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Transforming One of America’s Biggest Banks Into a Digital Lender

TD bank online

TD Bank has a long history of growth that has culminated in their being the 8th largest bank in the U.S. in terms of asset size even though they are only in 13 states. The company began in Portland, Maine in 1852 as Portland Savings Bank, but it has kept up with the changing financial industry through growth, mergers, and acquisitions to become “TD Bank, America’s Most Convenient Bank.” Bank branches sprawl from Maine to Florida. They are in the process of developing digital products that coincide with their physical products of commercial & retail banking, lending, treasury management, deposit, and wealth products.

The Big Push Into The Digital Age

TD Bank conducted a survey on the current state of lending resulting in these key observations:

  • Small Businesses report a positive outlook with many expecting to grow revenue and services in the next year.
  • Many Small Business Owners aren’t aware of their business credit score and how it impacts their business’s future.
  • Credit is available to businesses seeking to expand, and banks can provide insights to help them grow.
  • 21 percent of small businesses state they have or will seek a loan or line of credit in the next year.
  • 20 percent say rising interest rates are a challenge to their business.

In response to these findings, TD Bank digitized its processes with a full web and mobile presence along with 24/7 call centers.

“We try to be there for customers when they need us, for small businesses especially,” said Jay DesMarteau, head of TD Bank’s small business banking division. “We have a strong digital presence now, but it’s more like a traditional bank. We are trying to figure out how to be as convenient online as we are in person so customers can do it by themselves but not by themselves.”

DesMarteau covers half a million small businesses customers with less than $10 million revenues. His division offers loans, loan advice, advice on how to be creditworthy, and a myriad of SBA products. If they can’t match needs, they work with socially responsible organizations like community development groups and non-profit lenders. Since there is a presence in all 13 east coast states, community education is a top priority.

“We do specialty funding,” DesMarteau said, “working with healthcare businesses like dentists and doctors, or vets. We work with restaurant groups on franchise loans, equipment financing, commercial real estate, and asset-based lending.”

The TD Bank business model is that of regional teams who are responsible to interface with customers, deliver product mechanisms for customers, interview customers to make sure the right product is being offered, and prepare customers for loans.

Meeting the Demand for Small Business Loans

About half of all small businesses are sole proprietors with 90% having a revenue of less than $250,000 per year, DeMarteau said. A lot want to grow revenue but aren’t ready to hire. They need to grow, so there’s a need for capital. That translates into a need for smaller loans for mom- & pop-sized businesses.

“This year, we’re starting to see more small loan volume for small businesses,” DesMarteau said. “There’s some hesitation about the Trump administration, but there’s optimism too. The feeling is that regulation will be pulled back, there will be something beneficial for small businesses about healthcare, or taxes will be minimized. That optimism is translating into small business loans. As people want more loans, there is a big need for people to educate themselves on how to get a loan. If you can bank with us, you’re going to have a relationship manager. You can talk to them about a loan any time before you need it. That’s free advice. We can tell you how we’ll view you, how we’ll underwrite you, what will be required, and give you a sense of how creditworthy you are before you need it.”

Small business loans are a major driver in underwriting. Many people don’t realize they have a business credit score as well as a personal credit score. Since there is a lot of naivete about the underwriting process, providing personalized advice gets the process ahead of the curve. Bigger businesses start to request more money and can be underwritten more traditionally by commercial loan underwriters with up to three years of tax returns.

“It’s important to see how a smaller business is evaluated when you start thinking about that first loan,” DesMarteau said. “And you can learn a lot online, but you can’t ask the right questions online if you don’t know what to ask. That’s why many people just walk into a local branch and talk to somebody there.” TD Bank is in the process of building an online portal where small business owners can do that. Online lenders have done it the best in the industry, but they have the highest rates and no banking product. A lot of banks are starting to adopt technology with better rates. Over time, you’ll see better funding interface models. “We are starting to see partnerships, loose arrangements where banks will share loss history and financial data with online companies, and vice-versa.”

There are between 7,000 to 8,000 banking institutions in the U.S. A new business owner walks into their local bank to open an account all the time. Many of these small businesses have operating models that are unique to a particular industry, like healthcare or restaurant groups. If the local bank doesn’t understand the operating model, there’s a good chance that business will be turned down when seeking a loan. TD Bank’s answer is specialty groups.

“SBA loans experts who can help with SBA loans and other small business products,” DesMarteau said. “We carve out expertise groups for government customers who have knowledge of how each government entity works. They understand government deposit products. Different lending products need specialty folks who understand how the borrowing business works.”

The Future of Small Business Lending is Digital

DesMarteau sees the industry changing as customers get comfortable with the use of digital. He said that about 10% want only digital, but the majority also use a traditional banking (brick & mortar) channel. Digitization is used to be more efficient, but people like to interface with a person, particularly in instances that require a personal touch.

“Take underwriting,” DeMarteau said. “We can take financial statements and transcribe numbers off of them as well as perform calculations that save a lot of time. With Optimal Character Recognition and various underwriting templates, there are different ways to advise customers. We can make better product offers on the website based on things I see in data, like line of credit or overdrafts. It’s still developing, but we try to do a little of both: Build a hypothesis of customization, and use algorithm. The hypothesis will turn into an algorithm that makes the product more customized.”

When asked about future plans, DesMarteau said that TD Bank is continuing to invest in digital.

“Our product is physical, and our footprint is the way we treat customers,” he said. “Our digital offerings are being developed to provide the same experience as our physical stores. We want to get more people in front of customers, so as we hire, customer-facing is a priority. A lot of banks today have low interest rates and lots of regulation. We’re thoughtful with capital but it’s been a challenge. As we develop digital, we keep customer experience in front of us so the customer is happy and we deliver great service. So far, deposits are still healthy.”


Written with Nicki Jacoby.

Allen Taylor
Allen Taylor


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