Todd Nagel American Banker Interview

Coronavirus throws digital banking into the crucible

By Jim Dobbs

The coronavirus outbreak and resulting restrictions on daily life are highlighting the importance of digital platforms, testing their mettle and demonstrating the power of tools banks lacked in past crises.

Thousands of Americans in all 50 states are infected with the virus, forcing officials to shutter schools, cancel public events and indefinitely close restaurants and other businesses to minimize gatherings and slow the disease’s spread.

Many banks, likewise, are closing branches or limiting access. Unlike many service industries, banks have digital options that allow their customers to manage the vast majority of banking needs without leaving their homes.

Online and mobile banking has grown increasingly popular, lessening the traditional role of branches. The industry’s total branch count declined by more than 1,500 over the 12 months that ended Feb. 29, according to data compiled by S&P Global Market Intelligence.

Early signs indicate the pandemic could hasten the digital banking trend.

Bankers, generally, are reporting that digital usage is rising alongside the proliferation of the virus. In some cases, it is surging.

“Digital adoption is off the charts,” said Todd Nagel, president and CEO of the $1.4 billion-asset IncredibleBank in Wausau, Wis.

IncredibleBank, which has a regional branch network and a national digital bank, is seeing a wave of deposit account openings as people pull money out of the stock market. Nagel said the digital operation is accounting for more than a third of account openings, up from 10% a year earlier.

IncredibleBank recently closed the lobbies of its 15 branches, maintaining drive-through access but encouraging clients to use its mobile and online services. They have responded in droves, Nagel said.

Mobile application usage is climbing so quickly this month that it is difficult to track the precise growth rate. “It’s absolutely skyrocketed in the past week alone,” Nagel said, as clients use the app for everything from loan payments to paying bills.

While the virus is crippling large swaths of the economy and seems destined to pull the U.S. into its first recession since the financial crisis, industry experts said most banks are well-equipped to absorb shocks and continue to lend.

The banking industry, as a whole, is better capitalized than it was a decade ago, and credit quality was exceptionally strong heading into 2020. Now, digital offerings — a generation ahead of where they were during the last downturn — enable banks to provide uninterrupted service.

“Digital definitely minimizes disruptions for customers and adds significant efficiencies for banks,” said Damon DelMonte, an analyst at Keefe, Bruyette & Woods. “This is a strength and benefit for this particular situation, as difficult as it is in other ways for the country.”

A Lightico survey of 1,000 consumers conducted on Sunday found that 82% are hesitant to visit branches amid the coronavirus outbreak. The survey also found that nearly two-thirds are more likely to try a digital app or online banking service.

Bankers are promoting the shift.

"We are highly encouraging the use of online and mobile platforms and our bankers are increasing their assistance with customers to execute work outside of the branch," said Ed Francis, chairman and CEO of the $396 million-asset InBankshares in Greenwood Village, Colo.

Digital activity is also rising at the $32.4 billion-asset Associated Banc-Corp in Green Bay, Wis., which recently limited lobby access at its branches.

“We expect digital features that allow customers to conveniently and safely bank from home will continue to increase in the weeks ahead, including mobile deposit capture and transfers,” said Brent Tischler, Associated’s director of retail banking.

Increased digital traffic, while welcomed, could pose challenges. Bankers will need to carefully monitor systems to ensure they have the capacity to handle surging usage.

The $27.8 billion-asset Pinnacle Financial Partners in Nashville, Tenn., which curtailed lobby access at its branches, is tracking traffic to see which digital products and services are most used. The company is also in regular contact with third-party technology vendors to make sure the platform can handle demand.

“We are prepared for an acceleration in activity,” said spokesman Joe Bass. “We’re confident we’ll keep up and meet all needs, but it does require regular communication.”

John Asbury, president and CEO of the $17.6 billion-asset Atlantic Union Bankshares, said an anticipated burst of digital activity after it closed branch lobbies will test the Richmond, Va., company’s recently upgraded online channels. He is confident in the platform, and he predicted an enduring transformation that will drive efficiencies for banks and customers.

“I think it's going to force greater adoption of alternative banking delivery,” Asbury said. “That will be a good thing on the other side of this.”

Many banks are also working to identify emergency borrowing needs — and using digital platforms to provide advice and process loan applications.

Timothy Romig, market president for Pennsylvania and New Jersey at the $11.5 billion-asset Customers Bancorp in Wymossing, Pa., said he has seen an upswing in digital transactions resulting from lobby limitations.

Customers is actively pursuing new business, reaching out to commercial client to inform them of new Small Business Administration loan options in the works, while providing short-term interest-only loans to businesses.

“We’re looking to lend into this thing [and] provide needed working capital,” Romig said.

Nagel said IncredibleBank has been working with clients who have submitted forbearance requests as they struggle with revenue shortfalls. He said those requests are roughly on par with new loan applications from other businesses that are looking to meet ramped up demand.

Clients in growth mode include a company that packages disinfectant wipes, a surgery center that is temporarily overhauling to become a patient clinic, and a trucking company working around the clock to distribute groceries, medical supplies and other consumer products purchased online.

“Don’t get me wrong, there are serious challenges out there, but American businesses are exceptionally entrepreneurial, and they are adapting quickly,” Nagel said.

“Banks are a source of strength right now,” he added. “We’re going to get through this, and I think we as a country are going to come out of this even stronger.”

John Reosti and Ken McCarthy contributed to this article.