Striking the Right Balance: Innovation in Ag Banking

Aug. 12, 2022

As the leading providers of agricultural loans, community banks make up 80 percent of all financing to agriculture, and opportunities exist to extend that support.

“The relationship between our ag clients and lenders becomes very personal,” said Chris Bailey, senior vice president and chief operating and technology officer at First Bank, a $622 million-asset bank in Carmi, Ill. “Most small farmers use simple Excel spreadsheets or at best basic functions of QuickBooks to keep track of their bookkeeping needs. Any new tech would have to be very low touch for the farmer, or it simply would not happen because of all the hats they currently have to wear in a smaller operation,” he said.

That’s why when it comes to innovation in agricultural banking, community banks must strike a balance between technology and physical solutions. But regardless of the mix employed, all ag banks can agree on one core principle: the customer need must drive business decisions.

“Our customers aren’t demanding the same things that others are demanding across the country,” said Joel Westra, CPA, first vice president and comptroller at $950 million-asset American State Bank in Sioux Center, Iowa. “We think innovatively to stay one step ahead of our local competition.”

Weighing Physical and Digital Needs

As a predominantly ag and commercial lender, American State Bank balances the industry’s drive toward digitization with the current demand from its farmers and small merchants. In fact, when the bank’s customers took advantage of the Paycheck Protection Program (PPP), American State Bank witnessed a divide between those that wanted to leverage digital tools, and those seeking one-on-one support.

That experience has influenced how they investigate digital agricultural products that allow customers to examine business metrics for insights on break-even points and necessary yields while ensuring its applicability to specific clients.

“One of the challenges we have in ag is that all farmers are different,” explained Westra. “How do you have a product that works for everybody? How do you address that technologically? It has been a big challenge for us to evaluate.”

In some cases, it means innovation translates to physical, rather than digital, solutions. In fact, just six months ago, $118 million-asset Farmers and Merchants Bank in Milligan, Neb., hired a remote loan officer to visit clients at their farm sites to assess their banking needs. This move has been met with an enthusiastic response from current clients and helped secure new agricultural customers.

When meeting with farmers, loan officers are also equipped with digital tools, including e-signature and secure email solutions to support the overall loan experience.

“I think back to when we first implemented e-signatures, and I had a customer who signed a loan document from the cab of his tractor without having to stop what he was doing,” recalled Jeff Spiehs, the bank’s president.

Yet, across the board, community bankers agree that more advanced technology could address ag banking needs, provided it remains simplified for both the farmer and the banker.

“Consolidating information from the farmer or service providers like an accountant, marketing rep, seed salesperson, or others, into a software could help us present a simplified view of their production projections,” said Bailey. “Ideally this would be tied in with our mobile/online technology stack to keep things streamlined.”

Cultivating an Innovation Mindset

No matter how you approach it, thinking creatively about supporting customers is key. For American State Bank, that meant connecting with like-minded banks to glean insights from their experiences, shared Westra. “It’s really changed how we think about and solve for customer problems.”

Farmers and Merchants Bank, meanwhile, is evaluating the use of secure video calling through a mobile app to enable a more intimate meeting experience and support an extension of the remote loan officer concept.

“We can do more now because video calls are much more prevalent and people are used to sitting in front of a camera,” said Spiehs. “It may be another type of innovation, but the basics are just great customer service.”

As agriculture has grown and changed, affecting what happens on a farm and its financing, community banks have drawn on technology to complement the human touch while never losing sight of what matters most. Because ultimately, technology is a help, not a hinderance when guided by the best interests of customers.