NASHVILLE, Tennessee — After generations of largely ignoring businesses owned by women and minorities, banks are finding that attracting these customers requires a new approach.
Bankers speaking at American Banker's Small Biz Banking conference on Monday said their biggest problem when trying to get business owners from underserved communities to bring their accounts is that these entrepreneurs simply don't trust banks.
The process of enticing potential customers to BMO Harris Bank began with a specialized webpage for Black, Latino and women-owned small businesses. The page was designed to convince these entrepreneurs that the bank did care about their accounts, even if they had previously been told they were too small to be customers at other banks.
"The lightbulb went on: 'They really want to bank me!' " said Niamh Kristufek, the Chicago-based bank's head of U.S. business banking.
The bank also signed up 15 partnerships with community development financial institutions and community groups like the Illinois Hispanic Chamber of Commerce, and worked with two of the CDFIs to change its risk-appetite rules. It's important to have "credible partners who will vouch for you," she said.
BMO Harris also works with prospective customers to help them understand what the business owner would have to do to get a loan even if they don't qualify yet.
"We like to say, it's not a 'no,' it's a 'not right now.' How do we get a person from a decline to an approval?" said Kristufek.
The first step for many banks is understanding the regulatory rules about preferential lending for certain population segments. At BMO Harris, the idea for a program to target underserved communities ran into a roadblock when executives thought it might be illegal, and the bank initially shelved the project for two years, Kristufek said.
We like to say, it's not a 'no,' it's a 'not right now.' How do we get a person from a decline to an approval?
When Todd Hollander, group head of business banking, SBA, small business at MUFG Union Bank, first came across the program, he was similarly convinced it couldn't be legal and brought in lawyers to vet it for him. But it was: "There's an FDIC statute that says, if you have a population that's underserved you can create special parameters around that," he said.
Wells Fargo debuted a site for women business owners, Connect to More, in the summer of 2020. While banks don't have a legal right to ask for diversity identifiers outside of a special-purpose credit program, "that's going to change" now that
Banks picked up thousands of new small business clients while administering Paycheck Protection Program loans during the pandemic. But that came with a significant reputational risk: business owners might feel that they're only useful as clients when the bank is lending out federal dollars instead of its own.
"But it will turn to, 'You gave the free government money away, but you won't actually lend to us,'" Kristufek said. "That's why it's so important for us to lean into the topic."
"Women business owners will look at our industry differently because, in their memory, we were not the industry that served them," Schapira said.
Although marketing to underserved customers is often easiest to do online, "this is not a digital play," Kristufek said. "You invite them in digitally with a webpage, but this is very much a human interaction play" that requires in-person interaction between specialist bankers and the community before the customer relationships can form.
She likened the experience of her large bank to "community banking at the local level." Part of this is hiring bankers who understand the area: BMO Harris has "great female Latina and Black bankers to lead this," she said.
Aside from regulatory requirements or good public relations, the bankers said their programs aimed at underserved groups are just smart business.
"The loans performed as good or better than the rest of the population," Hollander said.
Relationships with business owners from underrepresented groups only work when the bank is a constant presence, the bankers said.
"I can't say it's completely philanthropic or comes from the goodness of our heart," Hollander said. "If we don't show up for the communities we serve, if we don't show up with people who look, act and talk like the communities we serve, we won't be able to get that business."
