In this week's episode, Dallas and Jim talk about the latest PrecisionLender product: PrecisionLender CARES Edition. Dallas walks listeners through why we developed CARES Edition and how it helps bankers manage the unprecedented demand for federal emergency loan programs.
Hi and welcome to The Purposeful Banker, the podcast brought to you by Precision Lender, where we discuss the big topics on the minds of today's best bankers. I'm Jim Young, Director of Content at Precision Lender and I'm joined again today by Dallas Wells, our EVP of Strategy.
As regular listeners know, the changing times have led to changes in our podcast, principally our move to weekly shows to give you more timely content. We're also going to try something a little bit different today and talk a little bit about our new product, Precision Lender CARES edition. We promise to go easy on the sales talk, but we did think this information is worth sharing here on the podcast.
So Dallas, let's start off here with the first question we always ask when it comes to the new product, which is why did we think this was needed?
Well, I'll start with a conversation I had with a banker in West Texas earlier this week. So obviously with the price of oil and what's happened with that, west Texas is an interesting place at the moment.
So I just asked him, I said, "Well, how are things right now?"
And he said, "Do you know that feeling when you flush the toilet and the water starts rising really slowly?" And he said, "I know it's going to be a mess, I just don't know how bad yet."
So that's classic as only Texans can describe it. But part of what he's talking about is that he doesn't know how much of an outlet for that risk the government is going to be with all of the new programs that they have in place.
So I had a similar conversation there with what we've been hearing from all the banks we work with, which is, they are absolutely drowning right now in the inbound volume. So customers, non-customers, all trying to figure out what these federal lending programs that are a part of the CARES Act really mean for them, and is there some way to save their business, basically.
So if you kind of picture a day in the life, we're talking to banks that seem to be handling it one of two ways. Either they've got their bankers at home, because they are trying to isolate folks. So their bankers are in the living room with their kids crawling all over them and their cell phones ringing kind of nonstop. As their customers call them and say, "Look, I need $500,000 to make payroll and pay my rent and survive." Or, you've got bankers in kind of these war rooms that they've set up. Where they've got kind of all hands on deck and they're trying to just get inbound applications processed, and triaged and figure out what goes where.
So volume is issue number one. On top of that, just the logistics being harder than they normally would be, with so many people working from home and systems overloaded, et cetera. So getting bankers trained on a new government program's hard enough in normal times. When everybody's spread all over the place and dealing with kids at home and stuff, it's a whole other issue.
And then also their government programs, which means like for the Paycheck Protection Program, the final guidance was released the night before. Banks were supposed to go live with a brand new program that was going to have unprecedented volume. Some of the guidance still isn't out for how the handle pieces of sole proprietors and independent contractors and things like that.
Then there's new programs that have just been announced. So the two that are most applicable to most commercial banks and credit unions, would be the main street lending facilities. So there's a version for new loans and there's a version for expanding existing loans; the banks have their own forbearance programs.
So basically, there's a whole lot of complexity that's changing by the day. You can't communicate like you're used to and you have a whole bunch of very stressed out customers trying to get access to those programs. So that's kind of the need. We always look for, what's the job to be done. We feel like there's a job to be done here where bankers just need some help with first and foremost, just triage. How do we figure out which deals might fit into which program? And then how would we get them in the right hands inside the bank to actually get that thing handled and processed. So that’s the starting point.
All right, so Dallas, I was looking at this JD Power survey and it had sort of this bittersweet sort of thing. And that the numbers basically backed up what you're saying and in a way, should make commercial bankers feel very good that they are still very, very important in the lives of their clients. But I'm not sure that maybe gives them a whole lot of good feelings right now, as they're being, as you mentioned, sort of overwhelmed by what's coming through.
Yeah, so the staff there, which I thought was pretty amazing, it was a survey of where do you go for information on the financial aid essentially available from the CARES Act. And the number one answer with like 40%, something like that of the responses was, call the bank or call my lender.
Number two behind that was a Google search. So that should give you some idea of where bankers are falling there. So it's great job security, but it's part of the issue. It is that what when customers and when business owners in particular are trying to figure out how to navigate this, their first go to resource is their trusted banker.
And so banks need to really make sure that they have good responses to that, and that their bankers can be what they've sold them to be all along, which is this trusted advisor, trusted resource. "Especially when times are tough, I'll be there for you." Well, times are tough this is when they're supposed to have some answers and have some guidance. So we need to make sure that through all these evolving programs and things that are changing by the day, that your bankers can keep up with what's going on and how the bank's handling those and what the response should be.
All right, so you've set the stage for why we felt there was a product needed, that Precision Lender of CARES edition was needed. Now can you give us a general sense of what the product is designed to do? And then maybe from there we can get into some more specifics?
Yeah, so the basic idea is this, that each one of those programs has multiple pages, sometimes dozens of pages of parameters, and deal terms, and qualification legalese and all of those have to be sorted through. And what it turns into is, basically a giant decision tree/checklist, right? So first you have to go through the decision tree to see, this borrower that called in wanting half a million dollars, do they qualify for any or all of these programs? And then if so, which one's going to be the best fit for them?
So you go through the decision trees, then you have to go down the checklist of, okay, in that particular program, are we really sure they qualify and are we really sure that we have all the deal pieces put together in a way that's going to work for this customer? Can you afford this rate, this fee, et cetera?
So all of that kind of calls for a nonhuman to handle those parts. So that's where Precision Lenders virtual coach, digital coach Andy comes in. So what we can do is we can teach Andy through what we call skills, how to navigate all those various programs. And Andy has a conversational interface, so Andy can ask questions to a banker. Things like, was this borrower in business before February 15th? How many employees do they have? Basic questions like that to start the sorting process. Then once they've been sorted, you can make sure that they qualify in the right place.
So that's the first job that we were trying to do. And really I think probably the primary driver of the value is triage. You're sitting on maybe a few thousand applications and more inbound calls every single day, you got to quickly point those into the right bucket, so that you can even start working on them.
Okay, so I'm a banker and I've just gotten a request for a deal. Well actually, let me back up on this here. Would I use this every single time a deal comes in? Or do I triage before I start triaging?
I mean there's going to be some that are obvious things that you know what to do with. There are, believe it or not, some businesses out there that are having business as usual, right? So handle them as usual. But a whole lot, and it's hard to put a number on this because it's kind of real time and it's chaotic. But from what we can see in our data, business as usual is mostly frozen, and so what bankers are dealing with is this stuff. And by this stuff, I mean borrowers in real trouble and looking for help. And all of the government help to this point is being routed through the banks. So they are the face of all of this.
So what that means is that, does it have to be 100% of your requests you're going to go through this? Probably not, but I'm guessing it's a really high percentage. You can use this to in 45 seconds figure out which program if any, and get them in the right one. And then you can start having a real tangible conversation about what happens next.
Okay. Then so then I've used CARES edition to help me figure out the right ... So Andy has helped me, asked me the right questions. She's helped me figure out the right federal program for this deal, for the customer. Is there any pricing functionality to this or is this on to underwriting at this point?
Yeah, good question. So that's a lot of what Andy typically does, is to help structure a deal and hit profitability targets and suggest things like cross sell and deal term changes. And a lot of that stuff does not apply, right? We're probably not trying to cross sell that next product to deepen our relationship at this point. We're all in survival mode for the most part.
So given the reason we created a separate edition for this is twofold. One, we wanted to strip out what right now would be extra noise, right? You don't want Andy shouting at you about something that is just not going to be relevant. Andy should be really hyper focused on the issue at hand for this particular problem. So that means it's triaged and we want to verify that, are you making or losing money, right? So we don't necessarily want to put a customer into a program where the bank has to eat an inordinate amount of costs and risks. And maybe sometimes that'll still be the right outcome to help that particular customer or to protect the bank from bigger exposure down the road. But that's a decision you should make with your eyes wide open, right? Not accidentally after the fact figure out, "Oh yeah, that costs us $60,000 to help them get this done." So, we wanted to give banks some directional guidance on how profitable is a particular deal.
So that's the other unique thing about this edition. Usually we go through a pretty intensive deep dive on configuring our systems for a bank. So we use their profitability methodology, that's what runs through our calculation engines, is the way they view profitability. We set up all their existing customer relationships, we figure out what funding costs they usually assume, what are their origination costs for these sorts of deals. So we really dial it in with quite a bit of accuracy.
This doesn't need to be that. The job here again is to make sure that we're mostly good. We are pretty close to what we think the profitability is going to be on these things. But mostly, we figured out how to navigate the government programs and figure out where the help is for the customer and for the bank on this.
So we set these up using basically a reference bank, for lack of a better term for it. But it's a set of assumptions that is for a typical bank. So we deal with over 150, close to 200 banks. We see how they set all these things up when we can find what is most typical for all those kind of in the weeds mouth assumptions. So it may not be exactly what your bank's calculation would be, it'd be pretty darn close. So what you'll get there is it'll be red or green, right? Are we making or losing money? And you'll see how as the deal terms change, which direction that moves.
You could put in some of the customers' other business to see a rough idea of how profitable this customer is and are they worth trying to jump through some extra hoops for to keep them with us. And parts of the main street lending program are negotiable. So there's a range of spread that you are allowed, but you can set your spread over the sofer index for that particular deal.
So you have a little more wiggle room in there and we wanted to make sure that banks could get that right, maybe not out to six decimal places, but pretty close, at least good enough to make decisions within the screwed environment that we're in.
So in that case, again, and this would be for people who are sort of familiar with it, sort of a streamlined Andy specific to this very instance, in terms of the pricing decisions and prompts and that sort of thing. I have to admit, I chuckled a little bit to myself just thinking of ... because if there's one universal thing that we hear from banks, is that their assumptions and everything they set in is very unique. So but-
Yeah, everyone thinks they're the special unique snowflake, so we'll say it quietly, but you're not. You look a lot like most of the other banks. And if you are an outlier, you might be doing it wrong. We're all kind of doing most of the same stuff. It's how you do it, not the product itself typically.
And in this case, as you were saying, essentially with the profitability on this is binary on it. There's room, there's a margin for error, so to speak with this.
All right, so finally you've gone through the pricing functionality. Is there a pipeline tracking aspect to this? How does that work?
Yeah, so that was the other part that we thought it was really important is, once you figure out which program does this deal fall into, we need to be able to keep track of that and notify the right people within the bank. So most banks are setting up and it's the first time I've heard bankers use some of these terms, but they're setting up what they call tiger teams, right? So collections of experts that are handling a particular program. So they've got a team that's doing PPP and another team that's doing main street and they've got of course their credit group doing some forbearance stuff when deals don't qualify for any of the government programs.
So once you sort of deal into the right program, once Andy helps you figure out which one is right, it can kick off an email notification to that team or to in the individually; you can set that up however you want. But it'll let them know and point them back to that individual deal. "Hey, here's one with an inbound request, you'll have the amount, and we kind of pre-qualified it for PPP or for the main street new loan facility.
And then we can also sort those into a pipeline so they'll get flagged for whichever program is appropriate. And that way you've kind of ... Basically what we're doing is we're throwing these into buckets. So here's the bucket of PPP. Here's the bucket of main street. And maybe the most important bucket from the bank's perspective is those inbound requests where you've got a borrower asking for help and they don't qualify for either of those programs and whatever future programs there may be. That's what we have in front of us right now. We fully expect there to be more acronyms and strange abbreviated product names coming our way from the government.
So, but those ones that may be most important are the ones that don't qualify. It's a customer that's raised their hand. They said, "I'm in trouble, I need some help," and there's no government backstop. So we think bankers should know about that today and should prioritize that today, versus it gets thrown into the overall stack, including the maybe tens of thousands of PPP applications you might have. And you see it three weeks from now when you finally get a foot and a half deep into your pile and you're like, "Oh, this is a problem." You need to know about that right now today so that you can be proactive and get that dealt with.
So the other thing to note there is that we expect this to evolve. So again, probably not the last program that will come our way that will be applicable to banks. And so this is a way for when the next program comes down the pipe, we can quickly react to it. Basically teach it to Andi, instead of you having to teach it to dozens or hundreds or thousands of relationship managers and bankers out there to figure out, "Wait, how does this one work? Where does it overlap with the others? Which ones might it work for?" Instead, we just teach Andy and you go through the same process, just triage it through Precision Lender and Andy will help you sort it to the right bucket, get the right people involved with the bank. So we're hoping it makes it easier for bankers to respond to just the chaos and the volume that's going on out there.
Gotcha, gotcha. And congratulations, you took my last question before I could ask it, which was-
Oh, [inaudible 00:19:13] yeah.
What happens when the next federal program comes along? But yeah, that's the beauty of a SAS system, is the ability to make those updates and push them out immediately to all subscribers. All right, well that, that'll do it for this week's show. Thanks so much for listening. And for indulging us a little bit as we talked about ourselves a little bit this time and our products.
If you're listening, excuse me. If you're interested in learning more about the CARES edition, we'll have a link in our show notes to where you can go to request a an in depth demonstration. And we'll get back next episode to addressing what we're seeing in the commercial banking market via the Precision Lender database.
Reminder: if you've got a question you'd like us to research, just a topic you want us to tackle, please send me an email. It's initial J Y-O-U-N-G jYoung@precisionlender.com and it will be in the show notes as well.
And now for a few friendly reminders, if you want to listen to more podcasts or check out more of our content, visit the resource page at precisionlender.com or you can head over to our home page to learn more about the company behind the content.
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Until next time, this is Jim Young for Dallas Wells, and you've been listening to The Purposeful Banker.
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