How Community Financial Institutions Can Level Up with Technology in 4 Steps

By Gabe Krajicek, CEO of Kasasa

Community financial institutions (CFIs), such as banks and credit unions, have always been the backbone of the communities they serve. At present, they are fighting challenges with perception, technology, and marketing. While many CFIs are phenomenal at personalized service, many consumers believe they lack the technology and innovation they expect from a financial institution.

CFIs are fighting an uphill battle against megabanks and fintechs, whose budgets allow them to reach consumers at mass scale and offer a wide range of readily available services. The ability of megabanks and fintechs to meet consumers where they are, at any point in their financial journey, leaves CFIs siloed and struggling to find innovative ways to compete. 

The pandemic accelerated the transition to a digital landscape and created a fundamental change in what consumers value and expect from financial institutions. The only way for CFIs to compete against megabanks and fintechs is to ensure a seamless digital experience paired with the unmatched customer service that only they can provide.

It is critical for CFIs to pair new technology with traditional efforts to maintain relevance in the competitive banking landscape. More importantly, CFIs need to come to grips with the fact that other community financial institutions are not their competitors, and the first step to gaining and maintaining consumer awareness is embracing their community roots. The next step is implementing technology and innovative marketing to differentiate.

CFIs who choose to outsource data to a third party can relieve common pain points, like a lack of time, personnel, or the tech to tackle big data. However, CFIs manage data goldmines, and partnering with a third party allows them to take advantage of the research investment and operational scale that a company specializing in data-driven marketing provides.

Step 1: Renovate your digital branch experience.

During the pandemic, online banking surged while branches shuttered. Nearly 40% of people still feel uncomfortable walking into a branch. Complete digital experiences have now become the expectation, especially for millennials and Gen Z consumers who consistently demand and embrace technology. 

For CFIs, this means a seamless digital experience, which includes everything from opening and servicing accounts to providing personal financial advice. This all must be easily accessible through online and mobile channels, especially for the younger generations that represent the future of banking. Since CFIs are not designers and developers, this can be done through cooperation with a trusted partner. 

Step 2: Expand your comfort zone when it comes to consumer data.

Data is key to reaching new consumers and helping existing account holders. It is crucial to send the right message, for the right products, at the right time. This is one area where community financial institutions struggle sometimes. 

Utilizing predictive analytics can help CFIs centralize data, segment consumers by common attributes, and predict the best product offer for each individual customer so banks and credit unions can customize individual experiences rather than marketing every product to every consumer. That simple, strategic, and deliberate solution can be a tremendous boon to CFIs looking to gain a competitive edge. 

The key is for a CFI to use prescriptive analytics rather than just predictive. Analyzing data, like past customer behavior, lets a CFI do just that. Through prescriptive modeling, a CFI can continuously optimize their portfolio performance. Predictive analytics may send an alert about an account holder who will be closing their account soon. Prescriptive analytics would send that account holder relevant marketing to boost engagement and provide recommendations for products or services that would better fit their needs, thus maintaining the relationship. 

Step 3: Relentlessly optimize for better results.  

Responsive and proactive optimization by financial institutions is imperative to success. This is done by responding rapidly to breaking news, regulation changes, search fluctuations, and algorithm updates.

Implementing these strategies takes a dedicated team driven to produce results. Many CFIs simply do not have the budget to create such a force in-house. When the need to digitize becomes clear to a community bank or credit union’s leadership as the path to maturity and customer relationships, often a partner with veteran credentials is the best travel companion. 

Step 4: Above all, embrace coopetition.

None of these steps will work unless you embrace coopetition with a trusted partner whose long-term success is intertwined with your own. 

CFIs must cooperate to compete; but crucially, they must identify a partner that has mutual benefit in mind. There is a growing crop of fintechs looking to partner with banks and credit unions so they can issue loans, while they simultaneously build platforms to cross-sell that CFI’s customers financial products in direct competition with them. The CFI is essentially funding their own destruction. CFIs must check the business model of a potential technical partner to make sure both parties’ interests (and successes) are being secured for the long term. 

Consumers instinctively know that fintechs and megabanks have billions of dollars to build cutting-edge apps and extensively market and advertise their products. They think the local CFI doesn’t — and they’re not wrong. 

CFIs are not app developers. They are not marketing companies. Nor are they advertising agencies. They are experts at personalized, consumer-first guidance and support when it comes to increasingly complex financial decisions. That is why CFIs must partner with a community-based fintech that can deliver a seamless digital experience that consumers expect AND has their best interest at heart. Then, they can focus on their area of expertise — serving the people in the community by helping them take control of their finances.

But CFIs can’t do this alone, especially in the current financial landscape. The pandemic has led consumers to shift their banking habits. According to Forbes, megabanks’ share of new checking account applications increased from 36% to 51% over the past three years. Meanwhile, community banks and credit unions have seen their share of new account openings drop from 51% to 25%. Furthermore, Experian reported that in March of 2019, fintechs claimed 49.4% of the unsecured personal loan market, which is an increase from 22.4% just four years prior. The pandemic only accelerated consumers’ progression toward digital banking, with fintechs and megabanks benefiting the most. 

These statistics are stark, but community banks and credit unions can thrive through coopetition. They must find a trusted partner who can deliver a digital experience that today’s consumers expect. Most critically, they must choose a partner whose success is intertwined with their own.