PPP as a customer acquisition opportunity

A year after the rollout of the Paycheck Protection Program, data is showing a recent surge in net new customers for PPP lenders. In other words, business owners are going wherever they need to in order to access PPP funds, even if that means switching banks.

Who are these new customers? What is driving this behavior? And more importantly, with the PPP deadline now extended to the end of May, how can banks take advantage of this window to convert new customers into long-term relationships?

Recent data from the Federal Reserve’s Small Business Credit Survey found that, while more than 90 percent of small businesses applied for federal aid (including PPP), only 77 percent reported receiving the full amount requested. With all of this demand, we’re seeing a growing number of borrowers turn to wherever they are most likely to secure a PPP loan, whether that be from their current institution or a new one.

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The Federal Reserve also reported that 95 percent of borrowers who went to a large bank for their PPP loan were existing customers of the institution, while nearly 20 percent of small banks’ PPP borrowers were net new to their institutions. Our data at Numerated supports the findings of smaller lenders – we’ve seen the percentage of PPP applications from new bank customers steadily grow over the past month from less than 10 percent in January to more than 40 percent today.

In some ways, this surge in new customer growth isn’t entirely surprising, as we would expect banks to cater to their existing customers first before turning to outside demand. But as we are well into the PPP’s most recent round, it is clear that these new customers represent a growing population of borrowers willing to switch banks to access this critical aid.

Borrowers from underserved industries

Taking a closer look as to who these new customers represent, we’re seeing that many come from historically underserved industries, where there is a clear urban-rural divide between the industries seeing the highest and lowest demand of applications from new customers.

Numerated data show that businesses related to agriculture, forestry, fishing and hunting are switching at the highest rate, with 70 percent of PPP borrowers from these categories using a new bank to access relief funds. In transportation and warehousing, roughly 35 percent of PPP borrowers using a new bank, while utilities rank third at nearly 30 percent. The industries with the lowest demand include health care, accommodations and food services.

This rural-urban split mirrors concerns aired during the PPP’s initial rollout that borrowers in underserved and rural markets had not received needed loans due to a lack of guidance from the Small Business Administration.

Even when the PPP window closes on May 31, borrowers’ banking needs will remain largely the same, as many businesses look to rebuild, and hopefully grow, in the coming year. For lenders, this means maximizing their remaining touchpoints with new customers to strengthen and expand those relationships.

Customer experience and efficiency will be core components of this strategy. Take the rise in self-service, for instance. At Numerated, we found that in the current PPP round, 96 percent of lenders offered borrowers access to both banker-led and self-service experiences.

What this data clearly shows is that borrowers appreciate having the power to choose their own customer experience and, when given the choice, will more often opt to do it themselves—even when it comes to complex products like PPP.

That said, adopting this kind of model means being able to provide a self-service experience whether applying for a loan or setting up a deposit account. Using technology and data to remove friction from the customer journey in this way not only enables new customers to quickly switch to your institution, but it also ensures these customers will stick around as a result of an end-to-end experience tailored to their preference, be it self-service or banker-led.

The PPP extension presents banks and credit unions with a natural opportunity to extend new business banking relationships beyond the federal loan program and into longer-term relationships. And with a group of new, underserved customers on the move, this opportunity is only growing stronger.

Dan O’Malley is CEO and cofounder of Numerated.