In a Digital World, What is the Future for Community Banking?
In a year of extreme disruption, financial institutions have faced the necessity for reinvention and a forced reimagining of new methodologies of business transactions, evolving technologies, and the clients’ overall banking experience. As the industry progresses rapidly, several key developments will drive the future of banking — from digital customer experiences and advanced financial technology to more artificial intelligence integrations than ever before.
Online and Mobile Banking Increases
The global pandemic certainly expedited the trend banks were already seeing – less traditional foot traffic in physical branch locations and increased online and mobile banking.
The Uprising of the Remote Workplace
Additionally, the banking industry lagged behind in embracing the remote workplace. Despite being an essential business, the prudent measure was to rotate team members for their sake, clients’ sake, and to protect the ability to keep locations open safely during the pandemic. The most significant pivot was scheduling remote work. Hiring the right people, deploying more technology, and providing vision, expectations, and accountability did not hinder productivity for many banks — in some cases, it improved it. Ongoing skeletal staffing spurred other innovations for many community banks, such as curbside banking and full-service drive-thru banking.
Assuming the trends continue, the banking industry’s future will allow more non-customer-facing employees the option to work remotely and minimize traditional brick and mortar branch expansion in communities they serve.
As Digital Banks Rise, Community Banks Take Center Stage
In this fintech world, is there a place for community banks? The answer in 2020 appears to be both yes and no. Clearly, the value of community banks has never been stronger or more evident than in 2020.
Business owners (especially small business owners) have repeatedly echoed throughout the pandemic the necessity for an actual relationship with their banker — complete with their cell phone on speed dial. With the Paycheck Protection Program and Main Street Lending Program relief efforts funneling down through banks, it was the local banks that were most vested in their communities and worked around the clock for people and businesses they knew.
That said, traditional community banks that don’t embrace the digital trends and opportunities will soon be replaced as the next generation desires and expects everything at their fingertips.
Traditional Banking Still Plays Essential Role
Not bound by bot-driven underwriting, the art of being a good loan officer still applies in community banking. In its simplest form, traditional community banking is bankers living in and among their neighbors, understanding the needs and challenges of the community, supporting local charities and sporting teams, and doing business with those who do business with them. Building great relationships with clients is invaluable for Main Street businesses and the entrepreneurs that risk their life savings to start and operate them.
Not only have smaller, local community banks stepped up as the Amazon Prime of the CARES Act relief funds, but community banks often do business with their clients — buying products and services from them and playing a small role in contributing to their comeback.
As a Vista Bank client recently noted, “What I needed most from my bank was confidence. They believed in themselves, and they believed in me. Sometimes, that was what got me through.” The personal touches and meaningful relationship building for traditional banking customers will supersede digital bank experiences in the future where the customer is seeking connection.
FinTech Emerges, Artificial Intelligence Comes Out to Play
While artificial intelligence and machine learning tools may not be new technology, their adoption is relatively new to the banking and finance industry, especially among community banks. While that has in part been due to necessity and aging leadership, it’s also in part been due to cost, established contracts with core systems, and other challenges. The development on the horizon will be young, vibrant community banks adopting said technology and combining the asset of robust data with the magic of relationships.
With the falling cost of data storage and processing, banks should lead out on adopting AI. Much like banks did with other digital solutions, the ones that get ahead in this arena will have a leg up post our ‘masked economy.’ While AI can never fully replace an excellent banker’s gut, it can certainly inform and support sound underwriting decisions. It’s also great for scaling processes and detecting fraud, among many other conveniences for the end-user.
As banking digitally evolves, the role of community banks will stand firm as the demand for a personal connection between the institution and the client continues to persist. Achieving a balance between technology, digitized practices, and personal interactions will prove crucial for the customer and a strong pillar for what smaller banks have to offer. While consolidation through M&A is expedited, especially in the wake of the burgeoning pandemic, traditional banking’s core principles will endure — serving as the indispensable key to the customer’s modern financial experience.
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