Community banking, as a business and a strategy, is here to stay.
Whatever its charter may be - bank, thrift, or credit union - the community institution fulfills customer needs as no other financial organization can.
Emphasizing the community focus, some organizations have gone the super community route, granting appropriate autonomy to local subsidiaries or business units.
The underlying principle is to build on basics while leveraging the institution's strengths - to stay true to community banking service levels while developing and offering products worthy of big banks.
Keys to Prosperity
While the community banking opportunities are clear, and community-based and super community institutions have already proved capable of impressive and sustained profitability, some keys to long-term prosperity need to be underlined.
The surviving community banks will have a host of defining characteristics, including accessibility of senior management, quick decision-making, community orientation, a relationship rather than a transaction orientation, a staff that offers personal attention, customization and flexibility, and a willingness to "go the extra mile."
Quality service is king. It is the factor that makes the community banking turf defensible by small or decentralized organizations.
The high level of service enhances customer retention, which some analysts consider a key a profitability. It protects against defections.
Price Isn't Everything
One recent study showed that rate levels, the presumptive "price" determinant in customer relationships, had nothing to do with 65% of customer defections from banks.
Rather, they tend to leave because of mistakes that were not handled or corrected properly, poor service, dissatisfaction with teller service, and the like.
Community bank executives have the tools to ensure quality service, including incentive compensation programs and "mystery shopper" programs to monitor employee actions. Meanwhile, there are several other critical factors to keep in mind:
* Refusal to change is not an option. This does not mean that bankers should necessarily abandon existing strategies or venture into unknown product lines. It does mean that product lines and delivery systems must be modernized to meet customer needs as they evolve.
* Stay close to customers. Otherwise, the community institution loses its strongest competitive advantage.
* Asset quality is a must. Poor asset quality cripples community institutions that rely heavily on core earnings rather than fee income.
* Think about outsourcing. Vendors that provide services to many institutions can pass along their economies of scale, allowing the community bank to compete cost-effectively against larger players.
Outsourcers can supply anything from internal audits to data processing, investment and mutual funds management to mail operations.
* Find out the products and services customers want, and deliver them. Too many bankers assume they known what customers want, without actually asking.
* Upgrade delivery systems. Customers' interest in modern methods of service delivery is often underestimated. Larger banks tend to have those systems available and seek to exploit them as a competitive advantage.
* Identify your key products, expand them, and do it well. Profitability will increasingly depend on fee income, often through other people's "production facilities," such as mutual fund sales, which would fill the bill of an expanded product line.
In short, outsourcing, strategic cost cutting, and people management are among the tools that will enable community banks to survive and prosper.
But they will not do so by watching the world go by. Every community is changing, some more rapidly than others. The answer is paying attention to and anticipating marketplace changes and needs while staying true to the community roots.