Community banks have been a cornerstone in cities and towns across the country for decades.
Most small towns are anchored by a community bank, but in a day and age when large national banks can sweep in more customers, community banks are closing their doors at alarming rates – around 340 a year according to some predictions.
What can community banks do to protect themselves in a time of change and disruption?
Bank Beyond Your Backyard
At ADM, we recommend that banks begin looking past their local region and start nurturing customers across the country.
A broader focus is a shift for many community banks because of their emphasis on local relationships. In the past, community banking depended heavily on developing relationships with businesses in their immediate towns and counties.
This approach worked for decades, due in part to banking regulations in place at the time as well as the fact that there was no internet.
But all of that has changed. As internet banking grows in popularity, as fintech startups disrupt the financial industry, and as new regulations have made it easier for banks to accept deposits from far-flung depositors, community banks need to move beyond backyard banking.
Banks that only have local depositors will be more susceptible to local economic downturns and hamstring themselves by depending on a limited amount of business when an unlimited amount of customers are now within their reach.
Diversify your relationships
So where can community banks find new and diverse depositors? What we’re not saying is that you should totally forget local customers. That’s not the case at all. Still keep your local relationships strong.
What we are saying is look for ways to diversify your relationships. Create financial products that appeal to startups in hubs like Silicon Valley and New York City. Develop relationships with large national corporations who need a diverse portfolio of accounts to protect their funds.
How to do this?
You may be thinking that this is easier said than done. As a bank executive, you and your team are busy with your current customers. You may lack the time, resources, and bandwidth to actively develop more relationships.
At ADM we’re doing everything we can to make this simple for you. We work with depositors who need full FDIC / NCUA coverage on their accounts. We’ve created products to help them protect the entirety of their funds which means we need places to deposit those funds.
Once a customer deposits with us, we turn to our national network of banks and credit unions to deposit their funds. We work with banks both large and small, national banks and community banks, to give our customers plenty of deposit options.
Han, Joong Ho. “Does Lending by Banks and Non-banks Differ? Evidence from Small Business Financing.” Banks and Bank Systems12, no. 4 (2017): 98-104. doi:10.21511/bbs.12(4).2017.09.
University of Nebraska-Lincoln. “Changes in the World of Small Community Banks.” Agricultural Economics. Accessed April 19, 2018. https://agecon.unl.edu/cornhusker-economics/2017/small-community-bank-changes.