attractive offer for a small business owner like myself, knowingthat there's a lot more on the other side of that equation, just because ofmy knowledge of the industry, but from the average smb owner. So where doesthat fall in of just helping build some awareness for just the generalmarketplace that they might not know that they have a problem. Yeah, I mean,and obviously we try and relay our experiences to people and communicatethe edge that these lenders have to write aside from the customer serviceand customer experience angle that I think is critical and small businesslending to small businesses want to have a relationship. But aside fromthat, the alternative lenders that you just mentioned, they have pretty highcost of capital. So the economic model is radically different. That's where wekeep coming back to community banks, credit unions, I think are in poleposition when it comes to small business lending. They have therelationships, they got the local knowledge and they've got a really lowcost to capital. So all they need to do is adopt a little bit of technology andobviously transform that cultural piece, but they should win that piece ofbusiness more often than not when we think about deployment here, Imentioned before, you know, there's a lot of ways to slice and dicedeployment sometimes as we try to get to the 100% before we launch. I'm a bigbeliever. Let's get 80% get it out, tested iterated pilot programs, right.Pilot programs I think are a great way to, to show proof of concept to helpbuild the confidence of others internally who might not even be fullyaware of once again the opportunity, but they might not even believe thatthere's a better way forward because they're clinging to the past. How dopilot programs play into the deployment of new types of technologies and reallyin this particular case, new types of thinking here? Yeah, they're importantand you know, there's very uh, guess flavors of pilot programs, anythingfrom a quick trial run this, run this with two or three advisors to see howyou feel about it. There's do retro analysis on your data to see what youwould have decided using this platform for example. And then there's uhrunning in parallel with your existing systems for a while, so you get comfortand then you can gradually lean off the parallel systems, expand the scope of aletter Sloan size or number of advisors. There's lots of ways to get to thecomfort level that you're required. But there's also, you know, when we look atpilot programs and really like this becomes the new definitive operatingmodel, it doesn't only improve the S and B. S. Experience, the prospectiveclients experience, but it also improves the employee experience aswell from a time reduction savings. Do you have any in any lessons learnedfrom that? Absolutely. In fact, we've been talking about this remarketingperspective, but a couple of our longest standing clients, our biggestfans are the front line employees that are doing the small business lending,you know, and it's often small business lending is with, you know, in theretail branches are with the small business advisors, and they're evenexpected to do the underwriting in some cases which they don't love to do, notnecessarily trained to do. And so they transformed from sort of hating smallbusiness lending because it's a ton of work for a small win for them too. Okay,that was pretty easy. And now that's a win and I can get on to managing therelationship like I want to manage it, so it it really can transform anemployee experience as well, man, I can't help but just think you'retalking through this, you know, another big theme that we've been having on thepodcast is this idea of thought leadership, building a personal brandin a digital world, an SMB lender is primed for this opportunity,particularly if they're able to free up time, free up capacity to become athought leader, to share content in that local market place, to build therelationship digitally and then to be... to service it digitally. It's onceagain it's almost a it's a double win when we're thinking about this and andto, you know, there's there was research from Gartner that said 70% ofsmall businesses would change their primary bank for digital access toproducts, so growth opportunity right there gore, this has been a fantasticconversation, a lot of great practical insights, but let's get super, superpractical here as we wrap things up because I'm a big believer that allchange all transformation begins with very small, simple steps Micro wins ifyou will, what would be that one small micro recommendation? That small microcommitment a dear listener could make or recommend internally to someone elsejust to begin to move forward on their journey as we've discussed today.What's that one thing to commit that when it comes to our world, A smallbusiness lending, I would say look at however you carve up your, your sort ofC. N. I portfolio and there's usually various tiers, take the lowest tier,whether it's up to 100,000 or 250,000 or whatever that is and say, you know,I just want to start with that and I don't need I don't need a system that'sgoing to integrate within every other system right away and talk to them.Just let's do it in bite sized chunks. So it's a stand alone system that wetake, the small, the smallest dollar loans. Let's start with that. And justsee how it works. Let's get it going and get the ball rolling with that. Andonce you get that working in the king's, oh, that at a relatively contained risklevel, you can start to expand it out and you can integrate with systems andadd larger dollar loans and more advisors, et cetera. I like thatbecause I see there's a correlation to that. For example, with Crm, you know,so many financial brands want to move Crm to the corporate level and it'sjust too much change too fast. It's overwhelming, particularly for those onthe front line. And we're like, no, no, no, let's like, let's just focus on onesmall area here, build a level of confidence through building a level ofcompetence and we move so that the same idea if I'm hearing you correctly wouldwork here, Let's not try to integrate everything and no start small billprogress and then be able to expand it internally. Am I hearing you correctlywith this? Absolutely. And it is, what we've seen is as soon as you start toget some momentum building when you've worked out the kinks with, you know ifit's loans under $50,000.3 advisors, whatever wherever you choose to focus,if you get that working and people start talking about it and realizinghow this works, Then that can snowball. If you start with this big uh big hairyproject that you could get stuck before you get the winds. You need to get themomentum. I want to say it was an article from Forbes that I read that 70and and it's funny you mentioned that the front line here, 78% of people onthe front line do not like change at all. Do not move my cheese please. Andso by focusing in on a small group, it's a great way. I think you use theword momentum, it's a great word, build some momentum, get some wind in thecells to continue to push the ship forward. Gord. This has been fantastic.If anyone is listening, they want to continue the conversation that westarted today. What's the best way for them to connect with? You reach out,say hello? Yeah, they can reach me on my email address board dot basically atjudy dot ai. That's grd dot ta iz L E y at j u d I dot ai. So we'd love to hearfrom anybody that wants to have a follow up shot connect with Gordlearned from Gord. You guys are doing fantastic work. Gordon? I really,really appreciate its important work, it's meaningful work and I'm a bigbeliever in supporting the smb market because just like community financialbrands are the backbone of the local market, financially, the Smb market isthe backbone of the local economy as well. So thank you so much for joiningme on another episode of banking on digital growth. Thanks for having me.It was great to be here as always. Un...

...until next time. Be well. Do good andmake your bed. Thank you for listening to another episode of banking ondigital growth. With James robert. Ley. Like what you hear, tell a friend aboutthe podcast and leave us a review on apple podcasts, google podcasts orSpotify and subscribe while you're there to get even more practicalimprovement insights, visit www dot digital growth dot com to grab apreview of James, roberts, best selling book banking on digital growth or ordera copy right now for you and your team from amazon Inside, you'll find astrategic marketing and sales blueprint framed around 12 key areas of focusthat empower you to confidently generate 10 times more loans anddeposits until next time, be well and do good.

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