March 6, 2015 by Leave a Comment
Next week I will be moderating a panel discussion at American Banker´s Retail Banking Conference in Austin about the competitive pressures of community institutions. It’s an important topic that Celent discussed in a report published last year: And Then There Were None: The Disappearance of Community Banks. The figures below outline the decline of banks in the US, going from 11,462 at the end of 1992 to 5,809 in 2014. The challenge for many of these institutions has been organically growing their deposits despite shifting consumer demands and new alternatives to traditional financial services (e.g. prepaid services, P2P lending, etc.). The business model of banking is changing, and viability is increasingly dependent on tech investment. Consumers now expect a certain basic level of technological capabilities driven by their experiences across other industries. To accommodate, financial institutions are pressed to implement products such as customer analytics, mobile, CRM, etc. Yet these challenges come at a time of decreased interest margins and broadly defined regulations that require community banks to increase compliance spending and capital reserves at pace with large players. Online banking platforms are often basic, many have no mobile apps, and business platforms like treasury management are severely outdated. Even labor saving technology (e.g. video teller) often does not lead to short term cost savings, and new services typically run in tandem with other operations, adding operating expense to already thin margins. These conditions have made it difficult for community institutions to compete and have challenged the viability of many. Community institutions, however, operate in an extremely diverse landscape of micro-localities with varying competitive dynamics and local needs. This often carries with it a number of advantages over large multinationals with few local connections and an often impersonal understanding of the community. Small banks won´t be able to go head-to-head with large institutions on tech spending, but identifying the organization´s value proposition will enable a tighter strategic direction for meeting consumer demands while delivering a competitive community experience. In Celent´s upcoming panel, we´ll be exploring what community institutions are doing and some of the lessons that others can learn.