Practical Tips for Community Bank Innovation

Gone are the days when a community bank’s role was simply “taking deposits and making loans.” While those activities remain community banks’ bread and butter, today’s major success stories often have innovative thinking at their root. 

ChoiceOne Bank in Sparta, Mich., has long “leaned into” adopting new technology. In 2019, when the $2.5 billion-asset community bank was unable to find a loan origination platform that matched its preferred lending process, executives decided to build their own platform. The decision was driven as much by ChoiceOne’s vision of the best way to operate and serve customers as it was by wanting to be on the cutting edge of technology. 

“The way we want to do business is better than what a software or platform will force us into,” explains Josh Hucul, VP, lending technology for ChoiceOne. “We reached a consensus: ‘Why settle?’”

“A consumer can go to our website, apply for an unsecured personal loan and we can have that decisioned and documented inside of two minutes.”

—Greg Ohlendorf, First Community Bank and Trust

Leveling the playing field

ChoiceOne turned to DPT Solutions, a technology and consulting firm in Grand Rapids, Mich., to build the new lending platform, which they named Metriciti. The partners first studied the community bank’s current technology and business processes from beginning to end. ChoiceOne began building Metriciti in 2019 and persevered through the pandemic, the PPP program and the acquisition of two banks in 2020. 

“When we found a bottleneck, we found a way to fix it,” Hucul recalls. 

He says ChoiceOne realized immediate benefits: “[Metriciti] brought everybody on the same program, automated manual processes and built out our sales opportunities on the front end.” 

What’s more, ChoiceOne reports “incredible” lending growth in the past few years. “We’ve done it all through the platform,” Hucul notes. “It speaks to the efficiency of the platform that we’re able to handle the size and number of transactions.”

Metriciti has performed so well that, in January 2024, ChoiceOne and DPT Solutions announced plans to offer it as a SaaS product to the financial industry at large. 

“We’re open to a range of financial institutions, but community banks are a focus,” Hucul explains. “It’s a core-agnostic, robust solution.” Powered by tech, ChoiceOne is pioneering a new line of business and revenue for the bank.

Boosting deposits through innovation

In a related way, $710 million-asset Seattle Bank pioneered a way to increase deposits, a perennial objective for community banks, and then made its solution available to other banks. The Seattle-based community bank launched CD Valet, a website where banks can promote their CD or other high interest‑bearing products and gather core deposits. 

“They’ve used technology to solve a pain point for themselves and their peers,” observes Peter Longo, VP of product management with Finastra, a financial software provider. “It’s not brokered. The site facilitates banks gathering core deposits. It’s very exciting. They’ve been able to take what they’re doing digitally for themselves and offer it to their neighbors.” 

If you’re open-minded, one innovation may open avenues for more. A few years ago, BAC Community Bank in Stockton, Calif., embarked on a quest to improve its commercial loan origination process and wound up improving all its internal business processes. 

The $800 million-asset community bank had grown out of its in-house commercial loan tracking system. Executives identified a vendor, but on seeing the origination demo, they immediately spotted other applications for the software. Thinking outside the box, they asked, “How can we use this efficiently outside of just loans?” 

“We have 75 different workflows, everything from onboarding new employees to daily approval of overdrafts,” explains Janet Jenkins, EVP, chief innovation officer for BAC. BAC executives decided to deploy the software throughout the bank. “We embraced it and got different departments involved. As we did more and more of it, it grew.”

BAC Community Bank’s embrace of change has paid off. “The benefit is when something is cross-department,” Jenkins observes. “Before, you had to pick up a phone or email and work through departments to get a task done. Now, a task is followed, tracked and it’s easy to see where any process is at.”

In addition to internal efficiencies, BAC Community Bank is using technology to improve customer services. It used Agent IQ to network its VIP customers with a bank team composed of a relationship manager, cash management expert, deposit specialist and others. When a customer sends a message, the entire team sees it. 

“It’s really responsive to our customers,” says Jackie Verkuyl, EVP, chief administrative officer for BAC. “They can get questions answered more quickly. A lot of times, professionals have questions after hours. This expands our hours.”

“You have to take the time to be strategic. If you don’t take the time to be strategic, it never happens.”

—Zach Duke, Finosec

Partners accelerate innovation

Fintech partnerships loom large in most community banks’ innovative initiatives. Where once banks may have viewed fintechs as competitors, many now see mutual benefit in those partnerships. 

In the universe of expanded fintech offerings, Longo sees an emerging paradigm shift: community banks transitioning from a traditional banking model to becoming the core supplier in a complex fintech network. 

“It’s a supply chain, and there’s an opportunity for community banks to get involved as the supplier,” Longo says. “Lots of payroll companies and online shopping companies need suppliers. Community banks can be great suppliers of products and services that extend beyond their charters.”

Carey Ransom is managing director of Banktech Ventures, a strategic investment fund backed by 110 community banks that invests in fintechs and other providers to deliver technology and solutions with maximum value for community banks. He has also noticed the fundamental changes fintechs are introducing. He believes it may potentially redefine the “community” in community banks away from a strictly geographic definition of community to one of shared interests. 

“If a bank serves an industry segment that’s dominant in the community—say, hog farmers—they may be looking at this primarily through a geographic lens,” Ransom argues. “With technology, it’s possible for banks to reach other markets and show how effective they can be at helping farmers manage their cash flow. The focus should be on how we can increase the capability of the bank to help customers more.”

Tools for competing

First Community Bank and Trust in Beecher, Ill., was one of the first to partner with Quilo, an application that facilitates rapid decisioning on consumer retail loans. The partnership has empowered the bank to compete effectively in the retail micro-loan space. 

“A consumer can go to our website, apply for an unsecured personal loan and we can have that decisioned and documented inside of two minutes,” explains Greg Ohlendorf, president of First Community Bank and Trust. 

Ohlendorf is grateful that his $195 million-asset community bank can now offer a very competitive, non‑predatory service to retail customers. 

“We felt consumers were being taken advantage of by very high credit card rates,” he says. “We’re serving a market we couldn’t serve with traditional methods and doing it in a modern, quick turnaround way. We’re helping with financial health and wellness.” 

First Community Bank and Trust has also partnered with Micronotes, an ICBA ThinkTECH Accelerator alumnus (see sidebar on the left), to cost effectively access consumer credit bureau data. Such access has been routine for major banks but prohibitively expensive for most community banks. Micronotes has leveled the playing field. 

“What they’re doing allows us to digitally pre-screen customers and noncustomers for products and services we offer,” Ohlendorf notes. 

First Community Bank and Trust pairs the consumer data with its Quilo app to make loan offers to prospects, competing with major banks in targeted marketing. 

“We can quantify how much you will save with our offer,” Ohlendorf says. “[Most] community banks have never been able to do that before.” 

He notes that the community bank has improved workflow and dropped its efficiency ratio by 10 to 12 points over the past five years. “It’s an amazing change in the cost of overhead,” he says. “Digital isn’t the only reason, but it’s a contributing factor.”

“Foster a culture where it’s OK to fail. Fail fast and move on. If you’re not failing some of the time, you’re not trying hard enough.”

—Carey Ransom, Banktech Ventures

How to promote innovation on the daily

Community banks that want to create a culture of innovation should recognize that it won’t “just happen.” Bank leadership must adopt innovation purposefully. 

“You have to take the time to be strategic,” advises Zach Duke, CEO of Finosec, an information security startup. “If you don’t take the time to be strategic, it never happens.”

Intention or purpose must be translated into the nuts and bolts of meetings, team input and goals. The frequency of meetings and who’s involved will vary with a community bank’s circumstances, but what’s critical is scheduling specific times to review opportunities. 

First Community Bank and Trust uses weekly 30-minute meetings to discuss specific fintech projects. BAC Community Bank has an information systems steering committee that regularly reviews short- and long-term goals. Other community banks use quarterly off-sites for executives. 

To ensure that great ideas aren’t aired and then forgotten, create action items and put someone in charge of following up. Whether or not there’s a full-time role for an innovation officer, each innovation project or idea needs someone who’s a champion or a point person. 

“Have somebody own the process, the discussion,” Duke advises. “If you don’t have somebody that is doing the shadowing of the process and asking how it happens, it may not. You have to have intentionality.”

Industry experts advise adopting a “fail fast” attitude toward innovation. “Foster a culture where it’s OK to fail,” Ransom says. “Fail fast and move on. If you’re not failing some of the time, you’re not trying hard enough.” 

By the same token, take some of the risk and sting out of failure by taking “baby steps.” Small projects are a great way to start. Ransom notes that quite a few fintech apps don’t require core integration. “Some of these can be a very low-lift way to leverage data and technology,” he says. “The lower time to initial value for the bank gets you more excited to take the next step.”

Finally, make sure there are incentives in place for team members. “If employees aren’t bought into it, technology won’t be a silver bullet,” Ransom asserts. “It comes down to incentive alignment. There should be a reward for creativity.” 

ChoiceOne’s Hucul believes that innovation is now a necessity for community banks, not just a nice-to-have. “It’s human nature if you have a workaround to just keep using that, but it’s important to fix what’s wrong,” he says. “At the leadership level, we need to be able to pivot and recognize that the same things that got us here won’t keep us here.”