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Wells Fargo’s head of small business details lessons learned from PPP implementation and the bank’s digital approach to future SME lending

Wells Fargo Small Business Lending

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There was no denying what Steve Troutner’s top priority will be before he begins his new role at Wells Fargo in the spring of 2020.

The CARES Act, the federal government’s first major economic response to the March 2020 COVID-19 pandemic, was signed into law a day before Troutner began as head of the small business bank. Included in the aid package was the Payroll Protection Program (PPP), a small business loan initiative that will be a key focus for Troutner in the coming months.

“It’s been 30 seconds since I took the role, the Wage Protection Program bill passed and we’re off, trying to get it up and running to help customers as quickly as possible,” Troutner told Insiders.

Since PPP’s inception, the federal legislature has approved nearly $1 trillion in small business loans, of which about $718 billion has been used to date through multiple rounds and extensions, according to the Small Business Administration’s latest data through March 21.

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Most of those loans went through the largest US banks, including Wells Fargo. In 2021, for example, about 2% of all PPP lenders managed 47% of total PPP loan volume.

Troutner and David Miree, head of consumer and small business customer segments in Wales, spoke to Insider about the lessons learned from last spring’s launch and the future of SME lending.

The launch of PPP comes at a unique time for Wells Fargo. The bank was in the midst of a top-down reorganization of its consumer and small business division that was silenced by a series of fake account scandals that first came to light in 2016. The incident, which involved opening bank accounts for customers without their permission or knowledge to meet targets sales, led to the departure of several top bank executives. In 2020, Wells Fargo also paid $3 billion to settle criminal and civil investigations into the scandal.

Since taking the helm of Wells’ consumer and small business banking in 2016, Mary Mack, a 32-year bank veteran, has brought in a slew of new executives, including Troutner, who joined Wells Fargo in 2019 to lead the reorganized small bank’s commercial division.

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That talent also includes Miree, who returned to the bank in 2017 after leading Santander Bank’s US branches and Webster Bank’s small business network and consumer depositories and branches.

Both Troutner and Miree said their experience working in retail banking branches prior to their current leadership positions was key to starting PPP at Wells Fargo.

“Seeing him up close and personal on the road over the years really helped to get a lot of initial opinions and perspectives on how to go forward,” Miree said. “Understanding that there’s nothing better than getting that first-hand perspective from those small business owners about what their true needs are and then helping to fill those gaps for them.”

The initial introduction of PPP loans at Wells Fargo and other banks presented challenges. Chief among them was criticism that many lenders did not do enough to prioritize loans to some of America’s hardest-hit small businesses, particularly those owned by people of color and in traditionally poor communities.

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A May 2020 blog published by the New York Fed, for example, showed that previous bank relationships, rather than need, were one of the determining factors in successfully obtaining a PPP loan.

In Wales, an asset limit imposed by the Federal Reserve after the fake account scandal also limited the extent to which the bank could participate in the lending program.

The restriction was later lifted in April 2020 for PPP loans, with the caveat that the bank returns all proceeds from PPP and other federal loan programs to the U.S. Treasury or non-profit organizations. However, the bank had already committed to donating fees received from PPP loans to nonprofits focused on small businesses before the Fed’s announcement.

Wells Fargo established the Open Business Fund last July, which consists of about $400 million in processing fees the bank received from its PPP loan. About $250 million of that fund, the bank said, is earmarked for community development financial institutions, or CDFIs, which are designed to help small businesses in traditionally underserved communities.

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Troutner said the bank’s lending restrictions were not a major focus of the small business team during the early days of the PPP.

“I wasn’t sitting there thinking about limiting my activities on a daily basis,” Troutner said. “I was thinking, ‘I have a user base of over 3 million who potentially need help with this program. How do we build a program that’s designed at a large enough scale?'” he added.

In Wales, 96% of its successful PPP applications so far in 2021 were for businesses with fewer than 20 employees – above the latest industry average of 93% – and 24% were for businesses in high-income areas. roughly at the level of banks of a similar size.

And while Wells ranks seventh in total PPP lending in 2021, according to SBA data through March 21, it ranks fifth among the nation’s top 15 lenders in terms of average loan amount — a statistic the bank says reflects Wells’ emphasis on prioritization smaller companies.

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While the percentage of Well’s loans in lower-middle-income and majority-minority areas has remained relatively constant over time, the bank has seen its average loan amount drop from $54,000 last year to $42,000 this year.

“We really see that difference being made more for small businesses that need access to capital the most. This is a real point of pride for us, to see how we’ve been able to really serve the smallest small businesses that have the most capital needs,” Miree said.

Wells also announced on February 18 that it would open its latest round of PPP loans to small businesses that were not already bank customers, a change from the previous requirement that loans go to applicants who already have a business checking account. Wales before 1 December 2020.

“Awareness of the program is not as universal as we would like it to be. Even for people who may be aware of it, the complexity of that program can seem overwhelming. That was something we definitely saw and learned in the first round,” Troutner said.

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To that end, Wells Fargo launched a marketing campaign targeting low- to moderate-income businesses and majority-minority census tracts with 10 or fewer employees, a tactic that Trautner says reached nearly a million people over 45 days.

“We want to make sure we’re able to more thoughtfully reach that population in the second round,” he said.

Both Troutner and Miree emphasized the importance of a digital-only strategy in implementing Wells’ PPP tools, which is necessary because of the scale of the program: “We’ve done the equivalent of about three and a half to four years of loan volume over a few months,” Troutner says—and out of a desire to limit personal interactions in the midst of a pandemic.

These digitally focused lending tools will ultimately guide future product development in Wales, Miree and Troutner said.

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“There’s a whole host of lessons we’ve learned from the PPP itself,” Troutner said. “The first for me is that we need to make digitization a core guiding principle for how we want to serve small businesses in the future,” he added.

A key goal of the digital-focused effort, Troutner and Miree also said, will be to provide more than cash to Wells Fargo’s Open for Business Fund partners. Many of these partnerships will be about upgrading the technology and digital capabilities of small businesses.

“You have to get them through the short term, but what’s really important is to prepare them for the long term,” Miree said.

“The pandemic has forced small businesses to drastically evolve their business models. And almost all of them have now had to come up with some form of digital strategy,” he added.

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Editor’s note: This story has been updated to reflect that Wells Fargo has independently committed to donating loan commissions to PPPs, not as a result of a Fed directive. Scandal-hit Wells Fargo has fired more than 100 employees over alleged “misrepresentations” when applying for and receiving loans specifically aimed at small businesses that were in dire need of the leveraged funds

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