By Michel Jacobs
Drive through almost any community in America and you pass the deposit base you have been losing.
A Dollar General, gas station, pawn shop, and church sit alongside a homeowners association, a couple of law firms holding client money in trust, a title company, and a property manager collecting rent across a few hundred units. None of these are marginal accounts. They hold real balances and they move money in complicated ways, across multiple entities and purposes, every day of the week.
The community bank often already knows them. The banker sees them at church, knows the family, and may already hold the commercial real estate loan. The relationship already exists, yet most of the financial activity sits elsewhere.
Ask a business owner what matters most in managing money, and they will likely say, "making more of it." Ask the person managing the finances what makes that possible, and the answer gets more specific: a real-time view of the cash position.
A business that knows exactly where it stands can decide what to put to work and what to hold back. That need grows more complicated when money moves across multiple accounts, entities, and purposes.
This is a funding problem, not a product problem
Technology providers should own that gap, ours included. Retail tools were given to community banks with a commercial label. Small business was treated as an extension of consumer banking while real treasury capability stayed reserved for the institutions large enough to fund it themselves. Banks bought what was available, and the businesses did not wait for the industry to catch up.
A bank competing on rate may be answering a question its departing customers did not ask.
Every banker knows the arithmetic. Deposits fund loans, and the commercial deposit base sets the ceiling on how much of the pipeline actually closes. What makes the erosion of commercial activity expensive is not the lost service fee. It is that the balances leaving are the cheapest and least rate-sensitive money on the balance sheet, and they are leaving quietly.
That balance still counts. It just costs more to keep and moves faster when someone quotes a better rate.
Someone else is already running the workflow
Consider the plumber with three trucks. He works all day, comes home at six, and instead of having dinner with his family he logs into his accounting software, syncs the bank feed, and matches incoming payments to open invoices one at a time.
Every one of those reconciliations happens inside somebody else's software. That software sees the payment data first. It knows the receivables position, the customer concentration, and the seasonal cash cycle before the bank does, and it can sell against every one of those insights.
The generational shift accelerates all of it. Younger people moving up inside a company, or taking over the family business, grew up with immediate insight and immediate gratification, and they carry those expectations into how they manage the company's money. They will not maintain a banking relationship because their parents did.
The trust is still there, the workflows aren't
Here is what should keep the opportunity alive. Datos Insights found that 85% of small and midsize businesses would choose their primary financial institution over a fintech or larger bank if it offered comparable capabilities. In most of these markets the workflows have moved and the trust has not, which means the bank has already done the hardest part of the job.
Preference is not a guarantee. But it is a running start, and very few competitive positions start from there.
Closing the gap requires a specific set of things: the ability to
These are capabilities the fintechs have charged heavily for and the community bank channel has largely gone without. That is changing, and the institutions that move early will not be reaching parity with the super-regionals down the street. They will be offering things the superregional does not.
Start with the accounts that can't easily leave
This is where the vertical matters more than the product. A plain commercial checking balance can move the moment someone quotes a better rate. Funds tied to escrow, rent collection, client trust, or dues assessment are harder to dislodge, because moving them means rebuilding an operating process.
A title company running escrow through software connected to its bank has built that bank into its own operations. Changing banks would mean changing how the business runs.
So, the target list is not abstract. Property managers. HOA management firms. Title and escrow companies. Law firms holding client funds. Any business whose money has to be segregated by entity or purpose, because that requirement is exactly what makes the deposit stick. Most banks reading this can pull that list out of their existing commercial portfolio in an afternoon.
This strategy builds on what community banks already do well. The local banker knows the business, understands the community, and can structure credit around facts a distant competitor never sees. Modern commercial capability extends that advantage from the annual loan review into the daily operation of the business.
The next durable commercial relationship is probably three blocks from the branch. Whether the banker walks in with the tools to solve the whole problem is now the only question. And for the first time, it is a fair fight.
About the Author
Michel Jacobs serves as CSI's Chief Strategy Officer. In this role, he leads CSI's Corporate and market strategy with a focus on business value driven outcomes for CSI customers and their retail and business customers. He also provides direction on CSI's product and market development, M&A initiatives and strategic partnerships.
Before joining CSI, he was an independent consultant working within the financial services sector. He has served in various roles, leading corporate and market strategy, product strategy and go-to-market execution. These include chief sales officer at Technisys, executive vice president at Intellect iGTB, EVP of Product and Market Strategy at FIS and SVP of New Solutions Development at eFunds.
