The State of Community Banking - What’s Ahead?

Every year the ICBA surveys community banking leaders about hot button topics in their industry, which is categorized as financial institutions with assets of $10 billion dollars or less. The state of community banking is important because of the out-sized impact their operations have on small and medium-sized businesses and the communities that surround them.

Consider these facts:

• 90% of all insured banks in the United States are community banks.
• Small businesses had higher financing approval rates at community banks.
• Community banks service 30% of commercial real estate loans, 35% of small business loans and 70% of agricultural loans.
• During Covid, 60% of all Paycheck ProtectionProgram (PPP) funds were disbursed from community banks.
• Almost two-thirds of small businesses prefer community banks vs. larger banks or fintechs.
• U.S. community banks employ more than 450,000 people.

Top Reasons Local Businesses Choose Community Banks

The ICBA Small Business survey details the reasons local businesses value community banks so much, and the top reasons can be summarized in two words: customer service. For these companies, it's demonstrated by curated products or services for them and understanding the nuances of a business’ geography and using that knowledge to apply latitude in underwriting and financing. 

They also point to community bankers as having a better understanding of small businesses better than large banks do. Finally, they confirm what community banks brag about themselves - they feel known by their bank in ways they don’t at larger banks.

This personalized, 1:1 service is a positive differentiator that grows and retains relationships. With all of those positive accolades coming from their main client base, community banks , however, do have challenges that are squeezing their operations in significant ways.

Community Banking Challenges

• Cost of funds/need for deposits: Margin compression requires a focus on product profitability and operational efficiency because those are two areas community banks CAN control.
• Regulation and compliance: The average community bank has three full-time employees handling compliance activities. These costs equal 4-7 percent of a median community bank’s net income. 
• Merger and acquisitions: The number of community banks is dwindling - there are about half the number there were 15 years ago. The Federal Reserve Bank of Kansas has speculated that regulatory stress may contribute to bank consolidation and the low number of new bank charter applications.
• Security and fraud concerns: Cybersecurity is seen as the greatest risk.
• Technology adoption: Data silos, legacy infrastructure limitations and regulatory concerns hold back community banks.Technology implementation and costs are named as their second largest concern.

The Future of Community Banking: Projections and Strategies

Many of these challenges will continue in 2025. Deloitte predicts net interest margins will likely remain tight as deposit costs remain elevated and technology expenses and employee costs keep growing.  So what can community banks do?

Deloitte suggests banks focus on expense control while maintaining stellar customer experiences so they can hold onto their existing base and expand it. 

Operational Efficiency and Customer Experience 

CRM and case management capabilities, when coupled with tools to break down data silos within the community bank and vendors that engage with customers, can deliver both. By unlocking data within these systems and centralizing it, community banks can enhance real-time collaboration between internal teams and legacy providers outside the bank. They can work together uninterrupted, saving time and effort trying to stay updated with a customer's inquiry. Manual and clunky communication and collaboration methods delay the resolution of customer issues, but replacing them with technology that reduces effort speeds up resolution, something that's a win-win for the bank and customer.

By partnering with technology providers, including OvationCXM, that plug in (after simple data mapping exercises) to core systems like Fiserv, FIS and others, community banks gain operational efficiency and more robust, informed service delivery which strengthens customer relationships which delivers on the analyst’s recommendations.

About OvationCXM 

76% of small businesses have walked away from a bank onboarding process because it was frustrating. Their top annoyance? Too many people and organiztions were involved. Plus, they couldn’t find helpful information when they became stuck. Even in community banks, which are known for exceptional attention, customers can get bounced around between teams and vendors for support.  

OvationCXM is the only technology that focuses on removing visibility gaps between banks and their core providers and other legacy platforms, using our exclusive no-code connector network. When banks use our core connector alongside built-in case and customer management tools, they centralize all customer activity information, in real time, in one accessible location, visible to customer-facing teams at any time.

OvationCXM empowers bank employees to answer questions more quickly, see progress in sales, onboarding and support workflows, monitor service responsiveness of vendor partners and communicate with customers and vendors using the latest information - without resorting to long phone waits or email threads.

Our CX management software gives community banks necessary tools to smooth out customer experiences so they feel convenient and cohesive. 

OvationCXM ROI 

Gaining visibility into all of yourcommunity bank's customer interaction data isn't a nice to have. It's a key driver of profitability, and a necessary building block to adopt innovative technology like AI that relies on access to comprehensive bank data to provide insights.

Our bank customers have experienced fast ROI on their investment with OvationCXM including:

• 10% boost in revenue 
• 20% reduction in attrition
• 25% increase in visibility across teams and partners 
• Double digit jumps in customer and employee experience scores. 

Reach out to learn how our community bank software offering can help you gain efficiency while further enhancing your CX.