7 Steps to Driving Impact in Community Banking

Banks of all types and sizes play a central role in our nation’s society and economy.

As businesses that often support underserved communities, community banks can be instrumental in creating long-term positive changes for individuals and businesses. Local banks promote social and economic development by providing loans, savings vehicles, and non-financial services to individuals and businesses.

In recent years, economic disruptions and technological advancements were already challenging community bank boards when COVID-19 emerged. The pandemic revealed just how innovative and agile community banks could be as they moved swiftly to adapt their operating strategies and continue serving the new needs of their customers.

What steps will your community bank need to take to drive the future impact in community banking? We’re outlining 7 steps for your review and consideration.

NCIF president & CEO Saurabh Narain said: “Individuals and institutions engaged in impact investing need look no further than their closest mission-oriented bank to find a place where they can make a real and needed difference. These institutions are local, anchor institutions operating oftentimes in underserved communities and the work they do creates long-term change for individuals and businesses.

7 Steps to Driving Impact in Community Banking

1. Place a greater focus on minorities, women, and other underserved groups. Community banks are uniquely positioned to understand the needs of minorities, women, and other underserved populations within their communities. Creating relationships with businesses and individuals enables banks to target products and services that reflect the economic conditions of the bank’s community.

Large commercial banks typically rely on fees to improve their profit margins, which comes at their customers’ expense. By contrast, community banks can offer more favorable fee schedules to allow their customers to keep more of their hard-earned money. By offering such benefits as free accounts, putting limits on monthly maintenance fees, and working with customers to avoid late fees and ATM fees, the community prospers as a whole. Customers demand the same services from community banks they enjoy at large commercial banks such as online and mobile tools.

Community banks that thrive despite the economy significantly impact their communities by employing residents, offering personal and business loans, and improving access to banking services.

2.  Personalize lending experiences based on local reputation. 

As your community’s demographics change, there will be a subsequent change in your customer base. In turn, it will change the demand for loans. Community bank lending differs from large commercial bank lending in a significant way.

Local people and businesses don’t always have the kind of detailed credit information banks want. Yet, community banks can more easily base their lending decisions on a company or individual’s track record and reputation, which is harder for large banks to do because they don’t have a personal relationship with borrowers as community banks do. This relationship allows community banks to be more accommodating to the needs of communities.

Community banks support 53% of all small business loans even though they only represent 17% of the total banking system.

3. Make the most of digital transformation.

Community banks have made slower moves toward digital transformation than larger banks. A recent survey by the Conference of State Bank Supervisors showed that community banks with smaller assets and lower revenues tended to adopt technology more slowly than larger, more profitable banks. Technology can help to manage the disruptive forces that are inherent in today’s banking climate and help banks deal with disruption due to the pandemic. 

Today’s banking customers expect faster, better services and personalized interactions. Digital transformation will help to improve the existing relationships with customers, increase customer engagement, and improve the customer experience. Data will help community banks turn data into insights that will help strategize how to drive revenue. 

Also, more workers favor flexible, or remote working opportunities and technology will enable banks to provide alternate working accommodations. 

4. Advocacy is necessary to keep pace with vast regulatory changes. 

The regulatory changes for the banking industry never seemed to end between 2008—2019. Such changes proved difficult for community banks to keep up with because of having fewer resources than larger banks. 

Legislators are always looking for sources of information from community banking professionals they can trust as they review new legislation. By establishing and maintaining good relationships with legislators, your bank can become a point of contact for them to make decisions on voting. To solidify those relationships, you might consider inviting them to visit your bank and give them a tour. 

The squeaky wheel gets the grease when it comes to legislative advocacy, so it’s essential to make your point of view known and share it with your employees as they are also constituents of the banking industry. 

5. Improve your efforts with civic engagement.

Civic engagement refers to the individual and collective activities that define and address areas of concern in your community. Community bank employees, customers, nonprofits, and banking industry stakeholders all play a role in making positive change. 

Community banks can do their part by partnering with nonprofits and other civic partners to fill the community’s needs. Banks can also support the community by offering grants to organizations and charities, encouraging volunteerism, and matching monetary gifts from employees. 

Community banks have much financial expertise that can and should be shared with community members to enable them to be financially strong. Banking professionals can also provide valuable community service by offering training and expertise in board service and financial literacy for nonprofits in the community.

Where employment is low or where women and minorities struggle to find work, community banks can support diversity, equity, and inclusion by providing quality jobs. 

6. A small investment in communities creates a greater overall economic investment.

Community banks that successfully serve the public may lack the brand recognition that larger national banking chains enjoy; however, community banks can viably compete on the value they provide through their services. 

Technology gives smaller community banks the advantage of being able to offer many or all the high-tech services customers appreciate about larger banks. Local people often prefer to do their banking with familiar faces of people who are their friends and neighbors.

A board management solution provides all the tools your board needs to manage board activities responsibly, and it’s one of the best investments your board can make.  

Community banks provide ripe environments for college interns to learn more about the financial needs of their community. Such opportunities are valuable for college grads who are eager to put their knowledge to work in the community after graduation. 

Moreover, community banks often invest time, money, and human capital in service projects for underserved areas to help strengthen communities at the core. 

7.  A comprehensive business strategy will help banks thrive through the pandemic and beyond. 

Your community bank will need a comprehensive strategy that incorporates improvements in technology, a strong risk framework, increased customer engagement, and the right partnerships to navigate the pandemic and move strongly into the future. 

Technology will help your bank to be adaptable, innovative, and agile no matter what the future brings. Also, the right tools will help your bank expand its boundaries outside your geographic footprint.

With regard to risk management, it’s wise to focus on cyber risks and third, or even fourth-party vendor risks. Your managers and employees must also be prepared to be informed in this rapidly changing climate, and they will need the necessary technical skills and supervision. 

Community banks have proven to be resilient even during the pandemic. Community banks have had faster growth, higher net interest margins, higher loan growth rates, and stronger assets in relation to larger national banks. Perhaps the biggest strength of community banks is having a solid history of recognizing and meeting the needs of their customers.