What you'll learn
- What issues face banks in developing their programs (integrated solution with internal resources)?
- How does serving these small businesses contribute to bank's revenue and profitability, CRA requirements, and lending objectives and how are these objectives measured?
- What products have been designed specifically to help these businesses (e.g., Special Purpose Credit programs).
- The intersection between community banking and small business banking (e.g., CDFIs).
Transcription:
Devon Bray (00:10):
Yeah, you're the man.
Todd Hollander (00:11):
Alright, well I'm no good at reading and we have an intimate group here, so I think we're here to talk about something that I know all three of us are very passionate about. I'd spent 35 years in banking and I've just recently gone to a nationwide CDFI called industry. We concentrated on lending to diverse populations in uplifting communities 100% of the time. But when I worked at Union Bank with Devon and I worked with M&T Bank with some of your good friends, we all care about our communities, but sometimes it's hard to develop programs and to reach into communities and do it in ways that are effective and profitable and make sense to the bank as a whole. So what we're here to talk about today is some of the things that we've seen done successfully to be able to do those things that we all hold near and dear to our heart. So with that, let's discuss the challenges. What are the key issues banks face when developing small business programs tailored for women and diverse business owners, particularly when it comes to integrating these solutions with internal resources and existing infrastructure? So how do you get started? Let's start with Devon.
Devon Bray (01:30):
We just going right in all the way. Well, good afternoon. For those of you I haven't met, my name's Devon Bray. I do small business for US Bank in the lovely gigantic region of California. So that'll keep you busy all day long, about 20 years in the small business segment and banking and what I'm so excited and I'm thrilled that we get to represent this conversation because this conversation is a real one and it needs to continue to be elevated amongst product strategy and on our front lines. And one of the things that US Bank we've been really devoted to is how we make that palpable experience in the places where we live and in our communities. And it's something that you can see experience and then also witness the difference. I talked briefly in the morning seminar, we talked about business access advisors and I want to kind of take a moment just to talk about what that has looked like for US Bank.
(02:27):
And it's something, again, it stems from when we think about how we are reaching our communities in a way that creates safety, that creates trust, that creates that shoulder to shoulder experience. Yes, we have small business bankers, but how else can we elevate and really connect to people in a meaningful way? I think all three of us are going to be able to jive on the story and jive on what it means to connect back to our communities. And one of those ways for us was developing a role that is specific to, for example, down in San Diego, we are a border city where we have our Hispanic population ensuring that we are breaking down barriers of financial literacy, creating the knowledge gaps and being able to serve as a conduit between maybe an experience that you had at a bank that wasn't so great and how do you rebuild that trust and align them with the community partners creating real conversations, safe places to be able to talk about what matters most for them.
(03:28):
And that business access advisor is again, not gold. They don't have a sales structure. Their goal is to provide resources, education, and that become that friendship support in being able to build trust and an alliance partner. So currently we have 17 US Bank has doubled down. We're looking to expand that and double that in 2025. And it's one of those areas that again, I think all of us, as we think about our CDFIs and we think about all the community channels, how do we bridge gaps and create access to those channels? So maybe my friend David, you've been doing some breakthrough work at M&T. Let's talk about things you're doing.
David Femi (04:07):
Thank you. Thanks Devon. Good afternoon everyone. So I'm David Femi from M&T Bank. So I run our business and professional banking group for the entire state of Connecticut. So on my way here last night I told my 6-year-old daughter that I'm going to a banking conference where we talk about small businesses. So she's only six, but she's been making this wristband and she's been trying to sell it. So being a traditional banker, I've been trying to tell her how to do it. So last night when I told her I was coming here, she said, daddy, maybe I should go listen to other people because sometimes what you tell me is not what you think I need. Like oh my gosh, she busted my ego. But to your question, Todd, and I think that's where we bankers have really failed. When I think about the challenges that women and diverse businesses face, we banks really haven't taken the time to hear them out.
(05:10):
And I'll tell you why. A few years ago we had this renewed sense of purpose at M&T. We wanted to be the bank that would get invited into businesses and communities that we started to ask ourselves, who do we want to be and how do we want to show up? If we keep being the bank that would just design products and solutions and say, Hey, go, this is for you, then we would never be the bank of choice. So what did we do differently? We started to ask women, say, Hey, how would you like your bank to show up? What are the things that you would like to see your bank do differently for you as a business, as a fit woman-owned business, or even a multicultural or diverse owned business owner? You'd be amazed some of the things they told us are who we thought we were and what the good things we thought we were doing.
(06:00):
No, they never mentioned that. So I think it's important that we listen to the people we've been called to serve so that we can truly design banking solutions that would help them scale and thrive. It really helped us at the bank. So with the feedback and the focus groups we held with women initially last year in Connecticut, we tried something unique. I held the women, all the women in business conference and invited over 300 women into the conference and they all showed up and the goal was to listen. So number one, the challenge is banks don't listen enough. So we learned. So we took a whole day to listen and we asked questions about how do you want us to show up? What are some of the challenges that you're facing today that your bank or a bank can help you overcome? And while access to capital is top of mind, it wasn't primary.
(06:55):
What was primary was teach us how to write a business plan, teach us where to network, teach us how to do marketing. That's what we want our banks to do. Then we would trust the banks and we would do business with the banks like, wow, we never thought about that. We were thinking SBA loans, we were thinking open a deposit account. We were thinking lending, but that was not what they told us they wanted to know. So we took all of that feedback and since then we've designed programs based on educating and empowering women on businesses around topics that they want to hear about, that they want to learn about. I'll tell you, we've started to see some return on investments just from educating and empowering these women. Some of them are coming back now because of the knowledge we've provided around SBA, they're coming back now with business plans and we're giving them SBA loans and these are, most of them are startups.
(07:50):
So if we had just told them, Hey, go apply for SBA loan, they probably won't get it. But you educate, you empower, they show up and then you're able to support. So that's one thing. Many years ago, I would say maybe four years ago, I had the opportunity to build and run a multicultural banking division at the bank. And I'll say this, any bank in here that doesn't have a multicultural strategy, doesn't have a growth strategy because when you look across the country, there's a cultural transformation that's taking place all across the country. When you look at the Hispanic segment for example, they are driving huge, huge, huge success across major, major spectrums across the economy. So all of these segments that were never thought of are now becoming a major source of growth, a major source of strength and a major source of change in the country.
(08:46):
So as business bankers, how might we support these businesses? We realized four years ago that most of our markets, we had communities where Hispanics were leading African Americans, blacks were leading, Asian Americans were leading, we had a presence, but we went banking these folks, we would show up, we would open the accounts, but we really didn't understand them. We really didn't know them. As a matter of fact, I remember a Hispanic small business owner saying, I see you guys, but I don't know you guys. Can you imagine somebody telling you that? And then you walk around here calling yourself a community bank, they don't know you, but you call yourself a community bank. So we started to do some work, started to ask questions and with the questions, with the feedback, instead of thinking loans and access to capital is what we should lead with, no, we led with listening and asking questions.
(09:48):
Some of the things we gathered, I would never do banking with you because when I go into your small business center, I don't see someone that looks like me. I would never take a loan out of your bank because you don't understand me, you're not asking the right questions. So we decided to train our business bankers. We decided to train our folks in our branches. We decided to designate branches as multicultural banking centers where our employees use their linguistic and cultural skills to connect with these businesses so we can educate them, teach them how to budget, teach them how to write a business plan, teach them how to own a home responsibly. So these were some of the things we did to enable us to connect with the segment because the moment you connect and they see that you genuinely care, they trust you and they do business with you.
(10:31):
Something else we did from the feedback we gathered, I led the effort to create what I call a multicultural small business lab. So in eight cities across our network, we ran these labs and we're still doing them till today where we bring in anywhere from 20 something to over a hundred businesses from six to eight weeks. We take them through a series of teachings on topics that they say is top of mind for them. And then when some of the examples I'll share, I remember in Buffalo, New York, two years ago, two sisters came through the program.
(11:11):
They've been dreaming of bringing their own the first coffee shop to the east side of Buffalo, New York. And if you know anything about the east side of Buffalo, New York, no grocery stores, there's nothing there. The dream of these two sisters, very smart, went to college, have MBAs, but no bank would listen to them. They came through the program, they learned a lot about how to write a business plan, but most importantly, they were able to connect with people, they were able to network with other folks that were going through the program. Fast forward to the end of the program, they met a gentleman that walked through the school system and the school system was looking for a coffee company to supply coffee at all the schools. So that was how they got this nice gig to supplying coffee to the entire school system. How were they able to do that? Because with the bank convened a group. That's how you build successful ecosystems. And that's what this women owned and diverse owned businesses are looking for. They're looking for ecosystems where they can support each other, where they can network and rely on each other because guess what? They don't trust banks. But if we can be the convenience of this group, it goes a long way. So I'll pause there.
Todd Hollander (12:22):
Nice, nice. Alright, our next question is, and I'll start off with a little story that already, Devon, yes. But the next question is, what issues faced banks in developing their programs, integrated solutions and internal services? Well, I'll take you back in time. I'm going to go all the way back to 2010 when I went to work for Union Bank. And Union Bank had a program called the Business Diversity Lending. And it was one of the first programs like that in the country that it offered incentives to women, veteran and minority owned businesses, lowered credit standards is the wrong way to put it. But we made the capital access, we made the capital easier to access and cheaper to access. And most importantly, we went after the businesses on purpose to tell them that we wanted them at the bank, we wanted to bank them. So I get there and in my infinite wisdom I say, this can't be legal.
(13:20):
It can't be legal. We can't do this because it's disparate treatment. We're giving certain population advantages that the others don't have. But so I spent a bunch of money on KNL gates just to come back and say, well, you didn't read the FDIC statute that says, yeah, you can absolutely do that if you can prove that somebody's underserved, you can make a program to help that out, but you just have to recertify it every year, which we've been doing. So my second opposition, well, how's the portfolio performing? And we looked at the portfolio over years and years of performance and it actually performed better than our standard portfolio. So that was one of the things that they had to get over to make sure that we could continue to do the good things that we did and then we just dove straight headlong into it once the misperception was cured. Same question. What difficulties do you face when trying to get it integrated into the whole bank?
Devon Bray (14:20):
That's a great question. Well, that program, so that's I think the beauty of our dynamic up here. So through an acquisition through Union Bank and US Bank acquisition, we were able to continue the good work. And so the business diversity lending platform was one of the very first kind of key items that we were able to adopt and implement immediately upon that acquisition. And it expanded nationwide. So going from a California based lending program, it's now recognized nationwide and it is, it's an opt-in platform. So a lot of folks do. They ask us on the daily, how are you making this work and how is it performing? And all those key questions. And we're very proud to say that it is a very strong performing portfolio and it is, it's simply an opt-in. So everyone, they self attest that I'm a women business owner or I'm a minority business owner or a veteran business owner.
(15:11):
And it allows for us to set different parameters for the credit lowering the FICO score and really making that opportunity more accessible than it had been prior. So that's something at US Bank we're really proud to see implemented. But again, the way that you approach lending and the way you approach access to capital is more than just a tick mark. And I think that's where, to your point, it's about how we're having the conversations. We just did a recent survey of over a thousand different small business owners, and the really wonderful narrative there is that our women and minority business owners are on average about 87% saying we're growing, we're optimistic as compared to maybe the average, which is around 82%. So we have a population of folks that are growing that are investing in this particular area. And I know we were talking sidebar, we are having an exponential growth in our women and minority business owned businesses. And so how our strategy is devoted to this going forward is going to be paramount. So I don't know if that was kind of where you were headed with that. Todd and David, I don't know if you have anything to add.
David Femi (16:21):
Yeah, no, sure. Thanks Devon. I would say we're not there yet. What US Bank is doing is great. I do believe most banks should be doing that at M&T though while we are on this journey to get into where US Bank is, I think most banks are like that. We get in our own way sometimes. We've been trying for so long to be here where US Bank is, but this thing about risk and we've never done it before, and so because we've never done it before, let's not do it now. But guess what? The world is not the way it used to be before. And like I said earlier, there's a cultural transformation that's taking place in the country. So banks, we need to be thoughtful in how we approach some of these challenges so we can truly be banks that are helping this businesses.
(17:16):
To Devon's point, when you look across the country, women own businesses are on the rise. It's not going to stop. Hispanic owned businesses are rapidly on the rise. It would never stop, right? I mean if you go back post covid, most of the newer small businesses that have been formed in America are owned by women and are owned by Hispanics. So if we are truly going to be banks that uplift these businesses, if we are truly going to be banks that make a difference and help the communities where these businesses are, we're going to have to change some of the things we look at. So some of the things we started to do is who do we have engaging these businesses? So we're approaching this from a talent perspective. First we started to hire bilingual business bankers. We certify them to make sure that, for example, if you are a business banker in a heavy Hispanic community, you're engaging these Hispanic businesses in their local language, you're speaking Spanish with them, you're certified bilingual banker.
(18:20):
So you're empowered to connect with them in their preferred language. It goes a long way. You may not see the return on investment at the beginning, but I guarantee you language is a key connector. And once you can close that cultural gap, these folks will fall in love with you. They'll trust you, and then they tell their friend, they tell their friend, they tell their friend. That's way, way better to senior return on investment at the big billboard that you're going to spend thousands of dollars on that nobody's reading anymore. So I think those are some of the challenges that we need to learn how to overcome so we become better bankers for our communities.
Todd Hollander (19:01):
The language thing was totally apparent to me, but in California you get a little myopic until you realize how many cultures there are in California and then you go to work for A-C-D-F-I where you're nationwide, we speak 27 languages at the CDFI. So we've realized that people like to do business in a way that they can understand and a way that shows honor to their culture and the way that they do business. So this year we passed, we were 10 years in business and have distributed 10 billion in capital and it's all technology enabled. So what we do is we try to look for ways that we can lend money when you can't and be regulated. We're regulated in a different way too, and we look for ways that the government can help and that banks can help with credit enhancements to get it done. And then we give the loans back to you with sales and things like that. But the question, the next one is, okay, we do these things. You guys are obviously passionate about it and your banks are backing you. How do you measure success? How do you measure CRA impact? How do you measure profitability? What framework do you put it in and the bank put it in to measure if you're doing well?
Devon Bray (20:18):
I think this even goes back to your point too, David. I think there are some things that you aren't going to be able to measure immediately right back on your balance sheet, but I think there are ways that we're starting to see the positive effects. And part of it is going back to just understanding where our gaps are and where we can meet our clients and what they're going through. So for example, coming back to our Hispanic population in a recent survey too, same kind of situation. They're looking to grow and women too looking to understand how they can overcome hurdles in payroll and payments. So merchant, so we have a really beautiful touching story where one of our local bakeries down in San Diego, women owned, went through the pandemic is a fascinating story of being able to overcome the many, many hurdles by allowing childcare within the bankery.
(21:11):
And at the time the business was cash based. And this is very common. So a lot of times within cultures, cash is king and we hear that very common. There's fear in what that process might do to their business if you start to go a different route. And while that might sound archaic to a bunch of bankers and FinTech firms, that reality is a reality. And so closing the gap on financial literacy and understanding how cashflow, how to enhance cashflow through payments and be able to do these types of things. We were just meeting with the owner not long ago. She's doing fantastic. But one of the major kind of turning points for her was working with her small business banker, having a conversation about cashflow and saying, if only you accepted credit card and we could get you up and running online, you would see a magnanimous difference.
(22:02):
And I'm proud to say that this has been, is a four generation owned bakery all by the women in the family. They went from a single location and now they're opening their third location as a result. And that's enough to give you the chills, but you don't understand the power of merchant services. Are you kidding me? So just by doing those simple things, but those are conversations that have to be held in a very safe and a very trusting environment where people are meeting you where you are. And again, you have grandma sitting there too saying we're not changing the model. And those are things that, again, you might be such a simple structure, but if we think about all the goals that we have to try to evolve our front lines to do more, to do better, to be faster, sometimes it's just even simplifying and going back to the basics of those relationships that we're fundamentally forming.
(22:53):
And then to your point, Todd, the other component to all of this is, and I was having just a conversation with Brian just a second ago right before we came on stage, is sometimes we think of this small business client as this client all out there by itself on an island is this client is a consumer, this client is the person that needs wealth, wealth building needs to think about buying a home in all the various ways that this small business client, I always refer to the small business client as little white flag in the middle of a, if you go back to olden days when we actually had tug of war and there's a big pit of mud and that little cute white flag is our small business owner and it's constantly being tugged and pulled by different segments of the bank, whether it's the branch, the merchant, the payments, like who's on first with this poor small business client and that can really, and then of course the small business banker at the epicenter of that. And I think that's where Todd, when we start to really think about how can we improve that experience, how can we make it more empowering, less of a tug of war and more of a coming together to support and lift up that small business client. I think that's when you start to think about the downstream effects and the upstream effects, I should actually say for our women and minority owned businesses. So
David Femi (24:11):
Very well said. I'll share a few stories. So I happened to be somewhere a month ago and a mother and daughter looking for money, some money to start their catering business. So they came to us and financial empowerment, they had the conversation back and forth, but we knew right there and then we wouldn't be able to help them. But we have CDFI partners that we know can help. So we sent them to our CDFI partners locally and they helped them with the business plan and all the projections and all of that and took them through the programs and then a few months, a few weeks after that, they sent them back to us that, look, these folks, if you did this and structured the loan this way, these ladies are good. They have a plan. So with that plan, we went to our underwriters and say, Hey, let's take a look at this.
(25:07):
Do you know we're able to structure this for them & they're able to get $300,000 to go do their loan? That's how we measure success. We did not turn them away. We send them to a partner, partner did their work, referred them back to us and we're able to do the loan. Number one, we listened, we worked with our partners. It's very important. Another story I talked about the small business labs that we run, that was one we did in the city and an African-American gentleman owns a trucking business and makes over a million dollars a year in revenue. And he was talking to we the bankers that you know what, he makes a million dollars over a million dollars a year, but he never sees his money, his money comes in, his money goes. And we started to ask questions. He didn't have a business plan, he was just running the business the way he knew how to, but nobody ever took the time to sit him down to guide him.
(26:05):
When we met with this gentleman, we saw what he could be doing differently, helped him put a plan in place. And mind you, he didn't have a bank account, he had a credit union account, nothing against credit unions, but most of his money was at home cash under his mattress. No kidding. Can you imagine that? He came through the lab, we sat down with him, talked to him about why are you keeping your money at home? Here's the risk of doing that. Here's what a plan can do for you today. Fast forward some years after, guess how much deposits he has now with us? We took the time to listen. We took the time to ask him questions. It's not just the deposits. He has merchant services. There's a ton of fraud out there. So he's also got fraud management, treasury management with us and he's telling people in his network that we are the bank that helped him.
(27:04):
So he's referring folks to us. That's how we measure success. And we have to pay attention to that because when we're talking about women and diverse owned businesses, they listen to themselves, they talk to one another. That's how they determine who they go with. So if we are going to be the bankers that truly make a difference and uplift these businesses, we have to sit down and take the time to listen and make sure we advise and guide. I like to tell folks in this business, in this day and age, don't call yourself a lender. Be a relationship manager. Manage that entire relationship. Don't just give loans and walk away. Think about the deposits, think about fraud, think about merchant to think about cash management, think about where they sleep, think about succession planning. That's who they'll go to. That banker that took the time to understand them and help address.
(27:55):
And so that's how we measure success When we listen to folks, people refer folks back to us and then we see in the long run we see the revenue. I'll say one month thing and I'll close. I talked about the Women in Business summit that we held. 60% of the women in the room didn't have a relationship with us. These were all prospects. But through convening this group of women together, fast forward to today, we bank almost that 60%. They moved their deposit to us. We've spent about 30 something thousand dollars to run that conference. But the SBA loans that we've done as a result, the revenue from doing those loans surprises the money we spent to do the conference. But the goal of the conference was to listen, not to sell loans. So when you do things right, you will eventually see success.
Todd Hollander (28:45):
Absolutely. So a little teeny bit of time, so I'm going to go off script a little bit. Women veteran and minority-owned businesses are three x growth of other businesses. Both parties are talking about massive investments in small business. Justice 40 says we need to invest in our communities. There's 40% of every federal contract has to go to a minority or disadvantaged contractor. So with all that being said, and we know it's good business and we know we uplift communities, we know we're trying to keep wealth within the communities and grow that. What's next? What's your next big thing? Even if it's not on the table, what comes next? What do you want to do? We'll start with you Devon.
Devon Bray (29:35):
Wow, that's like the million dollar question. Well, I want to do what you've been doing, David. I've already, we got US bank people in this room, so I'm already like, let's go back. And I think that's part of it. It's having the dialogue, it's being willing to talk about things and press on the button of the narrative of well, we haven't done it before. And we have that narrative pop up altogether too often. And I think we need to be able to take that risk to challenge that norm, to think about how we're inviting voices into that table, making sure our community partners are present in those conversations and really taking some of those risks that elevate a chance to do something different. And I think that's how we're going to get there. I mean the data is there, the voice is strong and it's just going to be how we're going to show up and play stronger. So I think for us it's going to be lifting that bar a lot higher.
David Femi (30:31):
I would say this, when our businesses do well, our communities do well. I think we should all keep that in mind. So for me, I have a dream & The dream is number one, I would love to see us create a special credit purpose programs or special purpose credit programs always mess it up all the time. Special purpose credit programs for this segment, it's very, very important because as they are growing, the need for access to capital is going to be there. And as banks, we cannot continue to traditionally treat this segment. We treat every other segment and we've always done business. We want bank this folks, that's number one. Number two, I have this dream about building ecosystems where these groups or these segments convene together and they become support systems for one another. But with the bank we become the conveners because when we do that, when we hear from them, when we listen to them, it helps us better deliver best in class experiences. It helps us design banking solutions and services that would ultimately help them scale and thrive. So that's on the table.
Todd Hollander (31:43):
Awesome. Beautiful. So what comes next for us is a little bit different. I think we all have a big role to play and businesses are going to approach us in all different kinds of ways at all different parts of their life cycle. I don't think I went a week at the bank where somebody says, Hey, I got a big invoice, I need to do this. But they didn't have the historical cash flow so we couldn't finance 'em. Or a contractor wanted to take on a job, but they didn't have the historical cash flow, so we couldn't do it.
(32:20):
We are using technology now to be able to work with, if it's appeal with a rated company or a big contractor, we can finance those businesses with a custodial account that's held by the business and the contract and get those things done. That's our part. Those are short-term loans to be able to bridge the gap, to have 'em be bankable. Once they're bankable, that's awesome because you're going to charge 'em a lot less. You're going to be able to give 'em all the things that you can't do. But if you see a customer like that, you can refer 'em to us and now they have a solution that can deposit those money, that money in your account. They can do merchant services and not have to do merchant cash advance and things like that where they're getting taken advantage of. So our next thing is we just need to make sure people know about where they enter the financial services platforms at the right time and all work together to get things done. Because if our communities are strong and we continue to build wealth within the communities, we're all better off and it's time to do it. We are out of time and you guys are absolutely awesome. Good seeing you. Of course I know you very well and great meeting him, but we've got a couple of bankers here who are absolutely dedicated to making the world a better place as I know all of you are. So thank you.
David Femi (33:49):
I think they just gave us 38 more minutes to keep going, so thank you guys. Just kidding. Thank you.