I was fortunate to be in attendance for the 2018 ABA Annual Convention, which was an amazing opportunity to learn about challenges and opportunities facing community banks.
Of all the topics discussed, rising interest rates and the resulting higher funding costs dominated the agenda for community bankers at the American Bankers Association Annual Convention in New York City.
While community banks lock in an unprecedented number of mortgages at extremely low rates, they are being challenged to increase rates on deposits to attract new deposits and retain loyal customers. These customers are becoming increasingly rate sensitive. They are also being marketed to by national banks operating in communities traditionally served by community banks.
Relationship-based pricing and rates are crucial to maintaining and growing customer relationships
To help deal with these challenges, Mark Haberland of the Darling Consulting Group recommends that community banks track customer deposit attrition and proactively identify customers at-risk of leaving. Banks also need to identify high-value customer relationships that can be deepened through personalized, balance building incentives.
The most significant concern when it comes to new deposit growth is cannibalization of existing deposits. Banks need to acquire the capabilities to test the effectiveness of new offers and to differentiate new money from already deposited funds. Disciplined rate increases informed by a wealth of customer insights are what will allow community banks to retain customers, deepen relationships, and attract new deposits.
Adding to the pressure from national banks and the business environment is the hurdle of shifting customer expectations. It’s no longer enough to have a good experience “for a bank” because customers are comparing their experience on your platform to their experience with Amazon.
During his presentation on banking innovation, BKD’s Wyatt Jenkins discussed how smaller banks can cope with both the rise of FinTechs and the national banks’ push to embrace technology.
The first step is to be not just open to innovation, but actively searching for it. The only times innovation comes to you are a special vendor knocking on your door or a competitor beating it down. The sooner you open the door in the first case, the less likely it will be broken down in the second.
The second step is to embrace innovation when you find it. The new will be unfamiliar, but if the data supports that the customer wants it, then your bank needs to buy-in to it. Banks that are externally digital but internally manual will not last against competitors who have fully harnessed the speed that digital processes and technology provide.
And it is about digital. A great branch experience has never counted for less among the over 70% of customers who prefer to handle banking transactions online. Bank of America has 23% fewer branches than in 2009, but their automated transaction volume has increased by 94%. Your customers will continue to visit branches less; the longer your online and mobile experiences lag behind what customers expect, the more you will erode these already fraying relationships.
It can seem like a daunting world out there for community banks, in a space being crowded with FinTechs and big banks pushing for innovation. But as we learned at the 2018 ABA Annual Convention, where there is challenge, there is also opportunity.
More and more FinTech companies are looking to partner with, rather than disrupt, community banks. This can give them an edge against larger financial institutions that may not be able to implement new technologies as quickly as their smaller competitors.
Applying innovative technology to a customer-centric experience will allow your community bank to stand out against the competition. Looking to apply some of the lessons we learned at the ABA Annual Convention? Get in touch with us today and find out how!
Zafin (@zafin) is a leading financial technology provider that enables banks to form richer, more personalized client relationships. Built from the ground up for financial services, its platform empowers banks to enhance revenue and operational efficiency. Founded in 2002, Zafin sits among North America’s top FinTech companies, and is trusted by retail and corporate units at some of the largest banks worldwide. Headquartered in Toronto with global offices, Zafin has a proven track record with a 100 percent client retention rate as validation.
Jeremy De Mello
Jeremy De Mello is an Associate Account Executive on the Zafin Growth team. He is passionate about how financial technology can create a better customer experience. In his spare time, Jeremy enjoys personal development, cooking and baking, and working towards his goal of being described as dashing. You can follow him on Twitter @JeremyDeMello or connect with him on LinkedIn.