Bank futurists seem to coalesce around the same prediction: Technology will take over banking. So banks must get on board, they say, with data mining, artificial intelligence programs and other high-tech services — or they risk their demise.
Few people take issue with the premise of this argument. Technology and online banking is, after all, here to stay. However, the idea that banks must invest in the latest high-tech features to stay in business is ludicrous — at least for community banks.
While urging banks to mine data for nuggets of customer insight may make sense for out-of-touch bank marketers who are peering from skyscrapers, most community bankers uncover the best nuggets from face-to-face conversations. Similarly, you might also assume that pushing for higher online banking adoption rates is critical if you’re listening to the pundits. While megabanks should reach for that goal, community banks shouldn’t necessarily do the same. The megabanks’ audience is weighted toward the young, educated and tech-savvy. Community banks, however, can woo consumers who don’t want the latest in tech.
A significant slice of customers are still rebuffing digital banking. In fact, a segment of the general population has always rejected technology. In a ranking of the biggest fears that haunt Americans, technology comes in second, right behind natural disasters. Their local bank won’t help them overcome their dislike of technology. And, luckily, the future of community banking doesn’t depend on banks joining the top quartile of tech adopters. The second or third quartile might be fine. In fact, there are four large segments of the population that eschew a tech-first approach and are ideal targets for community banks and credit unions.
Seniors aren’t clamoring for the latest online technology and they make good community bank customer prospects. Although 42% of senior citizens say they own smartphones, only 18% use mobile banking, according to data from the Federal Reserve. A third of senior citizens in the U.S. never use the internet and roughly half of them don't have broadband internet at home.
The underbanked are another market opportunity for community banks. Representing 20% of the population, these are individuals who have a bank account but also count on low-tech nonbank providers, such as payday lenders and currency exchanges, to fulfill their day-to-day financial needs. In a study, Fed researchers found the underbanked view banks as untrusted and unresponsive. However, there may be degrees of trust depending on the bank. For instance, the underbanked may be intimidated by glass and steel edifices or they may reject high-tech, self-service offices. However, they may consider traditional community banks as more approachable. Perhaps the staff is friendlier, older or bilingual.
The third group is more difficult to quantify and some of them may have been captured in the previous categories. These are people whose primarily language isn’t English. They also make for good customer prospects. One in five U.S. residents speaks a second language at home. Individuals who lack confidence in their ability to speak English or to manage U.S. money are less likely to frequent mainstream institutions regardless of their income or educational level. That is because tech-forward, self-service offices of national banks can be intimidating, and ultimately, drive many would-be customers to neighborhood banks, thrifts or credit unions with multilingual employees.
The final group are the misfits — individuals who don’t subscribe to mainstream conformity. This group may have disdain for large banks or they may just not trust them or they may simply feel online banking is not secure. Some want what megabanks are unable to offer — more flexible loan terms, lower service charges or a commitment to local economic development.
Community banks should target these four groups and focus on monitoring customer attitudes and behaviors to ensure the bank is delivering the services and products they want.
There are enough prospects that community institutions should not be goaded into swallowing a high-tech solution. There’s not a one-size-fit-all prescription for survival. Success comes from monitoring and satisfying your own customers.