Today, the community banking industry faces a whole host of challenges. Federal and state regulatory pressures, changing demographics and consumer behavior, and technological innovation all play a role in making it difficult for smaller banks to get ahead. Yet, it is possible. The answer lies in knowing how to use those challenges to spark opportunities and build brand that creates an emotional connection with customers.
Challenges to the community banking industry come from a variety of areas including demographic, technological, financial, and behavioral challenges. Just take a look:
Financial repression. Artificially low Fed Funds’ rates, narrow credit spreads, and tight net interest margins, combined with heightened regulatory compliance from a host of Federal agencies.
Media Mayhem. Broadcast and cable media alone are no longer effective in reaching various audience segments with compelling messages and offers that move the needle. Beyond television, newspaper, and radio, consumers now use their desktop, tablet, and mobile devices to access and consume media at ever expanding rates. The rise of on-demand services like Netflix, Prime, Hulu, Pandora, and Spotify as well as a host of social media platforms and Smartphone apps, make it more difficult to capture the attention of a distracted consumer in a fragmented media world.
Mobile Millennials. Smartphone carrying Millennials (and the forgotten generation that preceded them, GenXers) interface with financial institutions in new ways that often limit the ability of banks to differentiate with high touch customer service. With mobile app usage rising geometrically and branch visitation declining, perfecting the entire customer experience becomes of paramount importance for community banks.
Financial Technology. Also known as FinTech, Financial Technology services include blockchain software, peer-to-peer lending, and mobile banking. FinTech has the potential to disrupt the financial services industry in much the same way that Uber has disrupted taxi service in major cities around the world. Attentiveness and responsiveness to developments in this area are paramount to ongoing success.
New Austerity. Scarred by the Great Recession, Millennials and GenXers are the most educated generations in history. As a result of deferring employment for more education, Millennials typically carry a significant college debt burden. Consequently, many have delayed household formation (single family mortgages) in preference to reducing their debt load. This new austerity fact requires banks to look at this cohort differently than preceding generations in order to build profitable customer relationships.
Individualism. The good news is that both generations favor community banks over national banks so long as community banks deliver relevant technology and treat them as an individual – not a number – when and if they do decide to contact the bank.
Choice. In areas with a large number of local banking options, knowing which ‘local’ bank to contact is the branding and differentiation challenge du jour.
Transparency. Consumer demand for transparency in ‘how to avoid fees’ places further potential burdens on banks’ earning capacity. However, rewards will flow to those who find a way to communicate fair value for services provided.
Inertia. Consumer inertia to change and the general hassle factor of switching mobile-connected banking relationships makes it challenging for banks to take business from incumbents, but it can be done. In fact, according to Accenture’s annual consumer banking survey, Millennials are more likely than others to change their primary banks, switching “at a pace nearly double the average of other age groups with 18 percent over a (recent) 12-month period finding a new financial services provider.”
The Good News
Daunting as these challenges may be, they also create opportunities for smaller banks to shine. What do we mean? Read on.
Branding. Build a differentiated brand that creates an emotional connection to your audience. Are you a standout in providing exceptional customer experience? Build on it and provide your customers with something large banks and FinTech apps cannot provide. Know what you do best and then build on it. For example, Ethos helped First National Bank build an emotional connection with customers that challenges them to Dream First.
Segmentation. Leverage a skilled multiplatform branding agency to develop and implement a segmented marketing plan that reaches audiences with meaningful and measureable messages in mediums of their choice (mobile, social, digital, and traditional).
Transparency. Seek new ways to communicate your values and be clear about any fees charged for services. Doing so will not only reinforce the trust your existing customers place in you, but build trust with new customers.
Product enhancement. Level the playing field with competitors by providing free ATMs worldwide for e-checking accounts that appeal to Millennials. While Millennials rarely, if ever, withdraw cash, the idea that they may be charged for ATM fees may prevent them from choosing you. Add a Visa Rewards card as part of the cross-sell to build a relationship and tap into the Mobile Millennial’s world of electronic payments (think Apple Pay, Square, and Venmo).
Financial Advice. Provide financial advice to those seeking to consolidate or refinance higher interest debt. Form a partnership with other organizations to offer a branded debt consolidation product that helps debt-laden Millennials and GenXers lower their monthly student loan payments.
Efficiency. Make outsized investments in mobile banking technology to deliver an exceptional mobile experience. Right-size the branch to deliver cost efficiencies and a high touch experience when those experiences are needed. For example, provide open dialogue banking, but also an opportunity for privacy when customers need to share personal information to open an account.
Customer Experience. Conduct a comprehensive customer experience survey to include an assessment of important consumer and business banking metrics such as convenience and access, personalized customer service, trust and confidence, transparent communication, and customer loyalty. Use the results to deliver an ever-improving customer experience at all critical touch points.
Personalization. Once you’ve created a personalized customer experience, win new business by targeting customers of local and national banks that tend to treat customers like numbers.
Economies of Scale. Think about acquiring weaker competitors to gain new footholds in strategic markets, if appropriate. Generate economies of scale to grow your bank and reduce the regulatory burden on a cost per branch basis.
The Bottom Line
Change brings challenges – but also opportunities. Instead of bemoaning the ever-changing landscape, embrace it then use it to create and promote new strengths.
Ethos is a multiplatform branding agency that develops and executes integrated marketing campaigns across multiple channels for companies inside and outside Maine.
At Ethos, we believe that the most effective way to set a company’s marketing course is by finding its core truth – its ethos. We know that once we discover and communicate that core truth, we can truly make a difference to each client’s unique marketing and business objectives.
With Ethos, you get more than a Maine marketing agency. You get a long-term partner whose goals are your goals.