Community Banking in the Digital Era

This blog looks at the strengths of smaller regional and community banks that have a strong local presence in their respective markets and how they can use digital technologies to further their competitive advantages. Based on these advantages, they should choose digital technologies that enhance the bank’s positioning as integral to the community. Additionally, these digital capabilities must also complement the physical branches within the community to provide needs-based cross sales and attract digital-savvy customers.

 

A Whirlwind of Technology

With new technologies emerging every day, it is easy for all financial institutions including community banks to get caught up in a chase to get the newest shiny object. Moreover, the spread of new financial service ventures and FinTechs has added to the pressure to quickly build out digital banking capabilities. However, banks must carefully assess these technologies and ensure that they enhance community banks’ competitive advantages. Additionally, these digital enhancements must be carefully built to ensure that no security vulnerabilities are exposed.

Community-based banks need to support digital banking programs to address the evolving needs of customers. This culture change needs to start at the top of the organization and include key performance indicators (KPIs) that drive employees to focus on the customer experience as opposed to maximizing sales or contact efficiencies. Additionally, bank management must clearly value the customer and break down the various silos in the organization. While adopting new digital capabilities and shifting corporate culture, the bank must continue to be relevant in the community to differentiate itself from FinTechs and impersonal big banks.

 

Advantages of Banks with Strong Community Presence

While traditional definitions of community banks consider only those banks with assets under $10 billion, mergers and acquisitions between these community-oriented banks make the asset size irrelevant. For purposes of this paper, a community bank is one that continues the mission and values of these legacy banks.
Community banks have the unique advantages of local community knowledge, trustworthiness, stronger physical presence and agility, which has been depicted in the figure below.

Since community banks are smaller than the mega-banks, they can quickly respond to market dynamics. They often know families that have lived in the area for generations and can use their history to make decisions on banking products and services, whereas impersonal or automated processes would have rejected these potentially profitable loans. This also helps them to get referrals from key influencers in the area such as CPAs and small businesses.

 

Bringing Digital Enhancements and Community Involvement Together

Community banks must continue to do the things they do well and use technology to further their competitive advantages. Local banks have information captured about their clientele that can be used to personalize customer interactions. Community banks can analyze customer data to identify preferred communication channels, spending habits, and the appropriate stage of life to provide information based on cross-sell opportunities as well as personalized financial advice.

Contact with the customer must include information, advice and offers relevant to the customer to deepen the financial institution’s relationship with the client. With the advent of online shopping giants like Amazon, most consumers, particularly millennials, expect personal recommendations for additional products and services. For example, if a customer is shown to be highly digital and at the beginning of their career, video links about budgeting for vacations or a first home purchase can appear in their mobile banking application. Also, special savings accounts or short-term CDs could be recommended for these needs. Education of customers on budgeting and financial literacy enhances the banks’ image of trusted advisor in the community which can enhance growth. Examples of financial literacy programs for customers include Capital One’s partnership with Moneywise to provide multi-lingual education and Bank of America partnership with Khan Academy to provide tutorials. PNC takes the education one step further with PNC Virtual Wallet by providing the tools to budget and save. Additionally, to further the community vibe of the bank, digital channels should have a community happenings item on the menu that provides links to relevant activities and volunteer opportunities.

While mobile and online channels are critical particularly for younger customers, it is essential to make sure that any movement between channels is flawless and provides a consistently positive customer experience. Multiple studies have indicated that customers, even millennials, visit a branch on occasion. While branches must be restructured for efficiency by providing self-service functionality, the role of the branch employee needs to shift to that of a personal banker answering customer questions and providing information on banking solutions.

Additionally, the customer experience between in-person, phone and online channels must be consistent and providing the customer with an easy transition from one to the other. The customer journey often starts in person with an inquiry into loans or other products but may continue or end in a digital channel. Customer touch points need to look and feel the same, and data must be shared between channels to track positioning along the customer journey. Several banks such as Umpqua with their BFF (Best Financial Friend) have worked to humanize digital channels to mimic more personal advice offered by direct communication with a banker.

To deepen the organization’s culture of customer first and personalized service, KPIs must align with this focus. Sales targets and call center efficiencies should be replaced with incentives for employees to go the extra mile to serve their customers in the community. Additionally, the culture must encourage teams to work together to adopt digital capabilities that provide the best possible customer experience. In some cases, this requires organizations to completely reorganize to align to the customer journey. USAA which is consistently rated in the top group of financial institutions for customer satisfaction, completely restructured the organization to focus on the customer journey across products and the lifecycle. For example, a customer losing their wallet had to call 2 different organizations to report lost debit card and credit card. With the restructure, a single team is responsible for card replacement regardless of type card.

Building on their image of trustworthiness and community knowledge, community banks need to take this even further to show their customers that they are valued. This means not only putting the customer first but going out of the way to address their needs. While this may cost more to put into practice in lost revenue where fees are waived or more time is spent with a client, it shows the customer empathy and respect, which is a differentiator from other banks. It also drives loyalty as these customers will bring long-term contributions to the bank’s profitability. A good example of a bank going out of way to show customers that they are valued is TD Bank’s turning some of their ATMs into Automated Thanking Machines. Customers coming to these select branches were encouraged to try the different ATMs and got gifts such as plane tickets, cash or trips to Disney.

 

Implementing Digital Enhancements

Strategic digital enhancements are critical to remain relevant in today’s community banking. However, community banks must carefully vet any new digital capabilities to ensure that they are secure. When adding convenient digital capabilities quickly to keep up with larger banks and emerging competition, it is critical not to sacrifice security, as any breach can quickly erode trust in the community bank.

Digital capabilities can enhance a bank’s position in the community if they are aligned with the bank’s mission, branding and in-person experience. In designing these new digital banking solutions, the customers journey and reducing any friction must be top priority. Additionally, any cultural shift needed to quickly enable digital capabilities must be supported from the top of the organization to ensure complete employee engagement.

Susan McLaughlin

Susan McLaughlin is a Senior Manager in the BFS Division of Virtusa. She is a Certified Business Analyst Professional (CBAP®) and MBA. In addition to working as a technology consultant for many financial institutions with Virtusa and other technology providers, she also was a product manager for enterprise services. She has participated in various banking standards work groups including IFX and BIAN. Prior to working with technology providers for banks, she worked in various marketing positions.

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