Over the past twenty years, the banking industry has seen market share shift away from community banks toward money center banks. But what exactly is causing this shift? It's not because community banks aren't providing outstanding products, great service, and other important advantages over larger financial institutions. It boils down to a significant technology gap that exists between community banks and their larger competitors.
With more resources at their disposal, money center banks can spend billions of dollars a year on research and development to build innovative digital services. Access to technology puts these big name banks at a distinct advantage over regional banks as customers become more digital-first.
Fortunately, by taking a strategic approach and working with the right technology vendors, community banks can streamline their operations to offer superior customer service and attract new customers.
Across the country, community banks are building the capabilities to meet customer demands and maintain prosperity in the current economic climate. In fact, 2020 has already seen unprecedented deposit growth among digital community banks. As banks dedicate resources to meet an increase in loan demand and deal with new measures that limit in-person activity in branches, digital channels provide a safety net of 24/7 service that's consistent and easy to navigate.
Flushing Bank in New York, for instance, has reported that 20 percent of their new accounts in the second quarter of 2020 came from a digital channel that they had only set live in March. In just a few short months, Flushing Bank has been able to thrive in an especially challenging environment due to its digital investment. This success shows that community banks can use technology to drive real economic outcomes for their P&L and balance sheets.
Further, Happy State Bank in Texas has seen a 167 percent rise in new checking accounts since March. As the bank focused on helping small businesses with the Paycheck Protection Program (PPP), Happy State Bank was able to keep adding new accounts through digital channels without sacrificing valuable resources in physical branches.
Many community bank leaders believe that they need to pay a high interest rate in order to acquire deposits online. Instead, the latent demand for regional banks with easy-to-use account opening platforms can draw new customers, even without additional marketing. In the case of both banks, the existing infrastructure and brand equity drive high quality traffic to the website, and customers tend to convert quickly once they’re given a convenient alternative to walking into a physical branch. While community banks are offering the same products through their digital channels as they do in their branches, online account opening makes it easier to meet customers where they are.
Due to the impact of COVID-19, the market is currently being flooded with deposits — the stock market is volatile, the future feels uncertain, and people are looking for a safer place to store their money. Even if their balance sheets don't need an influx of deposits right now, it's a strategic time for community banks to compete for new customers and an important moment to embrace digital services. It’s more advantageous to win these customers now while rates are low across the industry than to market the level of rates that will inspire customers to move away from money-center banks in the future.
Now more than ever, people and businesses are looking to community institutions for relief and support. The rollout of the Paycheck Protection Program brought to light the critical role that community institutions play in the economy and in their local communities. These banks have a unique opportunity to build on their strong community ties, even within their online offerings.
The average conversion rate for online account openings at community banks stands at just 12 percent. To put this another way, that’s like if for every 100 people that walked into a branch, only 12 of them walked out with an account. Neobanks, on the other hand, have a 70 to 80 percent rate of conversion for opening accounts online. Given this sevenfold disadvantage on conversion rates, a community bank would need to spend $7 more in marketing for every dollar that a neobank spends.
So how can community banks level the playing field? To succeed in a digital world requires a shift in perspective: community banks and credit unions need to view technology as an investment, not an expense. This means setting ambitious targets that merit the buy-in and resources needed to expedite digital transformation efforts. The goal is to generate excitement for the opportunities that comes with building new capabilities.
Digital channels are a critical way to attract and retain customers and ensure long-term success. Today’s customers have high expectations for online interactions, and they want their financial services to be as fast and convenient as possible. Fortunately, MANTL’s online account opening platform offers a customer-friendly way to open new accounts online from any device in roughly two minutes and thirty-seven seconds. By underwriting new and existing customers differently, existing users can open accounts in even less time – 30 seconds, on average. Not only are digital branches always open, the automated processes enable banks to onboard customers at a fraction of the cost.
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