Turn your community bank into a commerce hub

Community banks are integral to the wellbeing of communities they serve, but several trends are working to diminish their role. The emergence of new fintechs, for example, has disrupted their way of doing business and the expectations of their customers. But that disruption is not all bad. It creates an opportunity for community banks to establish a new, more profitable identity.

One path is to take a page out of the fintech playbook and incorporate a more payments-oriented business model, with tools to help acquire new customers, increase revenue from existing customers and ensure more resilient balance sheets.

For community banks to continue attracting new depositors and retain assets as aging customers transfer wealth to the next generation, they must appreciate how millennials and Gen Z view financial services. Having grown up with tablets, mobile phones, free Wi-Fi and social apps, they don’t see banking or payments as standalone activities. They prefer engaging with brands that provide these tasks as part of other daily activities.

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So what should community banks do when the way people shop, travel, work, invest and pay each other has changed so drastically, especially in light of the pandemic? One answer is to embed banking and payment capabilities into their customers’ digital lives. This concept – transforming into a commerce hub – is all about helping customers complete financial transactions seamlessly via their preferred mode.

Community banks hold an advantage in connected commerce. Their two best-known attributes – being hyperlocal and democratizing financial services – are areas they can build on as they evolve to a more payments-oriented model. Unlike fintechs, community banks already have a customer base that trusts them with their money.

To become a commerce hub, community banks should focus on three areas:

Move to the top of the digital wallet: Many community banks have added digital account opening to their tech stack over the past year, but they shouldn’t stop there. Being able to use a digital card immediately after opening an account enables customers to start embedding the bank’s payment vehicle in all their preferred digital wallets and services. And by providing push capability for those digital cards into the customer’s preferred wallets and services, the bank can secure top-of-wallet status, which is prime real estate for earning interchange revenue.

Reward loyalty: Community banks need to encourage usage by providing a robust digital loyalty platform. The loyalty solution should let customers accrue points and spend or donate them any way they want. A bank can also drive goodwill within the community it serves by providing additional incentives for retail customers to engage and transact with its small business customers. This creates a network effect that compliments the bank’s hyperlocal focus and helps build great synergies within the community.

Anticipate and meet small business needs: As competitors such as PayPal and Square prepare to provide more robust banking capabilities, it’s important for community banks to own the merchant-processing relationship with their business customers. A bank doesn’t need to be a merchant acquirer to own the processing relationship – it can act as an agent on behalf of one. This will help deepen existing banking relationships while widening the moat around customers. It also sets banks up to monetize the transactions occurring in their small business accounts by capturing a piece of interchange revenue for the daily card transactions they process.

Another benefit of owning the merchant-processing relationship of small-business customers is that it provides additional insight into their day-to-day cash flow needs. This enables the bank to develop lending solutions to meet those needs. Imagine being able to tell when a small-business customer requires a line of credit, an unsecured small business loan or an SBA loan. Monitoring their business customers’ cash flow positions the bank to serve the entire financial services relationship – not just their banking and checking needs.

By focusing on these areas, community institutions can evolve their operating model to create new revenue sources and remain relevant in the face of evolving technology and consumer preferences. The future is bright for those that take action now to establish a new identity and cement their position in the hearts of the communities they serve.

Sunil Sachdev is general manager for community bank solutions at Fiserv.