Look around and you’ll notice that various industries are tapping into the ‘Buy Local’ movement. Local retailers get a boost from Small Business Saturday campaigns for holiday shopping the day after Black Friday each year. Restaurants have made ‘farm to table’ a popular trend by focusing on the use of locally grown ingredients in their menu items. The last week of April has also been designated as Small Business Week in the U.S. as a way to recognize and promote the positive impact small businesses have on their local communities.
Bankers can also capitalize on the desire of Americans to keep dollars spent on goods and services within their communities. In fact, there’s even a website that helps people track down a community bank or credit union based on a local impact rating. ‘Bank Local’ proponents such as the Institute for Local Self-Reliance say that choosing a community bank or local credit union, among other benefits:
- Helps ensure local money works to the grow the local economy
- Keeps decision-making local regarding loan approvals and other key decisions
- Supports institutions that share a commitment to the community and
- Supports the turning of deposits into local loans rather than having them used for ‘speculative trading’ or other Wall Street bets more common among big banks.
None of these benefits are a surprise to community bankers. Even if their bank or credit union doesn’t currently emphasize its local connections in marketing, no doubt the community has a big impact on local institutions’ product offerings, and the bank or credit union likely has a big impact on community groups and local borrowers.
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‘Buy Local’ Hits Home With Millennials
One of the U.S. demographic segments known as strong supporters of ‘Buy Local’ movements is also an important target customer for banks and credit unions. The largest segment of the U.S. population, Millennials (described often as being born between the early 1980s and early 2000s), are strong supporters of ‘Buy Local’ movements, according to research in recent years. A study by Nielsen Research on the retail shopping habits of this age group noted they value goods that are handmade and locally produced. “They want to know the story, history and heritage behind the items they purchase,” the report said.
And as this generation moves into its prime spending and entrepreneurial years, banks that can tap into this desire to support local institutions can drive deposit and loan growth. Imagine being known as the bank of choice for local businesses and consumers.
Technology Enhancements Still Required
However, given the expectations of many bank customers, especially Millennials who grew up with cell phones, Amazon Prime and computers in school, financial institutions will also need to tap into technology that improves the customer experience in order to win the banking business of many of the ‘Buy Local’ proponents – both consumers and business owners. Banks also should market the ‘Buy Local’ angle more frequently if they want to capitalize on their community roots, according to Peter Brown, a senior consultant at Sageworks.
“There’s definitely a need for community banking, and there’s a market for it, but the people who want to buy local aren’t being marketed to by many banks,” Brown says. “In addition, the people who want to buy local are in many cases the same people who won’t go into a branch, fill out a ton of paper and sit around waiting to get credit. Instead, many of them are going to fintech firms or to a giant bank, where they’re still getting mediocre rates and inconsistent service but can apply online and get an answer quickly.”
One survey of bankers by the Federal Reserve noted that Millennials, in general, do not seem to know much about community banks and what they do, which could mean local banks and credit unions can benefit from telling the story of the financial institution’s local connections and how those benefit the community. But bankers also understand that if they want to remain competitive, especially with Millennials, they must be receptive to technological changes. One banker quoted in the Fed survey said, “Millennials do not understand the concept of a community bank; they will bank wherever the technology works best.”
Brown says that having an efficient origination process that simultaneously provides the desired customer experience is a key for banks looking to capitalize on what many banking prospects see as their strengths: knowledge of the local community, relationship-based lending and product offerings tailored to unique local needs.
Keys to ‘Buy Local’ Success
Here are a few steps banks can take when seeking to modernize and provide the experience that will attract proponents of local banking:
- Provide the ability to apply online.
- Allow borrowers and their CPAs to upload required documents to a secure portal so they don’t have to photocopy, scan or mail dozens or hundreds of pages.
- Use electronic signatures so loan applicants can move the process forward, even if it is 2 a.m.
- Communicate all expectations and information with borrowers along the way so they know the status of their loan application.
Coupling the digitization of the application process with technology that allows for automatic decisioning as well as robust underwriting for more complex situations means a bank can efficiently handle loans that previously might not have been as profitable to pursue.
“The right software gives community banks the ability to compete and beat fintechs and big banks on turnaround time, as well as provide an easy technology experience while still being local and providing real customer service,” Brown says.