Publications & Resources

March/April 2010
New Look for the Community Bank

New Look for the Community Bank

By Linda Perconti

Community banks have historically cultivated an operating model of being close to their markets and customers. Elements of the community bank model include:

Superior understanding of the customer
Quick personal response
Products that serve customer’s needs
Pricing congruent with the market
Ability to out-maneuver larger bank competitors
Branch-focused delivery

Adapting to change keeps the community bank model relevant. The financial turmoil during the past business cycle has permanently changed the financial industry forcing a transition to a new era that will see great emphasis on mobile technology and integrated delivery channels, enhanced regulatory oversight and cost pressures that will challenge profitability. The community bank challenge is to adapt to the new era and evolve the community bank model offering customer interaction that is simple and fast and is clearly grounded in customer needs and backed by effective marketing to communicate a clear value proposition.

Current Environment: Transition and Challenge

After surviving the business cycle, community banks will be faced with an up-and-coming customer segment that will represent a larger population segment than baby boomers. According to a recent report from the Deloitte Center for Banking Solutions , “Catalysts for Change: The Implications of Gen Y Consumers for Banks,” Generation Y (Gen Y) has more than 75 million members and is expected to grow past the 80 million baby boomers to become the largest living generation. Its members have grown up with an array of technologies, communicate on social web sites and through texting and generally can be expected to interact electronically for routine tasks. Their preference to engage electronically will influence product enhancements and delivery options for all financial institutions, including community banks. The appeal for these product enhancements and delivery options extends beyond the youngest generations to benefit all customer age segments. Following Gen Y is Generation Z, which has similar preferences to Gen Y, but not yet having assembled a significant financial portfolio. Younger segments will, of course, need to be marketed to differently because of their interests and preferences. Community banks that are well-positioned will be an attractive financial services provider for this demographic shift.

Updating the Community Bank Model

Gen Y is on the leading edge of trends that are sweeping across older generations such as comfort with banking online, resistance to traditional marketing and concern about the environment. They are cautious, risk adverse customers who are more tech-savvy or technologically sophisticated compared to older generations. Gen Y customers make decisions, including financial decisions, based on technology convenience. Many non-bank financial institutions now offer applications to assist with tasks such as home budgeting or saving for a purchase. While these competitors may be a threat to the total financial relationship, they have created an opportunity for community banks to bundle and refresh their offerings.

A new community bank look will incorporate a strategic approach to younger segments and their technological influence across all customer segments. Below are elements of a strategic approach to address the influence of younger segments:

Delivery Channels: Integrated, not separated. Gen Y and younger segments are comfortable with new technologies and value the ability to switch among channels based on their needs. The challenge is to make delivery channels easy to navigate and seamlessly integrated to provide consistent customer experience. Customers may begin a transaction on one channel yet complete it on another. Research shows self-service and self-reliant channels are popular across all customer age segments, especially with younger customers. The branch will still be an important delivery channel for interactions focusing on financial education and sales. This trend may include adoption of a smaller and highly efficient floor plan.
Marketing: Educating, not telling. The Gen Y segment lives in an information intensive, connected world. Its members seek practical information and are skeptical of traditional advertising when the advertising “tells them” instead of “educates them”. They also rely on the advice of family and friends when purchasing products or services. Their preferences are to interact and not just read.
Products: Simplified and uncomplicated. Gen Y customers prefer simple, practical and affordable financial services that reflect the fact they are financial freshmen just beginning their financial lives. Their financial portfolios are fairly simple with a majority seeking basic checking and savings accounts that are easy to understand with uncomplicated fee structures. Alerts and e-mails are increasingly valued as long as they are helpful and non-intrusive. The influence of non-bank financial Web sites has created competition and an opportunity for community banks that are forward thinking about their customers’ changing financial needs.
Performance: Build efficiently or outsource it. Financial performance and capital deployment decisions will leave little room for inefficiency. Outsourcing tasks and managing vendor relationships will be critically important for high performance and efficiency.

New Community Bank Look

The challenge for community banks is how to transition through the current cycle and evolve offerings to deliver fresh customer segmentation strategies rich with product and service bundles reflecting the behaviors and preferences of their newest customers. The new community bank look may require redesigned branch spaces and integrated electronic channels, balanced sales and service priorities focusing on fulfilling consumer expectations that enhance the customer experience. This may give the appearance of something new, but adapting to changing needs has always differentiated the community bank model and its service to its customers.

Linda Perconti is director of delivery channel solutions for Diebold, Incorporated. She can be reached at 330-490-3801 or linda.perconti@diebold.com.