Finding Success as a Community Bank, Part 1: Challenges and Opportunities

Small community banks and credit unions face rising pressure in today’s economy to compete with large, multinational banks. This challenge to remain relevant has existed for a long time, but it has become increasingly difficult to remain so in an expanding age of globalism and corporate consolidation. Understanding how to attract new customers, while simultaneously employing a multi-generational approach, is critical to continued success and sustainability. It is possible for small banks and credit unions to compete – and even thrive – in our current market, but it requires focus, purposeful action, and a recognition of their unique strengths and advantages.

Opportunities Abound

For community banks, competing against megabanks can be a daunting challenge, but there remains enormous opportunity. In 1990, the five largest banks controlled less than 10% of all bank assets. In the last 25 years, that share has jumped to 44%. Today, approximately half of all new accounts (two-thirds of which are opened by Millennials) are established with the largest four banks (JPMorgan Chase, Wells Fargo, Bank of America, and Citibank). However, according to our own benchmark studies, an average of 13% of those megabank customers – as high as 20% in some markets – prefer a community bank.

Success Factors for Community Banks and Credit Unions

One of the most important success factors is to offer flexible, customizable services that allow your customers to choose what they want and when they want it, regardless of their age, income, schedule, or relationships. This is not only true for the younger customers but is becoming a key driver of loyalty for Gen Xers and Baby Boomers. Despite Millennials opening new accounts with larger banks, many still want the personal touch: As of June 2017, over 45% of Millennials said they preferred in-branch interaction over electronic interaction with their banks.

Keep it Personal

Most consumers are still searching for a personalized banking option, and community banks that take the important steps to capitalize on that demand will thrive. Look at examples of successful organizations from other industries that are facing the same general issue: competing with large corporations. Find out what local restaurants are doing to compete with fast-food retailers. Discover why the local auto mechanic is so successful when a chain auto-repair shop is right around the corner. The basis of any functioning business is a good relationship with its customers.

Some trends may favor large, multi-national banks, but deliberate, personalized attention can not only even the playing field, but tip the balance in favor of a community bank or credit union. With an understanding of your competitive advantage as a small, local financial institution, you can capture plenty of loyal customers that will bring success. Contact us if you would like customized benchmark reports for your region.

Next month, we’ll continue our Community Bank Success series by exploring Community Bank and Credit Union Marketing.

Improve Community Banking through Stronger Customer Engagement

Community banks enjoy a significantly higher customer satisfaction rate than larger, national banks. But the comprehensive breadth of services used among community bank customers is relatively low, and many community bank customers turn to larger, national banks for their larger financial needs (like investment and retirement services, as well as large-scale loans). Addressing the reasons for these discrepancies can help community banks improve customer engagement and strengthen industry standing and profitability.

Emphasize Personal Attention in All Financial Matters

Community banks must not abandon their focus on being small and friendly, but they must redefine those terms to include financial expertise. They must be centers of professional bankers, investors, retirement planners, etc. They must emphasize the important of making the most critical, impactful, complicated decisions with people who are trustworthy, knowledgeable, expert friends, not with people whose only concern is making a large commission from their customers. This process of building relationships is already a hallmark strength of community banks; they must extend it more broadly across more financial options.

Insist on Early, Active, Comprehensive, Unapologetic Sales Practices

Sales does not have to be impersonal, hyper-aggressive, and manipulative. It is best when done personally, assertively but naturally, and honestly. Community banks are perfectly positioned to do it well. What the process cannot be is ambiguous or slow-moving. Customers who open  new accounts should sit down with people they consider to be financial experts, to go over all their financial options.  These experts are referred to as financial advisers or some other title that suggests that they are more than simply money handlers (which is how customers generally view tellers). The goal of these advisers is not to make any additional sales at that moment (unless that occurs naturally) but instead to ensure that every customer is aware of available services.

Invest in Omnichannel Integration

This solution is non-negotiable. It simply is a reality in the world today and will continue to be so in the future. Frankly, this topic is too broad to handle adequately in an introductory post (and it will be the subject of a future post), but this integration must happen if community banks are to continue to compete and thrive. The reality is that most relatively small organizations lack the resources and technical expertise to accomplish this on their own, and partnering with an expert organization in this area usually is significantly less expensive in the long-run. Thus, the best solution for most community banks is to find a trusted partner and collaborate with that partner to achieve omnichannel integration.

Is Your Community Bank Missing Opportunities with Millennials?

Emerging generations are the largest in history – even larger than the baby boomers.

  • They have access to more money than any previous generations in history.
  • They value interpersonal interactions and relationships as much as any generation in history.
  • They prize social engagement and are suspicious of large corporations to an extent never seen in any previous generation.

Despite all of this, many are less likely to use community banks than their parents and grandparents. But that does not have to be the case. These younger generations represent an enormous opportunity for community banks to thrive and grow.

Imbalance in Being “Small,” “Neighborly,” and “Friendly”  and Demonstrated Financial Expertise

Generally, people don’t go to friends and neighbors for complicated investment and retirement advice. They go to people they consider to be experts. Exclusive focus on size and personality has established among community bank customers a strong degree of personal loyalty for basic deposits, but it has weakened some of those customers’ confidence in community banks as experts in more complex financial matters, creating a perception of community banks as places where good people take care of money, not where financial experts handle complicated, consultative financial conversations. Community bank customers store their money with good people; they discuss how to use their money with good bankers.

Failure to Embrace Active, Early Sales Practices and Opportunities

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How Is Banking Like Baseball?

And How Is Community Banking Like ‘Moneyball’?

The idea that you can create a template that will work forever doesn’t happen in any business. There are some really, really bright people in this business. You can’t do the same thing the same way and be successful for a long period of time.” But maybe you can be Billy Beane. Are you like Billy Beane, the general manager of the mid-market team the Oakland A’s? As the protagonist in the book and movie “Moneyball,” he is responsible for successfully competing with big-market, deep-pocket teams such as the New York Yankees and the Boston Red Sox. How did Billy (as played by Brad Pitt in the movie) do it?

“We can’t do the same things the Yankees do. Given the economics, we’ll lose. Smaller market teams, when you hit bottom, you hit with a thud,” Beane has said.

The game of baseball has changed. It’s a data-driven sport that allows managers to manage to different situations and strategies. What works for one team or one situation may not work for the other. The challenge is to figure out what data you need, how to gather that data, and how to use it to meet your goals.

Billy Beane’s genius was his decision to do more research on players and his openness in looking at the research data in different ways to achieve success, despite the A’s budget limitations.

For example, general managers need to put together a multi-talented team where one size does not fit all. Today, a team consists of core players, specialists and multi-position players. The key is having the type of talent that fits the playing conditions. In baseball those conditions include the league (American with designated hitters), the field (Yankee Stadium with its short right field, or Colorado with its thin air) and, of course, the salary cap. In community banking, those conditions are urban versus rural, customer demographics, competitor strengths and weaknesses, and budgets for marketing.

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Is Your Community Bank Reaching the Women in Your Community?

More women are living independently, opening local businesses, and taking leadership positions in businesses around the community. So, what can a community bank do to make sure it provides the right kind of support and value to attract these decision-making consumers?

According to the IDF, women entrepreneurs are “changing the face of the global economy,” representing more than 30 percent of registered businesses. And according to HBR, women control about $20 billion and earn about $18 trillion, making them powerful consumers. Through our own research, we discovered that when women find the “right” bank – a bank where they feel treated with respect – they are less likely to change banks.

How Can Community Banks Attract Women?

Is Your Banking Technology Up to Date? According to our research, women are much more banking-tech savvy than men:  33-percent are more likely to prefer online and mobile over branch and phone.  And that gap is widening, as women are shifting faster than men to online and mobile banking.

Are You Offering Women Opportunity? According to the IDF, women may own more than 30 percent of the businesses in the world, but less than 10 percent of them have access to the funding they need to grow their businesses. Supporting women in business can help make your bank more appealing.

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High Percentage of CT Customers Say They’ll Switch Banks This Year

High Percentage of CT Customers Say They’ll Switch Banks This Year

Financial institutions tend to hear unsolicited feedback from two kinds of customers – those who are very happy, and those who are very upset.

Even those banks and credit unions that try to survey a representative sample of their customers may end up with inaccurate results. This is because many customers are not completely honest because they do not want to get their favorite teller or commercial banker in trouble, and sometimes a bank’s employees will try to coach respondents to give good scores. This can lead to an inaccurate view of a bank’s customer base and lead to business decisions based upon imprecise customer intelligence.

Customer Experience Solutions takes a different approach and in this article, we have the top-rated banks for overall quality in each Connecticut county, as ranked by their own retail and commercial customers. The overall quality index is a combination of servicing, tools, problem incidence and resolution, policies and trust. We will examine some of those particular metrics in upcoming issues. The top tier performers include a range of large and small institutions, showing that size does not necessarily translate into results. Worth noting, there are a number of institutions that fell just below the top tier and may be able to capitalize on their strengths to achieve the top level in the next survey, scheduled for Q2.

We also have the top-rated banks for reputation as a strong bank. This index is based upon the perceptions of each bank’s prospects (non-customers), since reputation is a strong driver when considering a new banking relationship. While larger national or regional banks have a possible advantage in terms of assets or name recognition, a number of smaller banks also achieved the top tier. Worth noting, a number of institutions had reputations that varied starkly from market to market, indicating an inconsistency in marketing effectiveness across their footprint.

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When Community Involvement Isn’t Enough

When Community Involvement Isn’t Enough

Many community banks and credit unions pride themselves on the contributions they make to their communities. This includes supporting local charities, funding scholarships, planting trees or otherwise helping their neighbors. While these great acts can certainly be their own reward, community banks also deserve public recognition for their great works. Other than the obvious benefits to the community, the contributions a bank makes to its community have two strong benefits for the bank itself.

Top 5 Banks Ranked For Community Contributions By Prospects

The first is the influence on prospects, or non-customers. Many prospects learn about potential banks from advertising or from community involvement. Our studies show that advertisement is generally more effective at raising awareness among prospective customers than community works alone. Indeed, this is why many banks set aside large budgets for traditional marketing. However, our studies also show that while ads are better at driving awareness, community contribution can be more effective at driving consideration. The latest results of the CT Bank Prospect Benchmark shows that community contribution increases prospects’ consideration of your bank by an average of 136 percent. Not a bad side effect! And for smaller banks with lower awareness, the increase is even higher.

The second impact that community contribution has on a bank’s business is on its current customers. When current customers see their bank’s involvement in the community, it can improve the esteem they already have for their bank. Our research has shown that the positive impact can increase customers’ loyalty to the bank, meaning they are less likely to leave and more likely to increase long-term spending with their bank. The latest CT Bank Customer Benchmark showed that recognition of community contribution increases customers’ share of wallet significantly with their bank and their long-term loyalty goes up by 91 percent.

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Better Technology Attracts More Clients

Better Technology Attracts More Clients

The recent Connecticut Bank Benchmarks revealed some interesting and surprising findings about how Connecticut consumers and businesses view and use banking technology, and how gender, age and income drive that usage.

Does better technology and tools really attract customers?

Yes, it does. The CT Bank Benchmark results show that technology is one of the four key drivers in consideration by your prospects. The other three are customer service, reputation and contribution to the community. Just as importantly, low quality technology is one of the main motivators customers site for leaving a bank. Given that 14 percent of Connecticut consumers and 18 percent of Connecticut businesses say they will switch financial institutions this year, technology will be a big factor in determining market share for Connecticut’s banks and credit unions.

Does Bigger Equal Better in Technology?

According to Connecticut consumers and businesses, the answer is: not always. While it is true that larger national and super regional banks score better than community banks as a whole, that is not the whole story. When prospects rate banks they do not use, they tend to assume that a bigger bank they have not used will be better than a smaller bank they have not used. However, when asked about the banks they currently use, a different story emerges. From the county level rankings included here, you can see that exactly half of the top spots in Technology and Tools were captured by smaller institutions, mostly community banks. This serves to remind all banks that while big banks might have an advantage in spending and image, community banks can certainly hold their own.

Times Are Changing

Connecticut banks have to ensure that they are ready for the continuing shift away from the branch toward technology. More than 60 percent of Connecticut customers say they will increase their usage of online and mobile banking tools this year. For high income earners (over $250,000 per year), that increases to 67 percent, and for millennials, that goes up to 74 percent.

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