Community banks have always been the prop and stay of small counties’ residents. Yet, statistically, the number of community banks have been steadily
falling (from 15,957 in 1985 to only 5,874 by the end of 2015). This 63% decrease doesn’t seem to be the consequence of natural cessation of activity. So what’s wrong, then?
Where challenges hide
First, regulatory changes that came with the Dodd-Frank reform heavily affected all financial institutions, in particular community banks. Although the Federal Act does distinguish banks by their size, it only reinforced the current negative trends among
smaller financial institutions (like acquisitions by large banks and market share reduction).
Second, bigger banks with far greater financial resources have been opening local brick-and-mortar branches. With extended IT budgets, they heavily invest in technological development trying to imitate ‘closeness’ to customers and thus win current clients
of community banks. These tendencies not only threaten community banks’ profitability but the latter’s existence as such.
In these circumstances, the traditional way of doing business is no more a winning strategy for community banks, since it brings up the question of their survival and further development. To become more stable on the market and ensure a less distressing
operation, it’s high time that community banks found new ways to revisit their natural strengths and advantages.
Community banks can thrive anew
If we take a closer look at smaller banks, we can notice how much their way of doing business stands apart from the bigger ones. In fact, community banks have always been known for their relationship-based banking model that radically contrasts with bigger
banks’ transaction-oriented approach. Striving to maintain long-term relationships with customers, smaller banks have successfully created close ties with the local communities and gained in-depth knowledge of the local area. With these advantages, community
banks turned into a vital source for the smallest counties by providing support to families with limited financial resources as well as by fostering deep roots with agriculture and small business.
According to the FDIC’s
research, in 2016 community banks expanded small loans to businesses by $6.4 billion, which is more than twice the rate of non-community banks. Community banks currently hold 43% of all small business loans and are ahead of credit unions, large banks and
online lenders in terms of customer satisfaction with their borrowing experiences, as stated in the Federal Reserve’s
Besides, community banks are priceless in agricultural lending with their outstanding knowledge of farming, often very specific to the region or to a particular farmer. This has let them provide
about 77% of all agricultural loans. Another positive sign is that community banks still remain major financial services providers in the smallest counties. Almost
one of every four county has no other brick-and-mortar bank offices except those operated by community banks. Thus, community banks can thrive anew by nourishing a personal touch to customer service and creating value to those customers who do not qualify
for loans at the largest banks.
Technology can perk up community banks
Though bigger financial institutions currently try to be ‘personal’ by means of technological advances, community banks have rich experience behind. With far wider knowledge of the local needs, community banks can and currently do provide more customer-oriented
service with a human touch. Still, relying only on experience while denying the potential of technology is a rather shortsighted strategy. To compete on an equal footing with bigger rivals, community banks can go for technology but give priority only to the
software that will further enrich their relationship-based interaction with customers.
In particular, banking CRM is a right tool to facilitate a community bank’s efforts on customer relationship management. With this software, a bank’s employees can store and continually nourish their knowledge about all potential and current customers. Thus,
any piece of data about any customer is always within touch, be it a summary about a particular client or a statistical analysis of a customer segment. With CRM system, community banks can refine their vision on customer preferences, better understand clients’
behavior, see into each customer relationship to establish systematic communication and offer only relevant products and services. Instead of making endless notes in a notebook or merely relying on memory, employees can use banking CRM workflows to integrate,
track and timely accomplish various tasks and activities assigned to a particular customer. CRM can also ensure easy data transfer for new and unexperienced staff that lack knowledge about a bank’s customers. But the most appealing feature is
customer churn prediction that defines high-risk as well as the most valuable customers. Using insights about customer behavior and their latest activities, banks can outline a well-thought plan with anti-churn activities.
Another option is to benefit from a mobile channel that adds to community banks’ high level of personalization and meets customers’ expectations about convenience. As stated in the
article, a mobile app allows community banks to uphold the personal touch remotely and provide a remote access to the most important financial operations and services, such as account management, money transfers, payment scheduling and more. Thereby, community
banks can build first-class customer-oriented service that will increase customer satisfaction and loyalty.
On the final note
Supporting their natural strengths with the latest technological achievements, community banks can create a winning formula to let their customers know how they differ from other financial institutions. Thus, technology can give community banks a tremendous
opportunity to differentiate themselves from larger institutions and further concentrate on the local community’s needs.