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Opinion: What Community Banks Need to Survive a ‘Credit Recession’

This post is an opinion piece from Will ARTHEY, Solutions Engineer at Unbox.


With tough times headlining the economic landscape of the near future, most believe a recession to be around the corner. In a recent study conducted with bank executives practically all said they believed 2023 would bring a recession as bad as the 2008 financial crisis. What this means for loan demand and loan portfolios is not clear, but the reverberations of these uncertain times will most certainly be felt.

If a recession does come, financial institutions will need a highly accurate and measured way to make lending decisions to avoid loans that are at a high risk of defaulting. This will be especially true for smaller institutions that have not yet diversified their lending portfolios, leaving them more vulnerable to the swathe of defaults that a recession will likely bring. However, this is coupled with a need to make incredibly fast loan decisions as the recent disruption brought by fintech’s offering instant real time digital lending services like buy now, pay later (BNPL). This puts smaller institutions such as community banks at risk of becoming obsolete as they cannot compete.

However, innovative solutions designed to help community banks and credit unions compete with the wave of digital disrupters are slowly emerging. Unbox is doing just this. Unbox offers a multi utility ‘Platform as a Service’ (PaaS) product that gives money a memory and a conscience. Resultingly Unbox can provide protection from the storm and enable smaller institutions to thrive during an economic downturn. Unbox Universe’s platform enables organisations to create their own closed loop funding distribution systems without any leakage or slippage of funds. This is powered by a digital value proxy; the Ucoin. The advantages of the closed loop system are far reaching and applicable to many different markets, but what is most interesting is the ability to access a waterfall of rich data insights that are critical to better decision making. The platform offers real time data reporting that can be plugged into any Enterprise resource planning (ERP) software, making it incredibly easy to access vital information that could ensure an institution's survival. 

The challenge for smaller banks and credit unions is that they must lend to stay in business. However, if they are using out of date processes that cannot keep up with the big bank technology powered by fintech, leaving them at greater risk of lending to the wrong person, which if defaulted on could potentially wipe-out their organization.

Recession or no recession, smaller institutions will need to adopt innovative technology to survive, with the changing consumer expectations brought about by fintech’s offering and other digital lending products, this adoption need to happen sooner rather than later. 

A closed loop system allows administrators to program business rules into loans, this could include an expiry date, increased purchasing power at certain merchants, configured to incentivize spending which is aligned with the institution's values (for example, community stimulus, cross loan recipient transactions, ESG impact, etc.).

Unbox’s platform will allow community banks and credit unions to reduce loan risk by providing:

  • Detailed, uniform and real-time data collection

  • Program your institutions values into its loans

  • Only pay out what is spent on the intended purpose

This will give the small institutions a newfound edge and allow competition with the most advanced lenders again.


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