In 2012 alone, 2,267 bank branches shut their doors in the U.S. In the face of record-low interest rates and changing customer preferences for online banking, banks, particularly smaller ones, are at a crossroads. While many want to reduce operating costs, customer demands for increased online and mobile access is a costly prospect for many small- to mid-sized banks.
This rings even truer for credit unions, which are favored for their customer service but are often lacking in offering now-common online services. Additionally, with Dodd-Frank regulations kicking in, some of the bankers I talk to see increased compliance costs as a potential factor in the consolidation of community banks in order to scale resources in the not-too-distant-future. There are certainly arguments to be made for or against this happening, but the fact remains that the existence of not-too-big-too-fail and diversified financial institutions is likely a good thing coming out of the recession.
As the Wall Street Journal reported, the trend of bank branch closings is expected to continue, with the number of banks at the lowest count since 2007. Many of those that closed were regional and community-oriented bank branches. The reasons for this trend are many – but include consumer behavioral shifts toward online bill-pay, mobile banking services and other related services. Because of shifting consumer demands and expectations, smaller banks need to upgrade their customer-facing, front-end technology in order to go face-to-face with big banks that are leveraging their economies of scale.
Because resources are obviously scarcer for smaller banks, particularly with a stricter regulatory environment and concerns about economic growth, relying on back-office technology improvements alone will not get community banks to a competitive place where they can attract more long-term customers. As we saw during the Great Recession and with the public’s distaste for certain large banks, more and more consumers shifted their preferences toward customer-service oriented financial institutions, like credit unions and community banks.
These banks should continue to leverage that public sentiment moving forward, and do what they can to provide 21st-century services that consumers now expect. This is especially true for commercial clients who provide many of the more profitable accounts for financial institutions, but are being left in the cold and still required to do things like manually fill out lengthy paperwork, visit bank branches in person, and other things that take time away from managing their business. With the emergence of cloud computing and more software-as-a-service options in the financial technology space, a drastic upgrade in infrastructure and technology is not necessarily needed to make improvements to core banking services.