The number of U.S. banks has almost halved since 2007, from 8,400 to about 5,500 in 2017, and most of the casualties were community banks. Currently, one-third of rural communities don’t have a local bank, a 15-point increase from the start of the century. I wouldn’t be surprised if the last time you saw a community banker was Jimmy Stewart’s character in It’s A Wonderful Life rerun.
What’s so unfortunate about this situation is that community banks aren’t just a place where the teller knows your name; small- and medium-sized business lending is the foundation of community banking, and many SMBs are equally reliant on their local bank. At the heart of the matter is flexibility: smaller businesses vary greatly, and so they have unique cash flows, assets and other aspects to their operations that require personalized assessment, which often isn’t worth the effort for larger banks located far away.
Another reason I’m passionate about community banks is that in my field, robotic process automation (RPA), we’re similarly laser-focused on flexibility. The robots being deployed aren’t physical but are rather virtual assistants that monitor work computers. As employees go about their day, the ‘bots watch and learn, and then endeavour to automate repetitive processes so we can focus on tasks more suited to a human touch, which has been sorely lacking in modern banking.
Trust in the financial sector crumbled in the wake of the 2008 recession, but even before the recession customers had become accustomed to an experience that was dominated by machines – be it ATMs or 1-800 customer service lines – and not people. Community banks, in particular, have been hammered on multiple fronts. While technology like online banking has rerouted local money to the biggest brands, post-recession regulations have been cast so wide as to unfairly ensnare local bankers who had nothing to do with the crisis.
It cannot be stressed enough that the cost of complying with these regulations is extraordinarily burdensome for smaller banks. Research by the U.S. Federal Reserve indicates that adding just two new employees to a small bank’s compliance team would make a third of these banks unprofitable. Congress has recently voted to loosen certain restrictions on community banks, but for many, it’s already too late. For the remainder, RPA can help.
Firstly, if there were ever a cause of repetitive work functions, it’s government regulations. What’s worse, rules spanning dozens if not hundreds of pages can also be summarily changed, leading to steep penalties if minutia isn’t fulfilled with machine-like accuracy. But with RPA bots, smaller banks that can’t afford to hire more employees could streamline numerous regulatory tasks, which I’m certain is sweet news to compliance teams and their budgets.
RPA certainly allows community banks to do more with less, which is the biggest priority in the banking industry at the local level. But workplace automation is not just about getting more of the same work, but actually improving the quality as well as the quantity. For community banks, that means fewer work hours spent on tedious routines, and more time on developing investing models, analyzing credit risk, and offering the best suite of services possible to customers. RPA makes banking smarter, easier, and yes, more flexible.
And this is why I particularly love the RPA use case for community banking – it’s a perfect illustration of my thoughts on the larger concern, perhaps even fear, of creeping automation into the workplace and society overall. People are naturally worried about the potential for machines to replace them at their jobs, which is even more understandable in banking, as technology has thus far only widened the disparity between the haves and the have-nots.
Yet despite these concerns, we’re seeing how RPA automation tools are instead evening the playing field between banks, regardless of size. The bots aren’t just helping the top-line, either; they’re improving the quality of life for everyone by helping us focus on more creative projects. Until now, technological progress has substituted, not supplemented, community banks. I expect with RPA that the next great investment opportunity is just as likely to be down the street as it is on Wall Street.