Community banks are the mainstay of the “American Dream,” as reliable as “Momma’s Apple Pie”: familiar, familial, folksy. They punctuate small towns and communities. They rely upon relationships that are localized. Most of their deposits are derived from these salt-of-the-earth customers, and as such, the community bank is invested within the community. They base their lending criterion on the specialized knowledge of their community as opposed to the tradition of underwriting principles.
Larger commercial banks make decisions based on statistical models and credit scores; community banks rely on their relationships with borrowers, communities, and the local economy. Because of this connection, community banks are in a tangible position to oversee their business transactions more intimately and purposefully than their commercial counterparts.
This connection gives the community bank customer a sense of belonging, connection, and empowerment. It is the antithesis of banking’s globalization, which has lost its connection and social ties. Instead, commercial banking has fragmented its identity for impersonal profit. This profit is not reinvested within its community. Instead, it flows into the avarice of indifferent shareholders, where greed is good, and the community is a members-only country club.
The localization of the community bank proffers opportunities for the unbanked underbanked. Whereas a commercial bank is about the black-and-white of guidelines and regulations, community banks are opaque in their judgment, prepared to take a punt on a client due to a collective commitment, a shared history. This is a critical component of connectivity that community banks need to harness.
It is fair to say that the success of many community banks in the next decade will be reliant on how well these banks embrace and invest in fintech solutions. The transformation of these relationships and processes to digital through the adoption of digital banking will be critical to their survival. These investments will lead to these banks become more efficient and relevant to the customers they serve.
Becoming more efficient does not mean throwing out the old or losing the localization and community aspects of the bank. Not all customers will see value in new technology. In contrast, others, especially the younger members of our communities, will often select their bank based on relevancy, ease of sign-up, and digital tools to help them manage their finances.
Selecting and working with a fintech that can provide the necessary tools and technologies to help with this move is essential, one that can advise on and augment your current investments in core banking into world of digital banking will ensure the longevity of the bank.