How Community Financial Institutions Compete in a Digital Age

Deposit growth is not what it used to be. Not only is the U.S. population growing at a slow rate at just under 2 percent annually, it’s also getting more white hair. In most American counties, younger folks are not expected to replace aging residents, and they are packing up and taking their population growth with them to the major cities.

“If you think your institution is going to grow by inertia, the headwinds are decidedly against you,” said Tom McGill, Profit Resources Relationship Manager. “Growth-oriented institutions in small town America are fighting the local demographics, as those towns aren’t growing at the pace they once did.”

Since financial institutions can no longer count on historical population trends to grow their customer bases, the focus has shifted to taking more market share from their competitors. However, the acquisition of market share is also facing tough challenges. For instance, of people over the age of 55, only 3 percent are willing to make a change in their bank, whereas 15 to 18 percent was once the norm. Currently, the biggest share of opportunities lay with the 24 and under group. Of the 28 percent of all customers who say their accounts are “in play,” two-thirds have already made up their minds and 86 percent will go with that decision. In addition, younger customers are twice as likely to make a direct bank their primary bank.

So how will community institutions grow their customer bases in the next five to 10 years? Community financial institutions will:

  • Clearly define value proposition.  “Don’t try to beat the big players at their own game,” McGill advises. “They have deeper pockets and stronger brands. Know your ´why´ and seek to quantify it so you can improve upon it.”  
  • Improve brand awareness.  The biggest reason smaller FIs aren’t considered when competing with their larger brethren is lack of awareness. The communities they compete in must know who they are and what differentiates them.
  • Leverage the community aspect. “’If you build it, they will come’ does not work.” McGill said. “Often smaller institutions think when they hang their shingle in big city, it will be instant success, but they find out it’s just too expensive to compete there. Know your markets and know where you need to win. Focus on increasing market share there.”
  • Validate, replace and repair. Because younger people are the most likely cohort to make changes, study that market and go after them. Convenience is important to them, technology matters and FIs must ensure that what they deliver through people’s smart phones is effective, contemporary and relevant. “If it looks stale or if it appears to be glitzy window dressing slapped on something created for the 55+ market, younger prospects will discount you as a viable option,” McGill said.
  • Focus on deposit growth. Deposit growth strategies include focusing on small business clients as its own segment, understanding your customer base, customizing the deposit strategy, and tailoring marketing and sales.

“No two branches are the same and no two markets are the same,” McGill said. ¨Rather than following a trend or trends that may not be right for you, focus on solid strategies to grow deposits in your market with your customers and potential customers.”

Profit Resources specializes in identifying profitability improvement areas for financial institutions through revenue growth, cost control, streamlining processes, and effective use of technology. Contact us to learn more about our personalized approach to strategic planning to propel growth and improve profitability.

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