It’s a time of promise and challenge for community banks. On the one hand, there’s a friendly new administration promising regulatory overhaul, tax reform and a pro-business economy. Small-business loans are booming, while big banks still get a bad rap with the general public. On the other hand, community bank numbers are dwindling — thanks to an active merger market — and younger consumers remain elusive.
Still, we’re feeling more optimistic than ever before. That’s because we believe three current trends indicate that community banks have a tremendous opportunity to strike back with smart business strategies and effective marketing to reap rewards.
Trend #1: Business confidence is building and small businesses are borrowing.
Small-business loans are the lifeblood of community banks, and this source of revenue continues to grow thanks to a new administration’s promise of fewer regulations and a pro-business economy. In fact, small-business optimism is soaring, with a marked increase in requests for small-business loans already in 2017, as reported by The Washington Post. The National Federation of Independent Businesses’ small business optimism index had its biggest jump in recent history, increasing to 98.4 from 94.9, after the U.S. presidential election in November 2016. And, according to a 2016 report put out by the Federal Reserve and the Conference of State Bank Supervisors, community banks’ share of the market for small-business loans remains robust.
Trend #2: Millennials are primed for community banking (and maybe even home buying).
Big banks may have been making overall gains, but most Millennials still strongly dislike them. Now, you might be inclined to write off Millennials as a bunch of underemployed dreamers drinking organic matcha in their parents’ living rooms. Don’t. This is a generation of 80 million people — the largest since the Baby Boom—and they control more than $1.6 trillion in spending power.
Studies on Millennials and banking are numerous, and the findings can be contradictory. But in essence, here’s what we know: They rely heavily on technology and expect the experience to be seamlessly automated, they value connection in bank interactions, and they are more likely to patronize businesses that have a positive impact on their local communities. Plus, they are entering their prime home-buying years. Although it’s been reported that this generation is averse to purchasing homes, preferring to rent in urban centers, one report by Goldman Sachs predicts that the generation’s size and evolving priorities could change all that.
Trend #3: People are still annoyed with big banks.
A 2017 Gallup poll on American Contentment with Banks revealed lingering resentment with the megabanks of the world. Confidence in big banks remains below 30% for the eighth straight year in a row. And this sentiment is consistent across party lines — independents, Democrats and Republicans all share the same low levels of trust and confidence in big banks. The 2008 crisis may be almost a decade behind us, but its effect on the way we view megabanks remains fresh.
Look a little closer at the trends and some clear opportunities snap into focus.
Big banks are still weak. First of all, big banks may be doing better, but they’re far from perfect. Compared with the benchmarks set by YouGov’s top-ranked brands, big banks’ gains in consumer perception seem pretty paltry.
Large numbers of Millennials are up for grabs. With the right messaging, marketing and customer experience, community banks stand to gain valuable market share with Millennials. (For a detailed look at this subject, check out EMA’s own Kelly Russell’s thoughts.) Here’s how we’d suggest going about it:
- Invest in technology and user experience. Millennials do most of their banking through websites and mobile apps. Give them experiences that are simple, easy, enjoyable and effective.
- Build more authentic, meaningful connections by focusing on values. Most Millennials use megabanks for reasons of convenience. Community banks have a tremendous opportunity to give Millennials a reason to switch by telling a meaningful story about community impact, then backing it up with a humane, customer-focused approach to service.
Small business needs more champions. The story of America’s small-business owners has tremendous emotional heft and political momentum right now. These are our underdogs: the people risking it all to pursue the American dream. And big banks have let them down. By throwing their support behind small businesses (and using smart marketing to amplify the story), community banks can win more hearts and minds.