Why We Invested: Presta
Challenges facing Community Banks
One of the largest challenges facing community banks today is how to build and deliver digital experiences that consumers and businesses have come to expect. According to Mckinsey, the pandemic prompted five years of consumer and business digital adoption to occur in the matter of eight weeks, which has supercharged Community Banks’ needs to invest in technology and face some of their ongoing challenges head on. What’s more, the recent banking crisis over the past moth has created an even larger surge towards digital adoption, leading customers and businesses to demand a seamless digital banking experience. This presents a challenge for community banks. These banks, which account for 97% of the banking industry in the US, have traditionally relied on personal relationships with customers and local expertise to stay competitive. But as the industry continues to evolve, Community Banks must evolve as well.
Here are some of the facts:
- Only 40% of community banks offer online loan applications.
- Only 0.1% of small business loans are entirely handled digitally.
- Banks typically provide loan decisions in 3–5 weeks.
- Amongst community banks surveyed by CSBS, approximately 90% do not use any automated loan underwriting services and more than 95% of community banks do not have a tool for online loan closure.
- Many traditional lenders use up to 3–5 tools to manage their lending process, with upfront costs ranging from $20k to upwards of $200k.
- 56% of bankers surveyed noted that the biggest challenge in initiating the loan process is the manual collection of data and subsequent back and forth with the client.
The Opportunity
In recent years, Community Banks have seen a surge in deposits and loan applications, particularly during the pandemic. More than half of the funds in the initial round of PPP loans, worth over $175 billion, were processed by Community Banks. Deposit rates display relative stickiness compared to borrower rates because in general, banks have strong enough relationships with existing customers to not need to raise their interest rates lockstep with rate hikes. However, this surge in demand for loans has placed a significant amount of pressure on banks to increase their loan-to-deposit ratios and drive down loan origination and servicing fees.
This is where Presta comes in.
The Future of Lending
Presta is a technology platform that automates the lending process, making it faster, more efficient, and less expensive. By using Presta, banks can reduce their loan origination and servicing fees, while providing a faster lending process for customers. This allows bankers to focus on maintaining and attracting more lending relationships, instead of being bogged down by a disjointed and manual lending process. Given Presta’s access to data from non-competitive banking entities, this will also allow for data sharing and artificial intelligence and machine learning driven underwriting automation.
Moreover, with the rise of digital banking, customers expect to access banking services from anywhere, at any time. With Presta, banks can offer a digital lending experience that meets those expectations, making it easier for customers to apply for loans. This helps Community Banks to compete with larger banks and fintech companies that are offering digital solutions.
Finally, compliance is a major concern for banks. The regulatory landscape is complex and constantly changing. By using Presta, banks are able to meet their regulatory requirements on closing documents without compromising on speed while avoiding costly penalties for non-compliance.
Overall, Presta’s key product features include:
- Digitized loan application: Borrowers can apply for loans online instead of visiting a bank branch and filling out a PDF.
- Automated eligibility checks: Banks can use “screen-out” criteria to quickly disqualify incomplete applications and focus on qualified ones, saving time.
- Configurable reviews and approvals: With e-signature and e-notary integrations, banks can meet their regulatory requirements on closing documents without compromising on speed.
- Customer relationship manager: To manage customer relationships more efficiently than with an excel spreadsheet.
- Automate Routine Follow-Ups: Presta automates borrower monthly statements and payment reminders, notifies lenders of delinquent payments, and integrates with accounting and PoS for real-time financial information
- Customizable templates for documents: Autogenerated loan agreements are created from onboarding agreement templates and the loan application data, eliminating the need for manual data entry and costly legal reviews by loan officers.
As the daughter of business owners whose bread and butter is focused on collateralized loans, I have come to appreciate the significant role that lending plays in the success of small businesses and the community. As more customers demand digital banking services, Community Banks that fail to adapt risk losing customers to their competitors.
We’re proud to back Presta as they build a category-defining company in Community Banking and small business lending.
