One Friday morning a few years ago, I woke up with excruciating pain in my tooth. It was my dentist's day off, so I called the after-hours number and left a message. When I still had not heard back in the afternoon, I left a couple of more messages.
The dentist finally returned my call in the afternoon, sounding inconvenienced. Aggravated by his demeanor, I told him, "Dr. Young, you are of most value to me when I am in pain. If you don't understand that concept, then you are missing the point of why you are in practice."
The dentist paused and thought about what I had said, then apologized for his attitude and the delay in his response. He met me at the office that day to take care of my pain.
Much like that dentist, many community banks seem to have forgotten that they are most valuable for their ability to identify customers' pain and put an end to it. They cannot afford to disregard this reality, given the fierce competition they face from numerous fintech startups as well as tech behemoths like Google and Apple.
To stay in the game, community banks must pay more attention to their clients' problems, needs and desires. They can only uncover their customers' sources of pain and give them relief if they form relationships with them and ask questions about their lives and businesses. Unfortunately, too many small banks have embraced a one-size-fits-all marketing model, peddling generalized services to the masses and often placing too much emphasis on price over other points of differentiation.
It's clear, for example, that a lack of quick-turnaround financing is causing pain in the small-business sector. Small-business loans were still 17% below pre-recession levels at the end of 2014, according to a recent Federal Reserve report on small-business lending.
Fintech companies such as Lending Club and Kabbage are swooping in to fill the void. They offer an online credit approval and funding process that offers entrepreneurs fast access to loans, and manage credit risk by requiring the borrowers to provide a variety of financial information on an ongoing basis such as bank statements, tax records and funding priorities. If the borrower's financials sour after the loan has been funded, the companies elevate their portfolio management and credit monitoring and may even curtail credit availability. Community banks should take a page from these innovative companies and revamp their processes, policies, products, and procedures so that they can be the ones to address small businesses' pain—especially in the front-end underwriting and funding processes.
Meanwhile, overdrafts are an obvious source of discomfort for many consumers. Customers are already in pain when they don't have enough money in their checking account to cover purchases, and they incur even more pain when they have to pay a fee.
According to a 2014 study by the Consumer Financial Protection Bureau, 8% of customers incur nearly 75% of all overdraft fees. Community banks have a real opportunity to help the people who fall within this group.
One way to help them would be to offer a personal financial management service that assists consumers in budgeting and managing their funds. This, in turn, can help them avoid overdraft charges. It's true that such a measure might reduce some of banks' fee income. But it would also enhance customer loyalty and engagement, leading to longer-lasting relationships and more product sales down the line. The key is for community banks to focus on customer service that consistently results in long-term profitability rather than small, short-term gains.
Credit card debt is another major pain point. The average credit card debt for an indebted household is over $15,000, according to NerdWallet's analysis of federal data. These families need help undoing the damage.
Numerous fintech companies are targeting these consumers and offering fixed, low interest rate refinancing loans. Some services, such as SoFi, pair these offers with other enticing benefits like unemployment protection, which allows customers who have lost their job to temporarily suspend their loan payments and receive job placement assistance. Interest continues to accrue, and the benefit is capped at a maximum of 12 months—but it is still a truly marketable offering.
Many community banks already offer these same debt consolidation options. But they must actively target consumers who could benefit from the product. Even though less-regulated lenders may be able to serve customers with lower credit scores than community banks, there are still opportunities for community banks to be more aggressive in addressing the problems faced by creditworthy individuals.
Advice on budgeting and debt consolidation isn't all that modern consumers seek. They want to know how to plan for retirement, save enough money for their kids' college years and learn to invest. Just a couple of decades ago, bankers were considered trusted advisers. They can reclaim this role by identifying bank customers' needs and offering viable solutions. This is what will keep small banks relevant and competitive in a fast-evolving industry.
L. T. "Tom" Hall is president and CEO of Resurgent Performance, a bank performance advisory firm.