How community banking can successfully compete in the modern era

The days when community banks and credit unions could stay behind the technology curve and still come out on top are long gone. As cutting-edge fintech companies win the hearts-and-minds battle with fresh new banking solutions, doing things the way they’ve always been done is actually the riskiest move community financial institutions can make.

Community banking has no future if leadership doesn’t wake to the new competitive reality and adapt some of their strategies and long-held biases in order to compete. There is certainly comfort in familiarity and tradition – but in the new fintech landscape, that kind of comfort kills. It’s time for community bankers to make themselves uncomfortable for the future success of their institutions.

Let’s look at five ways community banks and credit unions can set themselves up for future success:

1. Cultivate A Winning Team

Community FI’s today need a team that’s stronger than ever to thrive in our new competitive landscape, so demand your employees know everything about the core business, its measurements and what makes your institution tick. Consider having your entire leadership team attend banking school, or even building your own banking-curriculum training program for employees to ensure your team not only has a solid skillset, but also speaks the same industry language. At the very minimum, encourage team members across your organization to educate themselves about the industry using free online resources – it’s worth the extra time and effort to give your institution a leg up on the competition.

 2. Kill Your (Branch) Darlings

Modernizing your branch strategy and modifying your physical presence accordingly is one of the easier challenges you have ahead of you. Start with nixing the costly sacred-goose branch(es) kept around for reasons that have nothing to do with moving your institution ahead. Then, customize a new branch game plan that’s right for your institution, whether that’s simply fewer branches, micro-branching with interactive machines, and/or a centralized contact center to rule them all.

3. Embrace a Digital Community

There is trendy, and there is trend. The digital convenience American consumers have come to expect is trend. However, community banks and credit unions face a major hurdle in the mindset of their boards, executives and even those on their front lines when it comes to embracing the new digital community paradigm. To help your FI accept its own evolution, encourage team discussions, evaluate individual contributor performance and publicly reward changes in behavior. Ensuring strict alignment across the organization is key throughout this transition, and it starts at the executive team and board level.

 4. Partner, Don’t Incubate

While incubators may garner industry buzz, I would advise prudent community bankers to stay away. Partnering with more established fintech companies or startups instead is an effective way to scale expertise and ensure your institution evolves with the times. If you do find an appealing fintech startup that fills a pressing need for your institution, move forward with caution at first, working toward a joint venture or another partnership arrangement only after certain metrics are met (and you have performed your due diligence and risk analysis first!).

5. Take Action

In the face of better, faster, more convenient fintech solutions, the greatest threat to the future of community financial institutions is simply doing nothing. If your FI is firmly lodged in the analog age, try kickstarting some forward momentum with small, incremental enhancements – or, an “MVP” (Minimally Viable Product), as described by Eric Ries in The Lean Startup. Start by delivering the cheapest, fastest, most streamlined solution to a problem and, over time, iterating on it in response to customer feedback. (After all, consumers today have already been conditioned to embrace this type of iterative technological rollout with smartphone updates!) Your community institution will gain the freedom and permission to move forward and test modifications to processes, products and new ideas, while also looking quite on trend to your accountholders.

By encouraging established players to shed the “what got us this far” thinking, investing in tools that improve efficiency and increase scale, discussing uncomfortable changes to strategy, and simply testing new technologies and services, community financial institutions can remain relevant and thrive in the changing banking industry.

Written by John Waupsh

As Chief Innovation Officer of Kasasa®, John Waupsh has helped hundreds of community FIs pull themselves into tomorrow and effectively compete in the new fintech landscape. His new book, Bankruption: How Community Banking Can Survive Fintech, is a survival guide for community banks and credit unions searching for relevance amidst immense global competition and fintech startups. Visit waupsh.com for more information.