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Digital is not optional

Community banks must deliver a strong digital. Multi-channel can be a distraction

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  • Written by  Mike Dionne, Finastra
Community banks enjoy no special safety net to protect them against the growing trend towards digital channels. Community banks enjoy no special safety net to protect them against the growing trend towards digital channels.

The way people think about banking is undergoing a massive change right now. To a Baby Boomer, a bank is a place. To a Millennial, “bank” is an activity conducted through an app.

A lot of Millennials and a good percentage of Gen Xers have never set foot inside a bricks-and-mortar bank. Their relationship with their bank is developed through the tools, services, and alerts they interact with through their phones or inboxes. Customer experience isn’t just a buzzword to these customers; it’s the deciding factor on how they choose their banks.

Many community banks aren’t preparing for this change. They feel “digital disruption” only applies to the big banks. They believe their unique value proposition as community members will protect them—i.e. “Local wins: it always has, so it always will.”

While it’s true “local” will always have strong appeal, customers aren’t willing to give up convenience for the sake of supporting a local business.

Cross-generational demand

Most bankers are aware of these trends, but many of them tend to focus their bank’s resources on serving the customers with the most assets: Baby Boomers. That’s a business reality, but it is unfortunately accompanied by the misperception that boomers are less interested in digital banking than their children and grandchildren.

This assumption is why many community banks produce digital banking experiences that are so limited in scope that they’re minimally useful. A bank may feel the ability to check balances and schedule payments will satisfy its customers, and the relative value of this functionality will vary by age group. But what’s certain is that customer desire for convenience and real-time updates is cross-generational, according to a report on Baby Boomers and banking by

Another factor: Smaller banks don’t have hundreds of developers on staff to constantly improve the customer experience or the ability to fund innovation labs to roll out leading-edge technologies. For smaller banks, building anything more than a basic online system can seem like an impossible task.

Yet building an engaging digital experience does more than delight customers; it encourages them to have a more active relationship with their bank. They tap their smartphone to pay for groceries instead of digging out cash; they make a payment against a car loan while waiting for an oil change; they respond to a text message about mortgage refinancing during a coffee break.

These interactions provide more than a healthy flow of money in and out of the bank; they provide valuable analytics about customer behavior that the bank can use to drive better decision-making in real-time.

The multi-channel trap

To meet the current demands of high-value customers while future-proofing their businesses to serve customers who are still accumulating wealth, community banks may try a multi-channel approach—giving their tech-friendly customers an online experience while continuing to invest in bricks-and-mortar for the face-to-face crowd.

Everybody gets what they want, so what could go wrong?

Well, for starters, trying to please everyone often pleases no one. A multi-channel approach may seem the safest path, but that may not be the case. Step outside the world of banking for a moment and consider the example of Walmart. Five years ago, Walmart knew it was losing market share to Amazon, but the company was confident that people still wanted to shop in person. It multi-tasked, continuing to expand its retail footprint while building an online shopping experience that paled in comparison to Amazon’s.

The result was a steady loss of market share that was only halted through acquisitions and massive investments in the online shopping experience. While Walmart’s war chests are bounteous enough to fund a strong competitive recovery, many other companies—Sears, Toys “R” Us, Sports Authority, to name a few—have already lost the race.

Some may point out that digital titan, Amazon has recently been investing in a physical footprint. So why are they succeeding where others have stumbled? What Amazon understands better than most is that the boom of digital doesn’t mean that physical retail is dead—but that its role has just changed.

Amazon’s ability to use bricks-and-mortar to deliver those experiences that digital will never be able to replace—holding an object in our hands—is just one reason why its retail strategy may succeed in supporting its digital cash cow, which they constantly invest in improving.

Use digital to enhance personal

A similar logic applies to banking. Despite commonly held misconceptions that tech-savvy Millennials are only interested in digital, a 2017 survey found that 80% of this cohort wants the option to visit a bank branch in person as well. For community banks to avoid the fate of those retailers who became casualties in their industry’s evolution, they need to find harmony between their physical and digital presence.

Bank of the West, is one example of a regional bank getting it right. As described in an article on, the bank is working to enhance its retail stores by staffing each branch with digital specialists who serve to educate customers on their digital offerings and capabilities.

Community banks should also focus investments in technology and digital channels that will enhance—not replace—the personal relationships they have built their businesses on. A community bank that can layer digital excellence onto its local roots will have a strong competitive advantage.

Smaller banks can take a leaf out of J.P. Morgan’s book. The bank is leveraging data to determine when to engage with their customers and when not to bug them. For instance, if a customer was recently the victim of credit-card fraud, the data would help the bank know not to try to sell them a new credit card. Such insights can help a bank extend their ability to offer a personalized touch in a more informed and strategic way.

Community banks are at a turning point right now, and bankers who commit to giving customers what they want—a great digital experience and products that meet contemporary needs—can not only escape consolidation but can gain competitive advantages over not just big brands, but over other community banks and credit unions as well. That isn’t to say the road will be easy, but community banks can strengthen their traditions of community service by adopting a de novo mindset.

Agile can beat big $$$

Big banks spend big money on big innovation labs. Capital One has about 2,000 employees in three locations who spend their days conceiving, building, and testing great customer experiences. But while big banks can buy all the technology they desire, smaller banks already have an advantage when it comes to the ability to be more agile than their larger competitors. This is because there are fewer layers of bureaucracy between an idea and its realization. One strong decision-maker can light the spark, and that spark can more easily turn into a fire that energizes the bank’s culture.

Everyone wears many hats in a community bank, so everyone plays a part in an initiative’s success. That sense of ownership is a powerful change management tool.

But a community bank must believe it has the ability to innovate. That’s not magical thinking; it’s the mindset necessary to survive the digital disruption and thrive into the future.

About the author

Mike Dionne is Managing Director, Community Markets, Americas, for Finastra.

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