When Industry Bias Blocks Digital Progress: Rethinking Small Business Banking

When I’m helping Engage fi clients develop their digital strategies, the first question I ask is simple:

What value proposition are you offering, and to whom?

The answers I get usually focus on the consumer. Digital solutions for businesses? Rarely contemplated. When I ask why, the general response is that businesses still want face-to-face relationships, and that they’re not interested in digital channels beyond transaction processing, payments, and cash management.

That response feels familiar. I can still hear my CEO’s words from the 1990s when consumer online banking was emerging:

“Joe, banking is a relationship business. People might check their balance or transfer funds online, but they’ll never apply for a mortgage online it’s because it’s too complicated and they need our advice.”

Good thing Dan Gilbert didn’t listen to that advice when he founded Rocket Mortgage.

Starting to Look Like Industry Bias

So, is this another case of industry bias or do businesses truly only want digital access for simple transactions?

It’s true that many C&I and CRE clients require complex documentation, especially around credit. Capturing ownership structures, liens, covenants, and guarantees digitally can seem daunting.

But what about small businesses?

According to BAI’s 2024 survey, 68% of small business owners prefer to open deposit accounts digitally, and 54% would prefer to originate a loan online. Yet, the FDIC’s 2024 survey found that most banks still believe a “high-touch” relationship is necessary, as reflected in the fact that only 25% of banks allow small businesses to originate digital loans and a mere 6% support full digital lending through document execution.

There’s a clear disconnect between what banks think businesses want and what small businesses are actually asking for.

Inertia, Risk, and Opportunity

Inertia and industry bias run deep in financial institutions. The business is built on risk management, and change introduces risk. Delivering credit digitally feels risky, so many institutions avoid it.

But opportunity doesn’t wait for comfort.

Rocket Mortgage has closed more than $1.8 trillion in home loans since its inception in late 2015. Just as the end-to-end digital mortgage redefined the home lending market, offering end-to-end digital business lending represents a tremendous untapped opportunity.

There are roughly 30 million small businesses in the U.S. (those generating less than $3 million in revenue). If even half of them prefer digital loan applications, that’s 16 million potential digital borrowers waiting for a better experience.

Banks that embrace this opportunity and fully digitize small-business lending will win the loyalty and growth that follow.

How to Change the Bias

When digital channels stall, humans often “rescue the deal.” Unfortunately, that rescue is often misinterpreted as a small business preference for human interaction. In reality, it’s a symptom of broken digital processes.

Here are three common biases that keep FIs stuck:

• Attribution bias: We credit “branch originations” because the final step happened in person. Digital rarely gets credit for the earlier work, discovery, prefill, and document collection.
• Risk bias: We assume KYC/KYB and fraud checks are “safer” in person. In practice, well-designed eKYC stacks with device intelligence and step-up verification are more consistent and fully auditable.
• Process bias: Many legacy LOS/CMS systems were built for consumer or large commercial loans, then retrofitted for small business, leaving behind duplicate entry, wet signatures, and policy exceptions that only branches can navigate.

A Practical Way Forward

If your financial institution suspects bias is getting in the way, try this exercise:

1. Assemble a cross-functional team, and include everyone who touches the loan process.
2. Review ten recent small-business loans under $250K.
3. Identify the reasons they couldn’t have been completed end-to-end digitally.
4. Work to eliminate those reasons.

Every step toward removing friction brings your institution closer to what small businesses actually want: speed, simplicity, and convenience