2020 was a challenging year for many community banks, but that doesn’t mean 2021 is time to retrench. By planning ahead and proactively investing in innovation, community banks can prepare themselves to weather the next crisis — and make the most of future opportunities.
Moving beyond a reactive mindset
No financial institution could have predicted the COVID-19 crisis, but community banks may have been less prepared than most. A July 2020 study found that unlike larger banks, many community financial institutions were not prioritizing the development of digital tools and instead remained focused on branches as their primary service channels during the pandemic.
Customer service is generally considered community banks’ greatest strength, but it can be a double-edged sword. By its nature, customer service is reactive: Banks are responding to the customer’s immediate needs, asking “What can I do for you today?” This emphasis can leave businesses without the tools — digital or otherwise — they need to respond nimbly to change.
Many months later, the pandemic is far from over, and community banks are facing a different world. Customers are sticking with digital banking for the long term — 87% plan to continue using the digital banking tools that they adopted during the pandemic, according to BAI. At the same time, rock-bottom interest rates have made it harder for small financial institutions to turn a profit. The financial services landscape has permanently changed, and doubling down on customer-centric tactics like sending out postcards or hosting giveaways won’t fill the gap.
To avoid being caught by surprise by the next crisis, community banks must plan ahead for it. Instead of asking what they can do for customers today, they need to start asking what they could do tomorrow. It’s easier than many of them think.
Seizing new opportunities
Adopting new technology can be intimidating. Many community bank leaders may feel their teams lack the time, budget or expertise to make use of tech solutions. But investing in innovation doesn’t mean becoming a fintech company overnight. Digital transformation can be gradual: Many tech solutions integrate with existing manual infrastructure, like Excel spreadsheets, so banks don’t have to rebuild their systems from the ground up.
Even just setting aside time and resources to think about the future of banking and community financial institutions’ place in it can be helpful. If a bank isn’t ready to adopt a new best practice or technology yet, they should still know exactly what they’re saying “no” to. And simply knowing what options are out there and what it would take to implement them makes it easier to move fast when the time is right.
One way to support this future-focused thinking is to create a working group or task force dedicated to innovation and technology. This was the model followed by New Jersey’s Cross River Bank, and it allowed them to move quickly to capitalize on a major opportunity during COVID-19.
When the Paycheck Protection Program (PPP) was announced, Cross River leadership saw a chance to boost their loan volume — if they could automate their underwriting and application processing in time for the April 3 program launch. Because the innovation team had prior knowledge of the fintech landscape, they were able to contract with the right vendors quickly to bring their solution online in only eight days. The effort was a success: Despite holding only $2.5b in assets, Cross River issued more than 198,000 PPP loans totaling over $6.5b by July 31, making it the fourth-largest issuer of PPP assistance in the country.
Thinking ahead to the future
Not every community bank is ready to commit to the level of tech investment Cross River made for PPP, but every community bank should be thinking about the future. Almost a year into the pandemic, the economic situation is still evolving, and banks of all sizes must be prepared to address new developments.
For example, in recent months, small business loan volume has started to pick up again after plummeting at the beginning of the pandemic. At the same time, ongoing disruption from COVID-19 makes businesses’ creditworthiness difficult to judge. Community banks should be thinking about how they can innovate to meet this challenge and seize the opportunity to boost loan volume during the pandemic.
That’s not the only opportunity that’s likely to reveal itself before the pandemic is over. With a bit of long-term planning and a proactive attitude toward innovation, community banks can get ready to meet new possibilities with agility. The future’s theirs if they reach out to grasp it.