(Forbes) Community banks play a vital role in the U.S. economy, both through their contributions and in the provision of financial services that underpin the success of their communities. They may not have the huge budgets or loud voices of their Wall Street counterparts, but they’ve forged strong and deep bonds with their customers that are hard to replicate and hard to break.
Developments in digital technology are providing huge partnering and co-innovation opportunities across the whole sector, but, predictably, it’s generally only the efforts and successes of the big banks that are heard. It’s safe to assume that smaller banks may feel underrepresented, both among financial technology (fintech) and tech providers and within media. But community banks and credit unions have a great story and, because of that story, a huge opportunity.
Community banks are in a unique position to leverage technology to drive change and enhance one of the things that matters most to them: the customer experience. Based on my work with a fintech company, I see three ways in which community banks can level the playing field and benefit greatly from developments in financial technology.
1. Creating The Digital Human Touch
Community banks’ natural advantages, such as deep community ties, daily interactions with customers and the agility to customize financial solutions, have not been diminished in any way. One of the biggest draws for community banks is still their physical presence. While larger Wall Street banks close down branches, smaller banks’ brick-and-mortar locations have reportedly held steady (subscription required).
By enhancing the human touch with technology, smaller banks can stay relevant and stave off competition. The role of personal engagement can never be replaced, but advances in technology — from simple video conferencing to tomorrow’s exciting opportunities offered by augmented reality — offer new ways to interact with rural communities and isolated consumers.
This one-to-one focus is one way in which community banks are less immune to competition, although the threat of nonfinancial organizations that are creating payments infrastructures away from traditional banking rails, such as Amazon and Facebook, as well as the threat of local stores and businesses moving into basic financial services, still looms. It’s vital for marketers to identify the right technology to help improve their banks’ dialogue with customers and capitalize on the rich data their banks hold.
Consider using machine learning and predictive analytics in customer acquisition and retention efforts. Customer profiling and segmentation based on both a bank’s data and third-party behavioral or demographic data can build a more informed view of a customer’s journey and allow for more targeted campaigns. By analyzing campaign analytics, you can gain a basis for “next best action” and product recommendations. These types of capabilities can transform the lead nurturing cycle and create stickiness that can stop attrition.
2. Being Small But Perfectly Agile
When banks are small, they must specialize. This could be product-related, regional-specific or related to their brand or community endeavors. By exploiting digital technology to create efficiencies in banks’ product offerings — such as loan automation, peer-to-peer payments or self-service consumer platforms — marketers can cut costs while remaining relevant. And for community banks, their size is their weapon. It gives them the benefit of agility, while big banks are weighed down by numerous legacy systems inherited through years of acquisitions, making innovation and true customer insight difficult.
Of course, community banks are not immune to the threat of fintechs, neobanks and even nonfinancial organizations that tend to be cost-light, digital native, data-savvy and free from the constraints of brick-and-mortar and legacy technology. Today, these competitors are building extensive product portfolios, either internally or via third-party integrations, but they don’t have the advantage of deep relationships with their customers or the subsequent depth of data.
This won’t hold forever. Convenience may one day override the importance of relationships, which means it’s crucial that community banks start to take advantage of digital technology to create and maintain relevance.
3. Collaborating To Innovate
Fintechs and community banks stand to gain from a collaborative relationship. By working together, banks can allow fintechs to plug in and unlock new capabilities. This agile approach to innovation will not only help community banks develop new products and services quickly and in a cost-effective way, but it can also provide a long-term road map for sustainable success through new business models.
Before collaborating, a leader of a community bank must consider its company’s goals. For example, does a bank want to move to a utility model, open up access to their data via open application programming interfaces (APIs) and provide a commodity service? Does it want to build new financial services on its core platform by partnering with fintechs? Or does it have ambitions to transform itself by fully embracing the digital revolution, plugging in new partners that offer their own products and services, thereby creating a marketplace model with products that extend beyond core banking services?
Of course, those operating on closed platforms will find it harder to benefit from these partnerships, with legacy technology creating a barrier for interoperability. Traditional back-end systems tend to be old and not conducive to working well with new technologies. Shoehorning and patching in new capabilities is not a viable long-term solution, nor is it realistic to imagine that community banks have the funds or resources to continue finding workarounds.
However, thanks to the advent of “platform as a service,” banks don’t necessarily need to replace core systems. Instead, they can innovate around the core through open APIs, saving time and money. So, the No. 1 question that community banks should be asking vendors is whether their core technology supports open APIs and embraces a true platform approach.
Based on the industry transformations that digital technology has enabled, the community bank of the future will likely be one that uses technology to enhance its customer relationships, to build out new products or capabilities in a fast and agile way, and to foster innovation.
