The Future of Community Banking

The future of community banking, with their roots dating back to as early as the nineteenth century. Well, a community bank is a depository institution that is typically owned and administered by residents in the area. A bank of this nature typically addresses the concerns and caters to the requirements of local businesses and residents.

They make loan decisions based on a thorough awareness of local needs, as bank workers are frequently from the same communities they serve. Community banks focus primarily on agricultural and small company loans and have a high level of consumer confidence as their service offerings are focussed. According to the Small Business Credit survey, 79 % of small firms engaged with community banks were content with their services, while compared to 67% for large banks and 49% for online lenders.

Community banks have long been a vital part of the banking ecosystem, ensuring that local economies thrive. But are they ready for the era of technology-driven banking, and what can they do to adapt?

Challenges Facing Community Banks

Community banks have been facing fierce competition in the recent years and this comes not just from digital native fintechs but also from the bigger banks wanting to take advantage of their size and scale. Primarily to gain pricing privileges in smaller pockets.

Community banks are prone to concentration issues due to their limited geographic footprint and smaller size of operations. Which is why they are now under tremendous pressure to rethink their operating models and products. Diversifying operations or broadening the scope of their lending must, however, be complemented by good risk management techniques For most community banks, transformation is not as easy how it seems. Their efforts to provide other transactional or value-added consulting services have largely failed. These banks still rely on age-old systems where scope for agility is limited, resulting in a lack of opportunity to embrace new products and make the most of customer data for more workable strategies. And it's not inexpensive to replace or modernize these cores. Larger banks with more resources have been more aggressive in their digital transformation efforts. Till now, the main tactic used by community banks to combat the onslaught of digitally fuelled competitors has been to develop customer ties and loyalty. Customer loyalty is trust without a doubt and also the strongest asset in this sector’s arsenal. But they must now work on further deepening customer relationships by offering greater personalization.

To accomplish this, banks must use technology while maintaining the human connection which a major percentage of their customers really value. At the same time, community banks must be mindful that customer service today includes multi-channel and real-time involvement and goes well beyond the traditional branch banking.

The Road Ahead

For community banks, technology adoption is no longer a good to have initiative but one that is fundamental to their survival. They need to leverage technology not only for better data driven personalization strategies but also for better product differentiation, better omni-channel strategies and faster product rollouts. With greater digitization, they can overcome the challenges of restricted geography and reach by extending their services to communities beyond their immediate vicinity.

Of course, the thought of major change is frightening, especially considering the large expenditures involved. Community banks can use a middleware stack to upgrade their outdated systems without affecting the core by collaborating with third-party solution providers. This will allow them to easily scale up and offer newer, more personalized products and services to their customers.

Community banks can also collaborate with fintechs and new age banks to provide best-in-class services. Community banks have a devoted customer base that most fintechs seek to acquire, while fintechs have the technology prowess to roll out user-friendly experiences and low-cost innovative goods.

A mix of AI, machine learning, and big data-driven business models will enable better personalization and faster rollout of innovative offers for community banks' large client base — a clear win for all parties involved.
Ultimately, community banks must use technology to reach across geographical and ethnic boundaries to serve areas divided by industry, such as agriculture and oil and gas. It is also critical for banks to use data-driven insights to assess the creditworthiness of applicants while expanding their business.

Community banking, like the wider banking sector, is undergoing extraordinary change. Their ability to establish good client relationships has aided them in staying afloat even during difficult periods such as the 2008 economic crisis. And, thanks to their adaptability and innovation, they will be able to adapt their company models and tactics to changing industry conditions. Community banks must investigate digital transformation and new collaborations to provide clients a comprehensive experience rather than just a transaction in order to ensure long-term stability and profitability. In the end, it's not just about adopting new technology or finding a good partner; it's also about shifting the cultural assumption that physical presence is required to conduct business.