Turn your community bank into a commerce hub

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Community banks are integral to the well-being of the communities they serve, but several trends are working to reduce their role. The emergence of new fintechs, for example, has changed the way they do business and the expectations of their customers. But this disturbance is not that bad. It creates an opportunity for community banks to establish a new, more profitable identity.

One solution is to take a page out of the fintech manual and incorporate a more payments-driven business model, with tools to help acquire new customers, increase revenues for existing customers, and ensure more resilient balance sheets. .

For community banks to continue to attract new depositors and retain assets as aging customers transfer wealth to the next generation, they must understand how millennials and Gen Z view financial services. Growing up with tablets, cellphones, free Wi-Fi, and social apps, they don’t see banking or payments as stand-alone activities. They prefer to engage with brands that provide these tasks as part of other day-to-day activities.

So what should community banks do when the way people shop, travel, work, invest and pay has changed so drastically, especially in light of the pandemic? One answer is to integrate banking and payment capabilities into the digital lives of their customers. This concept, which turns into a hub of commerce, aims to help customers transact financials seamlessly through their preferred mode.

Community banks have an advantage in connected commerce. Their two best-known attributes – hyperlocal and democratization of financial services – are areas they can build on to move towards a more payments-driven model. Unlike fintechs, community banks already have customers who trust them with their money.

To become a trade hub, community banks need to 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 allows customers to start integrating the bank’s payment method into all of their favorite digital wallets and services. And by providing a push capability for these digital cards in the client’s preferred wallets and services, the bank can secure the top wallet status, which is the real estate of choice for earning trading income.

Reward loyalty: Community banks should encourage usage by providing a robust digital loyalty platform. The loyalty solution must allow customers to accumulate points and spend or give them as they wish. A bank can also build goodwill within the community it serves by providing additional incentives for retail clients to engage and deal with its small business clients. This creates a network effect which complements the hyperlocal orientation of the bank and helps create great synergies within the community.

Anticipate and meet the needs of small businesses: As competitors such as PayPal and Square gear up to deliver more robust banking capabilities, it is important for community banks to take ownership of the merchant processing relationship with their business customers. A bank does not need to be a merchant acquiring to hold the processing relationship – it can act as an agent on behalf of a bank. This will help deepen existing banking relationships while widening the gap around customers. It also allows banks to monetize transactions made on their small business accounts by capturing a portion of the exchange revenue for the daily card transactions they process.

Another benefit of owning the small business client merchant-processing relationship is that it provides additional insight into their daily cash flow needs. This allows the bank to develop credit solutions to meet these needs. Imagine being able to tell when a small business customer needs a line of credit, unsecured small business loan, or SBA loan. Tracking the cash flow of their business customers enables the bank to serve the entire financial services relationship, not just their banking and controlling needs.

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

Sunil Sachdev is Managing Director of Community Banking Solutions at Fiserv.


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