With Congress passing a new $480 billion round of funding, including $310 billion for the Paycheck Protection Program (PPP) banks are about to get deluged with new submissions from small businesses in dire need of money to help them survive the economic shutdown caused by Covid-19 pandemic. And the crush of submissions during the first round of PPP funding brought many of the banks to a standstill as much of the processing of those applications were done manually.
In response to the current situation, Pegasystems – a leading platform provider for digital process automation, and business process management and CRM – developed the Crisis Small Business Lending app. The service is designed to help their banking customers speed up the PPP submission responses by automating different parts of the process. And earlier this week I had a chance to learn more about how automation could significantly speed up the PPP process by speaking with Marc Andrews, Vice President, Financial Services and Insurance Industry Market Leader for Pega.
Below is an edited transcript of our conversation. To hear the full conversation watch the video or click on the embedded SoundCloud player below.
Small Business Trends: What is the current status of PPP from your perspective?
Marc Andrews: It was viewed as a potential lifeboat to save a lot of the small businesses that are struggling to stay afloat right now. And obviously there are a lot of businesses suffering that needed to help when you saw how many applications came in. And this is a somewhat unique program, even unique compared to the programs we’re seeing in other countries. Whereas the government is offering to not just back the loans but actually grant forgiveness for the loans completely. I mean, they’re almost more of grants rather than loans in reality as long as they’re used for certain purposes and specified purposes.
And this is part of what has led to the challenge that banks had. If you remember when the program went live that first Friday, many of the banks were struggling to even take in applications except things the government had given certain guidelines around where they were trying to put in place recommendations to process these within a 24 hour period, which is just nothing what most banks are equipped to handle for these types of loans. And that’s where we saw a lot of the struggle.
Many banks were just receiving more applications than they could handle. And it led to them having to pull in a lot of other people across the organization to deal with them, people from other parts of the bank were being pulled in. I have a friend that worked at a regional bank that worked in the commercial banking area, not dealing with small business loans and last weekend, not this past weekend, but the weekend before, got called in and was asked to basically work on all these loan applications over the period of that weekend.
Another thing they were struggling with is there are very specific guidelines around who’s eligible for these loans, how much money they can actually, the maximum amount that they can actually borrow and get grants on based on those circumstances. And banks were struggling to figure out what those were. My friend told me that just over the period of the weekend that the policies and rules that they were given to review these changed three times just over the course of the weekend as they were trying to figure them out.
Small Business Trends: Right.
Marc Andrews: So, that’s been a big problem. And then, when you look at all the applications that came in, the only way that banks were able to deal with this is by putting up kind of dumb web forms, something to just capture this onslaught of applications and then figure out how to manually deal with them. And what happened is, because they weren’t able to put in place intelligence into those front end applications, people would submit applications that didn’t necessarily adhere to the guidelines and they’re not finding that out until a human has to actually go and review the application, see how much they applied for, see if they met the eligibility criteria.
So they’re spending a lot of their time on that upfront part versus even the reviewing the loan application to determine if it has the right credit worthiness and if they are willing to actually support the loan, and provide that customer with the loan.
Small Business Trends: Was this pretty much across the board? Every bank was kind of faced with this and having the same kind of issues?
Marc Andrews: There’s a certain set of banks that were participating in the program. But there were over 30 banks participating in the program. They were pretty much more the larger to medium sized banks, but they’re all struggling. And as you can imagine, the large banks have significant IT departments and are probably a little bit more prepared for putting in place, say, new online application or web form to capture this information. The next tier of banks were struggling even more because they don’t have the same resources as the top five do to deal with something ad hoc like this and especially at this scale.
I mean it’s not only something that’s ad hoc, but some of these banks were receiving hundreds of thousands of applications. And I don’t know that any of them are really used to handling that volume of these types of loan applications at one point in time.
Small Business Trends: So you basically created what I think you call the Crisis Small Business Lending application. Is this kind of what you’re describing right here?
Marc Andrews: Correct. We introduced and just made available last week a crisis small business lending application. And really it’s something that can sit on top of our customer’s existing Pega platforms. We’re not charging separately for this particular application. We’re making it available to all of our Pega clients so that they can more quickly respond to these needs. And we really did build it out not as a specific payment protection program lending application, but we built it out as a general purpose crisis oriented small business lending application where it’s designed to be able to encode and codify those eligibility requirement checks, the calculations, and automate the processing and even enable banks to distribute and route loan applications to different groups of people based on the type of loan it is, things of that nature.
And while we recognize that the money was running out quickly, we did foresee and we knew that there were discussions already happening around an additional round, which you referenced at the beginning of this. And it’s looking more and more like that’s going to happen and potentially happen soon. So there will be additional funds made available so banks are going to have to open back up, the coffers and the interface, you know, their systems for accepting new applications.
But on top of that, it is likely there may be additional programs like this over the summer as we start seeing the real impact of the shutdown on small medium size businesses. There’s different types of programs in other countries. The UK has the UK coronavirus business interruption loan scheme, which is a somewhat similar thing that more provides government guarantees for up to 80% of the loan versus a full grant based on certain usage.
And there are also other parts of the problem that we see banks having to deal with. So one thing is accepting the loan application, but I just spoke to another bank this morning actually, and what we’re finding is banks are scrambling just to receive these and take on these loan applications. But the guidelines in the Payment Protection Programs stipulated certain requirements on how the money is used for the small businesses to actually be forgiven the loan and for them to be treated as a grant. And only parts of it may be eligible to be kind of forgiven, if you will. If they’ve used the money for payroll purposes for the first eight weeks. And there are certain other things they can use it for like rent and a few other items.
So banks are just figuring out how to take in and submit the loan applications. But now most of them haven’t even tackled a problem yet of how to manage compliance with those guidelines, how to track and monitor whether or not the business actually used the funds for those purposes and whether or not they will be able to have the SBA pay off part of the loan for them versus having to go back to the actual small business.
So part of what we’ve done is enabled you to not only establish a case for managing that initial loan application, but to also establish cases to manage the compliance with the terms of the particular loan agreement. And again, in other programs like the UK program, there are certain guidelines there that you have to make sure you monitor and are in compliance with to have the 80% guaranteed, so, similar manners.
And that’s why it’s so important to do this in a automated case based approach. Again, a lot of people put in these dumb web forms, just put it in quick and dirty applications to just, or even systems to just monitor or to just take in and complete the applications. But they will need to track these over time. And that’s part of what we’re enabling our clients to do is really not just take in the application but monitor the adherence to the terms and ensure that eight weeks, 10 weeks, 12 weeks from now that they are able to get money from the SBA where it’s authorized to forgive those loans.
Small Business Trends: Great. Because it’s not just kind of focused on the front end, just trying to make sure we are able to take everything in but also be able to keep track of everything. And I know when it comes to the forgiveness part, people are going to be very happy to get the initial loan, but they want to make sure that they’re able to go the forgiveness route if they can at all possible. So I know there’s going to be a crush against the banks for folks saying, “Hey, are we good with the forgiving part too?”
Marc Andrews: And that brings up another great point is if you don’t have a case based system to manage all these applications that have come in, imagine the increased burden on your call centers and your customer service when all of these businesses eight weeks from now, start calling in to find out what’s going on. Even now we’re seeing a lot of businesses are calling in to figure out, “Okay, what happened with my loan? Did I get it? Am I one of the people that got it?” Because they’re hearing about how the money ran out and as the new money comes in.
So one of the things that we built into our application is automated customer notification. So as an application comes in, if it meets the eligibility guidelines and goes through those initial steps, the customer is notified it’s been accepted and meets the criteria. Once it’s actually processed and reviewed and approved, automating the notification to the business if it’s been approved or if it’s been rejected or maybe it’s been put into a hold status now because they don’t have any more funds. But maybe it’s still eligible and they’re waiting to see if they’re going to get new funds.
So automating those communications will keep the banks from getting a another round of being inundated in the call center and customer service. And the same thing down the line as you mentioned, it’s a great point. Eight weeks from now when they’re calling to say, “Hey, has this been forgiven?” If we can automate that and just send them a notification, “Hey, your loan met the criteria, it was forgiven.” Or, “We need to confirm it’s met the criteria here with the link to go and provide the documentation to prove that the money was used for payroll purposes and or rent,” enable them to online, submit that information, automate the checks, then send them a notification. You will take a huge burden off of the individuals, the call center staff, the loan officers that you can imagine are going to be fielding a bunch of calls eight weeks from now.
Small Business Trends: So do you see this pandemic accelerating true digital transformation where it’s not just, automating processes that we already knew about, but complete maybe potentially changing the way things work to take full advantage of what the technology allows?
Marc Andrews: Yeah, absolutely. In fact, interestingly we’d been going into this year about how we believed that the banks had been only getting to a certain level in their digital transformation journeys. And they were kind of lacking that incentive to take it further. And if you look at digital transformation within the banking industry, a lot of the banks have talked about and have started to put in place a digital capabilities. But typically they’ve focused on a very specific set of processes like bill pay, like mobile and P2P payment. There’s been a set of activities that banks would rightfully say we fully digitally enabled.
However, what we’re now seeing is the gaps in which set of services they actually have a truly digitally enabled are is what’s getting highlighted in this time. We’re seeing that they might’ve digitize certain processes, but not all of the processes.
In addition, they haven’t necessarily completed the integration between their front end and back end systems. A lot of times it’s slick front ends to capture information from the customer, but it’s kind of like ignore the man behind the curtain, like in the Wizard of Oz where you know, it’s a bunch of a hamster wheel in the back that’s actually getting things done. And that’s what doesn’t scale when you truly digitize across the bank, across the different processes, across the customer base. We’re seeing a whole set of customers that had not made that digital leap before now making, being forced to make that digital leap and the bank seeing what it means to need to service and support those people.
This is part of the One-on-One Interview series with thought leaders. The transcript has been edited for publication. If it's an audio or video interview, click on the embedded player above, or subscribe via iTunes or via Stitcher.