Loyalty Alone Won’t Assure the Future of Community Financial Institutions

Even with their local presence and strong relationships, community banks and credit unions run the risk every day that retail and business customers will be attracted to 'shiny new objects,' like voice banking, dangled by challengers and megabanks. Here's what it will take to win.

Small and midsize banks and credit unions can justifiably take pride that they make more than half (52%) of all loans to small businesses, even though they only hold 16% of total U.S. bank market share. The 30 million small businesses in the United States represent the “backbone” of American business, creating more jobs than big corporations, and community banking is what gives the backbone strength.

I can attest to this strong partnership from personal experience. More than three decades ago, I was one of these small business owners. When I set out to secure a loan to launch my business, all the major retail and commercial banks turned me away. It was a small, local bank in Tulsa, Okla., that took a chance on me. I now operate a multimillion-dollar bank technology business, and I’m still banking with that financial institution.

Community banks have what megabanks and challenger banks do not: a local presence. And familiarity breeds trust. They also are deeply committed to the communities in which they’re rooted, unlike most behemoth banks managing locations across the map.

But while community banks and credit unions tend to have greater loyalty among their retail and business customers, with whom they’re in closer relationship, they don’t have the technology budgets and highly specialized staffs that large financial institutions do.

With shiny new objects constantly popping up to lure consumers away from their mainstay financial institutions, it’s vital for community banks and credit unions to refresh their image in the eyes of consumers.

Beyond potential name changes and a reinvented branch experience, community financial institutions need to integrate the modern customer service technologies that ease, expedite, entice, and track consumers. Even if a consumers loves their financial institution, hearing friends and family rave about cool new capabilities that are non-possibilities with their own financial institution is sure to cause them to wonder: “Why don’t I have that?”

More Than Ever, You Can’t Ignore Market Changes

When internet banking first caught on, many community bankers and credit unions questioned it, saying, “So, you want me to offer my customers something that makes it so they don’t need to come into my branches?”

While it was and is true that the in-person relationships that community financial institutions build are a competitive differentiator, not offering consumers the convenience and flexibility of internet banking would have meant death for an institution (and did, for some). Financial institutions don’t operate in a vacuum; there are always competitors vying for those ever-important consumer deposits.

“New channels continue to emerge, but the lesson remains the same: You forfeit the game if you choose to not compete.”
— Michael Boukadakis, ENACOMM

Today, internet banking is a given. New channels continue to emerge, but the lesson remains the same: You forfeit the game if you choose to not compete. It is quick work to find examples of such forfeits from other industries in the recent past. They make little sense. Why on earth wouldn’t Blockbuster bite the bullet and move into streaming services? They had the trusted brand, but they chose not to compete on the modern field, instead yielding to the Netflixes and now the Amazons of the world.

Companies like Amazon thrive by out-innovating legacy businesses that are full of inefficiencies. It’s not the goods and services themselves that are re-invented by the newcomers in most cases. Rather it’s the methodologies through which these goods and services are ordered and delivered. Similarly with banking, it’s not necessarily the debits and credits and loans that will revolutionize everything, it will again be the delivery platform that is the point of innovation.

Adding new delivery channels is nothing new for banks and credit unions. But in the past, when they added ATMs or even online banking there was relatively little nonbank competition, and it wasn’t focused as much on retail delivery. Now, challenger banks and other fintechs move fast to exploit the efficiencies of new channels. They are not saddled with legacy ways of operating.

This new group of new, agile competitors is now moving (quickly) to lay claim to the hardest-to-develop, but easiest-to-learn platform in existence — voice.

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Don’t Wait and See With Voice Banking

Digital banking is no longer just about mobile and the internet. Conversational voice banking is the new frontier. Voice assistants, such as Amazon’s Alexa and Google Home, are the fastest growing technologies since the smartphone. Smart speaker ownership in the U.S. reached 157 million in December 2019, up from 119 million a year earlier, according to NPR and Edison Research.

Adoption of voice-controlled banking is growing today, and its application will soon expand. The big banks have already recognized and responded to the trend. Bank of America offers its highly popular virtual voice assistant, Erica. Ally Bank offers Ally Assist, which answers to spoken queries. USAA provides a natural language banking experience enabled by AI-powerhouse Clinc, via Amazon Alexa.

In the near future, one-word buying, subscribing, paying, reserving, and more will be enabled by secure access to the banking and payment information of consumers. And unlike the voice banking of today — simple two-way voice interactions — voice banking will become more conversational, thanks to natural language processing.

It will be possible to direct your personal virtual assistant to do something for you, like create a spending report that will be emailed to you within seconds. And with voice-controlled, AI-based, cloud-computing software being built into everything from buildings to personal gadgets, voice commerce will be available via cars, watches, televisions, hotel rooms, homes and beyond.

Retail banking competition is becoming fiercer each year as technological capabilities advance. As community banks and credits unions continue to give strength to small businesses, technology companies — through partnerships, or other arrangements — can provide the strength that those financial institutions need now to compete with deep-pocketed challenger banks, big tech companies and megabanks all seeking to redefine the banking experience.

As a former startup small business owner, my message to community banks and credit unions is simple: Make decisions today that will protect your place in the future. America’s small businesses are depending on you.

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